AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 22, 1998
REGISTRATION STATEMENT NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ABLE TELCOM HOLDING CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
STATE OF FLORIDA 1731 65-0013218
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION NUMBER) IDENTIFICATION NO.)
</TABLE>
<TABLE>
<S> <C>
Frazier L. Gaines,
President and Chief Executive Officer
1601 Forum Place, Suite 1110 Able Telcom Holding Corp.
West Palm Beach, Florida 33401 1601 Forum Place, Suite 1110
(561) 688-0400 West Palm Beach, Florida 33401
(Address, including zip code, and telephone number, (Name, address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices) including area code, of agent for service)
</TABLE>
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COPIES TO:
BRUCE E. MACDONOUGH, ESQ.
MICHAEL G. TAYLOR, ESQ.
GREENBERG TRAURIG, P.A.
1221 BRICKELL AVENUE
MIAMI, FLORIDA 33131
(305) 579-0500
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
FROM TIME TO TIME AFTER THE EFFECTIVE DATE OF
THIS REGISTRATION STATEMENT AS DETERMINED BY THE SELLING SHAREHOLDERS.
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If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the earlier offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<PAGE>
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.001(2)... 1,817,941 $ 7.00 $12,725,587.00 $ 3,754.05
Common Stock, par value $.001(3) .. 409,505 8.25 3,378,416.25 996.63
Common Stock, par value $.001(4)(5) 11,375,756 4.50 51,190,902.00 15,101.32
Common Stock, par value $.001(6)... 1,500,000 19.80 29,700,000.00 8,761.50
Total: ............................ 15,103,202 85,804,005.29 $28,613.50
</TABLE>
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(FOOTNOTES ON NEXT PAGE)
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
(1) In accordance with Rule 416, this Registration Statement includes an
indeterminable number of shares of common stock, $.001 par value per share
(the "Common Stock") which may be necessary to adjust the number of shares
to be issued upon exercise or conversion of (i) the Company's Series B
Convertible Preferred Stock, par value $.10 per share (the "Series B
Preferred Stock"), (ii) an option granted to MFS Communications Company,
Inc. (the "MFSCC Option") to purchase up to 1,817,941 shares of Common
Stock of the Company, (iii) certain warrants (the "John Hancock Warrants")
to purchase up to 409,505 shares of Common Stock of the Company granted to
John Hancock Mutual Life Insurance Company, John Hancock Variable Life
Insurance Company, and Signature 1A (Cayman), Ltd., and (iv) certain
warrants (the "Series B Preferred Stock Warrants") to purchase up to
1,000,000 shares of the Company's Common Stock granted to certain
purchasers of the Series B Preferred Stock, in each case as a result of a
stock split, stock dividend or other anti-dilution rights or similar
adjustments.
(2) Represents shares of Common Stock underlying the MFSCC Option.
(3) Represents shares of Common Stock underlying the John Hancock Warrants.
(4) Represents shares of Common Stock underlying the Series B Preferred Stock.
Because the calculation of the conversion price of the Series B Preferred
Stock is based upon a percentage of the market price of the underlying
Common Stock, the Company has agreed with the holders of the Series B
Preferred Stock to register 200% of the number of shares of Common Stock
that would have been received by such holders if all $20,000,000 in value
of shares of Series B Preferred Stock had been converted on October 13,
1998, at a conversion price of $3.51625, the conversion price calculated
as of such date.
(5) In accordance with Rule 457(c), this maximum offering price per share has
been calculated based upon the average of the high ($4.875) and low
($4.125) trading prices of the Common Stock as reported by the Nasdaq
National Market on October 16, 1998.
(6) Represents shares of Common Stock underlying the Series B Preferred Stock
Warrants. Because the exercise price of the Series B Preferred Stock
Warrants is subject to certain adjustments, the Company has agreed with
the holders of such Warrants to register 150% of the number of shares of
Common Stock that would have been received by such holders if all such
Warrants were exercised as of the date of this Registration Statement.
<PAGE>
This information in this Prospectus is not complete and may be changed. These
securities may not be sold until the registration statement filed with the
Securities and Exchange Commission
is effective. This Prospectus is not an offer to sell these securities and it
is not soliciting an offer to buy these securities in any state where the offer
or sale is not permitted.
SUBJECT TO COMPLETION, DATED OCTOBER 22, 1998
PROSPECTUS
15,103,202 SHARES OF
COMMON STOCK, PAR VALUE $.001
ABLE TELCOM HOLDING CORP.
----------------
This is a public offering of Common Stock, par value $.001 per share (the
"Common Stock"), of Able Telcom Holding Corp. We are registering 15,103,202
shares of Common Stock for sale by certain selling shareholders (the "Selling
Shareholders"), as follows:
/bullet/ 1,817,941 shares of Common Stock that MFS Communications Company,
Inc. ("MFSCC") may receive upon the exercise in full of an option it
received from us on April 24, 1998.
/bullet/ 409,505 shares of Common Stock that certain holders of warrants
may receive upon the exercise of all of these warrants. We issued these
warrants in connection with the sale of our 12% Senior Subordinated Notes
due January 6, 2005.
/bullet/ 11,375,756 shares of Common Stock in connection with the
conversion of our Series B Convertible Preferred Stock (the "Series B
Preferred Stock"). This amount represents 200% of the total amount of
Common Stock that these holders would have received if they had converted
all of their Series B Preferred Stock on October 13, 1998. However, this
amount does not necessarily represent the actual total number of shares of
Common Stock that these holders would receive if they convert all of their
shares of Series B Preferred Stock. Additionally, each holder of the Series
B Preferred Stock may only convert the Series B Preferred Stock to the
extent that the conversion would result in the holder and its affiliated
entities beneficially owning 4.99% or less of our outstanding shares of
Common Stock following such conversion.
/bullet/ 1,500,000 shares of Common Stock, representing 150% of the total
amount of Common Stock that holders of certain warrants may receive upon
the exercise of all of their warrants. We issued these warrants in
connection with the sale of the Series B Preferred Stock. This amount does
not necessarily represent the actual total number of shares of Common
Stock that these holders would receive if they exercise all of their
warrants.
We will not be selling any of the shares of Common Stock that we register
in this Prospectus. No underwriters will be used in selling the shares. We will
not receive any proceeds from the sale of these shares. However, we may receive
cash upon the exercise of the options and warrants described above.
Our Common Stock is traded on the Nasdaq National Market under the symbol
"ABTE." We have applied to list the Common Stock we are registering in this
Prospectus on the Nasdaq National Market, but this application has not yet been
approved. On October 13, 1998, the last reported sales price of the Common
Stock was $4.125 per share.
The selling shareholders may offer their shares of Common Stock in public
or private transactions, on or off the Nasdaq National Market, at prevailing
market prices, or at privately negotiated prices.
An investment in the Common Stock involves a high amount of risk. Before
you invest in the Common Stock, we strongly recommend that you carefully
consider all of the risks and information contained in this Prospectus,
including the information contained in the "Risk Factors" section that begins
on page 7.
Our principal executive offices are located at 1601 Forum Place, Suite
1110, West Palm Beach, Florida 33401, and our telephone number is (561)
688-0400.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PROSPECTUS DATED , 1998
<PAGE>
No dealer, salesperson or other person is authorized to provide any oral
or written information about us or this offering that is not included in this
Prospectus.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information ................................................................ iii
Forward-Looking Statements ........................................................... iii
Prospectus Summary ................................................................... 1
Summary Consolidated Financial Information ........................................... 6
Risk Factors ......................................................................... 7
Use of Proceeds ...................................................................... 18
Market Price of Common Stock and Dividend Policy ..................................... 19
Capitalization ....................................................................... 20
Selected Consolidated Financial Data ................................................. 21
Management's Discussion and Analysis of Financial Condition and Results of Operations 22
Business ............................................................................. 30
Management ........................................................................... 44
Summary Compensation Table ........................................................... 46
Certain Relationships and Related Transactions ....................................... 50
Principal and Selling Shareholders ................................................... 51
Description of Indebtedness .......................................................... 53
Description of Securities ............................................................ 57
Shares Eligible for Future Sale ...................................................... 64
Plan of Distribution ................................................................. 65
Legal Matters ........................................................................ 66
Experts .............................................................................. 66
Index to Financial Statements ........................................................ F-1
Index to Pro Forma Financial Statements .............................................. P-1
</TABLE>
ii
<PAGE>
AVAILABLE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC"). You may
read and copy any document we file at the SEC's public reference room at the
following locations:
/bullet/ Main Public Reference Room
450 Fifth Street, N.W.
Washington, D.C. 20549
/bullet/ Regional Public Reference Room
75 Park Place, 14th Floor
New York, New York 10007
/bullet/ Regional Public Reference Room
Northwestern Atrium Center
500 West Madison Street, Suite 1400
Chicago, Illinois 60661-2511
You may obtain information on the operation of the SEC's public reference
rooms by calling the SEC at (800) SEC-0330.
We are required to file these documents with the SEC electronically. You
can access the electronic versions of these filings on the Internet at the
SEC's website, located at http://www.sec.gov.
We have included this Prospectus in our registration statement that we
filed with the SEC (the "Registration Statement"). The Registration Statement
provides additional information that we are not required to include in the
Prospectus. You can receive a copy of the entire Registration Statement as
described above. Please note that the Registration Statement also includes
complete copies of the documents described in the Prospectus.
FORWARD-LOOKING STATEMENTS
We have included "forward-looking statements" throughout this Prospectus.
These statements describe our attempt to predict future occurrences. We use the
words "believes," "anticipates," "expects," and similar expressions, to
identify forward-looking statements. Forward-looking statements are subject to
a number of risks, assumptions and uncertainties, such as:
/bullet/ Risks associated with the Company's liquidity requirements and
existing leverage, including the need to obtain additional capital in
order to refinance indebtedness that matures in the near future and
provide working capital for operations
/bullet/ Risks associated with the Company's inability to satisfy the
registration obligations to the holders of the Series B Preferred Stock
/bullet/ Risks associated with our ability to continue our strategy of
growth through acquisitions
/bullet/ Risks associated with our ability to successfully integrate all
of our recent acquisitions
/bullet/ Our ability to make effective acquisitions in the future and to
successfully integrate newly acquired businesses into existing operations
and the risks associated with such newly acquired businesses
iii
<PAGE>
/bullet/ Changes in laws and regulations, including changes in tax rates,
accounting standards, environmental laws, and occupational, health and
safety laws
/bullet/ Access to foreign markets, together with foreign economic
conditions, including currency fluctuations
/bullet/ The effect of, or changes in, general economic conditions
/bullet/ Economic conditions in various countries within South America
/bullet/ Weather conditions that are adverse to our specific businesses
/bullet/ The outcome of litigation, claims and assessments involving us
This list is only an example of some of the risks, uncertainties and
assumptions that may affect the Company's forward-looking statements. If any of
these risks or uncertainties materialize (or fail to materialize), or if the
underlying assumptions prove incorrect, actual results may differ materially
from those projected in the forward-looking statements. We are not obligated to
revise these forward-looking statements to reflect future events or
circumstances. If we do revise these statements, we are not required to
publicly release our revisions. You should consider the information provided in
the section "Risk Factors" and the other information in this Prospectus before
investing in the Common Stock.
iv
<PAGE>
PROSPECTUS SUMMARY
IN THIS SECTION, WE HAVE PROVIDED YOU WITH AN OVERVIEW OF SOME OF THE MORE
IMPORTANT INFORMATION IN THIS PROSPECTUS. HOWEVER, WE CAUTION YOU THAT THIS
INFORMATION IS NOT COMPLETE. YOU SHOULD READ ALL OF THE INFORMATION IN THIS
PROSPECTUS BEFORE PURCHASING ANY COMMON STOCK. UNLESS THE CONTEXT OTHERWISE
REQUIRES, WE USE THE TERMS "WE," "OUR," "US" AND THE "COMPANY" TO MEAN ABLE
TELCOM HOLDING CORP. AND ITS SUBSIDIARIES, INCLUDING THE SUBSIDIARIES WE
ACQUIRED IN THE ACQUISITION OF MFS NETWORK TECHNOLOGIES, INC. ON JULY 2, 1998
(THE "MFSNT ACQUISITION"). WE USE THE TERM "ABLE" WHEN WE REFER TO ABLE TELCOM
HOLDING CORP. AND ITS SUBSIDIARIES PRIOR TO THE MFSNT ACQUISITION. WE USE THE
TERM "MFSNT" TO REFER TO MFSNT AND ITS SUBSIDIARIES BEFORE THE MFSNT
ACQUISITION AND THE TERM "NEW MFSNT" TO REFER TO OUR SUBSIDIARY THAT OWNS THE
ASSETS AND LIABILITIES THAT WE ACQUIRED FROM MFSNT.
THE COMPANY
The Company develops, builds and maintains communications systems for
companies and governmental authorities. We have three main organizational
groups, as described below.
<TABLE>
<CAPTION>
ORGANIZATIONAL GROUP SERVICES PROVIDED EXAMPLES OF SERVICES
<S> <C> <C>
Network Services Group ................ Design, development, engineering, /bullet/ Fiber optic networks, both
installation, construction, operation and inside a building or location
maintenance services for and between separate
telecommunications systems buildings or locations
/bullet/ Electric utility grids
/bullet/ Water and sewer utilities
Transportation Services Group ......... Design, development, integration, /bullet/ "Non-stop" toll systems
installation, construction, project that charge a fee each
management, maintenance and operation time a car passes through
of automated toll collection systems, a toll station.
electronic traffic management and control /bullet/ Systems that monitor and
systems, and computerized record toll violations.
manufacturing systems /bullet/ Text signs that provide
drivers with advance warning
of accidents, bad
weather and heavy traffic.
/bullet/ "Smart" traffic signals,
road signs and traffic
control gates that monitor
and adjust to changing
traffic patterns and
weather conditions.
/bullet/ Construction and maintenance
of systems that monitor
production lines for
automobile tires.
Communications Development Design, installation and maintenance NeuroLAMA: our proprietary
Group ................................. services to foreign telephone companies system that collects data on
"wireline" telephone calls for
billing and other purposes.
</TABLE>
Our customers include local and long distance telephone companies,
utilities, cable television operators, financial institutions, universities,
medical facilities, correctional facilities and local, state and federal
governments.
The Company was originally incorporated in 1987 as a Colorado corporation
under the name "Delta Venture Fund, Inc." We adopted our current name in 1989
and became a Florida corporation in 1991. Our principal executive offices are
located at 1601 Forum Place, Suite 1110, West Palm Beach, Florida 33401, and
our telephone number is (561) 688-0400.
1
<PAGE>
RECENT DEVELOPMENTS
THE MFSNT ACQUISITION. On July 2, 1998, we acquired MFSNT's network
construction and transportation systems business. At closing, we agreed to pay
approximately $101.4 million, plus additional consideration in the form of
stock options, to MFS Communications Company, Inc. ("MFSCC"), MFSNT's parent
company, to acquire these businesses. MFSCC is a wholly-owned subsidiary of
WorldCom, Inc. ("WorldCom"). The $101.4 million purchase price was estimated
based on the shareholders' equity of MFSNT at March 31, 1998, subject to
certain adjustments. On September 9, 1998 we entered into an agreement (the
"September Agreement") with WorldCom Network Services, Inc. ("WorldCom
Network"), a wholly owned subsidiary of WorldCom, which was assigned the rights
of MFSCC under the MFSNT Acquisition. The September Agreement modified various
terms of the MFSNT Acquisition and finalized the cash portion of the purchase
price at approximately $58.8 million. The cash portion of the purchase price is
subject to additional amounts payable as contingent consideration on December
29, 2000, which relate to the resolution of certain pre-acquisition
contingencies for pending litigation, claims, assessments and losses on certain
projects. Of the $58.8 million, $38.8 million has been paid and $30.0 million
(including $10.0 million related to an estimated advance from receivables of
MFSNT) remains subject to a promissory note expected to be given by us,
pursuant to the September Agreement, to WorldCom Network (the "WorldCom Note").
See "Business--Recent Developments--The MFSNT Acquisition."
As of September 30, 1998, approximately $30.0 million of principal and
$0.6 million of accrued and unpaid interest were outstanding under the WorldCom
Note. We must repay the WorldCom Note in full on December 15, 2000. The
WorldCom Note bears interest at 11.5% per year, payable every three months
commencing November 30, 1998. The principal amount of the WorldCom Note is to
be prepaid in part by applying a portion of certain fees (i) due to us by
WorldCom and (ii) received by us in connection with the sale and installation
of certain conduit projects. We have pledged all of the shares of capital stock
in New MFSNT to WorldCom and MFSCC to secure our obligations under the WorldCom
Note. Other than our pledge of our stock in New MFSNT, our obligations under
the WorldCom Note are junior to those under the Secured Credit Facility (as
defined below) and our 12% senior subordinated notes due January 6, 2005 (the
"Senior Notes"). If we default on our obligations under the WorldCom Note, it
is expected that WorldCom will be able do any or all of the following:
/bullet/ Accelerate all principal and interest we owe WorldCom under the
WorldCom Note
/bullet/ Acquire all of our stock in New MFSNT
/bullet/ Keep all principal and interest we may have already paid on the
WorldCom Note
/bullet/ Require us to pay an 18% annual default rate of interest as long
as we are in default
/bullet/ Cause WorldCom Network to apply 12% of the payment WorldCom NS
owes us at the time of default under the WorldCom Master Services
Agreement, described below, to the outstanding principal and interest
under the WorldCom Note
In addition, if we do not repay the WorldCom Note in full by December 15,
2000, it is anticipated that WorldCom also will be able to:
/bullet/ Reduce the minimum yearly and aggregate revenues we would
otherwise receive under the WorldCom Master Services Agreement
/bullet/ Refuse to give us additional work under the WorldCom Master
Services Agreement while we are in default
In connection with the expected issuance of the WorldCom Note pursuant to
the September Agreement, the lenders under the Secured Credit Facility and the
holders of the Senior Notes
2
<PAGE>
consented to the issuance of the WorldCom Note and the grant of the stock
pledge to WorldCom and MFSCC. In return for the consent, we agreed to prepay
the Senior Notes, together with a prepayment penalty, on August 31, 1998, which
was extended to October 16, 1998, and was further extended to November 30,
1998.
As part of the MFSNT Acquisition, we have agreed to provide
telecommunication infrastructure services to WorldCom Network pursuant to the
Master Services Agreement, dated July 2, 1998, among WorldCom Network, New
MFSNT and Able (the "WorldCom Master Services Agreement"). See
"Business--Recent Developments." We are permitted to use the trade name "MFSNT"
during the 18-month transition period immediately following the MFSNT
Acquisition but we will not be entitled to use it after such 18-month period.
As part of the MFSNT Acquisition, we granted an option to MFSCC (the
"MFSCC Option") to purchase up to 2,000,000 shares of Common Stock, at an
exercise price of $7.00 per share. MFSCC may elect to exercise some or all of
the MFSCC Option on a "cashless" basis, up to the equivalent of 1,817,941
shares of Common Stock, which is the maximum number of shares that may be
issued upon exercise of the MFSCC Option. A "cashless" exercise means that
MFSCC will receive shares of Common Stock with a total "market value" equal to
the per share excess of the "market value" over the exercise price multiplied
by the number of shares of the MFSCC Option being exercised. Under the original
terms of the MFSCC Option, the MFSCC Option expires six months after the date
we repay all of our obligations under the WorldCom Note. The September
Agreement extended the expiration date of the MFSCC Option. We will not receive
any cash for the part of the MFSCC Option that MFSCC exercises on a "cashless"
basis. We have allowed MFSCC to designate a representative to our Board of
Directors if it exercises the MFSCC Option, for so long as MFSCC retains at
least 5% of our outstanding Common Stock. Also, as part of the September
Agreement, we agreed to issue to WorldCom Network a phantom stock award or
other equity participation award equivalent to 600,000 shares of Common Stock,
payable in cash, stock, or a combination of both at our option. The phantom
stock or other equity participation award is exercisable only on the following
three days: July 2, 1999, July 2, 2000, or July 2, 2001. WorldCom will be
entitled to receive any appreciation of the Common Stock over a base price of
$5 3/32 per share, but not more than $30 3/32 per share. See "Description of
Securities--The MFSCC Option."
THE SERIES B CONVERTIBLE PREFERRED STOCK OFFERING. On June 30, 1998, we
received $20.0 million from the sale of 4,000 shares of Series B Convertible
Preferred Stock (the "Series B Preferred Stock"), at a purchase price of $5,000
per share. Dividends accrue on the Series B Preferred Stock at a rate of 4% per
year and are cumulative. We may pay dividends in shares of Common Stock, or, at
our option, in cash if we provide 20 days advance written notice to each holder
of the Series B Preferred Stock. See "Description of Securities--Series B
Preferred Stock." We sold the Series B Preferred Stock to finance part of the
purchase price for MFSNT. The holders of the Series B Preferred Stock may
convert their shares at any time into shares of Common Stock at a conversion
rate equal to 97% of the "market value" of the Common Stock. However, each
holder of the Series B Preferred Stock has agreed that it will convert its
shares of Series B Preferred Stock into Common Stock only to the extent that,
after the conversion, the holder and its affiliates would beneficially own
4.99% or less of the Common Stock. For these purposes, we have agreed that
"market value" equals the lesser of:
/bullet/ The average of the lowest intraday trading price of the Common
Stock for any three trading days within the 22 trading days prior to
the date of conversion; or
/bullet/ The lowest intraday trading price of the Common Stock on the
trading day immediately prior to the date of conversion; however, this
amount cannot be less than 95% of the lowest intraday trading price of
the Common Stock on the date of conversion.
3
<PAGE>
In addition, we issued warrants (the "Series B Preferred Stock Warrants")
to purchase a total of up to 1,000,000 shares of Common Stock to certain of the
holders of the Series B Preferred Stock. These warrants are exercisable at a
price of $19.80 per share. However, each holder of the Series B Preferred Stock
Warrants has agreed that it will exercise the warrants only to the extent that,
after the exercise, the holder and its affiliates would beneficially own 4.99%
or less of the Common Stock. See "Description of Securities--Series B Preferred
Stock Warrants." The warrants are immediately exercisable and expire on June
30, 2003.
We granted the holders of the Series B Preferred Stock and the Series B
Preferred Stock Warrants (the "Series B Securities") certain rights to cause us
to register the Common Stock underlying the Series B Securities. Under certain
circumstances, including if the registration statement that includes the shares
of Common Stock underlying the Series B Securities is not declared effective by
December 27, 1998, or if we are delisted under certain circumstances from any
securities exchange, or any representation or warranty made by us to holders of
the Series B Securities was not true, then the holders of the Series B
Securities, in whole or in part, have the option to require us to redeem their
securities at premium prices. Although we intend to use our best efforts to
comply with all provisions of our documents with the holders of the Series B
Securities, we cannot guarantee that we will be able to do so, in part because
certain of such matters are dependent upon the efforts or approval of others
(such as the Securities and Exchange Commission with respect to the
effectiveness of the aforementioned registration statement). To the extent the
holders of the Series B Securities become entitled to exercise a redemption
right and seek to require the redemption of their shares, such exercise could
materially increase our cash requirements, could result in a default under the
terms of our Secured Credit Facility and, to the extent replacement financing
is not available on commercially reasonable terms (if at all), would likely
have a material adverse impact on us. Furthermore, so long as any of the Series
B Securities is outstanding, we are prohibited from declaring or paying any
dividends (other than to holders of Series B Preferred Stock) or purchasing any
of our equity securities.
SECURED CREDIT FACILITY. In June 1998, we replaced our previous bank
credit agreement with a new $35 million revolving credit facility with a
syndicate of lenders (the "Secured Credit Facility"). The Secured Credit
Facility has a letter of credit sublimit of $5 million. We used a portion of
the proceeds from the Secured Credit Facility to repay the previous credit
facility and to finance $10 million of the MFSNT Acquisition purchase price. On
June 30, 1998, the Secured Credit Facility was amended to permit (i) the
Company's acquisition of MFSNT and the related financing of such transaction,
(ii) changes in financial covenants related thereto, and (iii) other amendments
relating to investments, pledging and intercompany matters.
We have granted a security interest in certain of our assets to the
lenders under the Secured Credit Facility, including:
/bullet/ All of the stock in our existing and future Restricted
Subsidiaries (as defined in the Pledge Agreement with respect to the
Senior Credit Facility); and
/bullet/ A pledge of all existing intercompany notes issued to any
Restricted Subsidiary by any of its subsidiaries.
4
<PAGE>
The Secured Credit Facility also includes covenants which, among other
things, restrict our ability to:
/bullet/ Incur additional debt
/bullet/ Declare dividends or redeem or repurchase capital stock
/bullet/ Prepay, redeem or purchase debt
/bullet/ Incur liens
/bullet/ Make loans and investments
/bullet/ Make capital expenditures
/bullet/ Engage in mergers, acquisitions and asset sales, and
/bullet/ Engage in transactions with affiliates.
We are also required to comply with financial covenants with respect to
certain minimum ratios, including debt covenants, interest, fixed charges and
current ratio. See "Risk Factors--High Level of Indebtedness; Ability to
Service Indebtedness," "--Restrictive Covenants Imposed by the Secured Credit
Facility" and "Business--Recent Developments--Secured Credit Facility."
ACQUISITION OF PATTON MANAGEMENT CORPORATION. On April 1, 1998, we
purchased all of the outstanding common stock of Patton Management Corporation
("Patton") for approximately $4.0 million. Patton provides advanced
telecommunication network services to upgrade existing networks and to provide
connectivity to office buildings, local and wide area networks.
ACQUISITION OF CERTAIN COMSAT ASSETS. On February 25, 1998, we acquired
certain assets and assumed certain liabilities of CRSI Acquisition, Inc. (doing
business as COMSAT RSI JEFA Wireless Systems ("COMSAT"), a subsidiary of COMSAT
Corporation. We acquired the accounts receivable and the fixed assets of the
seller and assumed its trade payables, and received a cash payment from the
seller at closing of approximately $4.7 million. We also assumed certain
construction contracts with the Texas Department of Transportation and various
other telecommunications customers. COMSAT engaged in the installation of
intelligent traffic management systems and the design and construction of
wireless communication networks. COMSAT operated in twenty-one states,
primarily in Texas and Alabama.
JOINT VENTURE WITH CLARION RESOURCES COMMUNICATION CORP. On September 23,
1997, we entered into a five-year joint venture with Clarion Resources
Communication Corp. ("Clarion"). Clarion is principally owned by Telenor, the
telephone company of Norway. We have agreed with Clarion to jointly market,
manufacture and license our proprietary telephone call record and data
collection technology, called NeuroLAMA, in Europe and Asia. Clarion has agreed
to provide us with an international sales force and to obtain suitable
financing to purchase and install NeuroLAMA. The venture will not require a
capital investment from us but should provide a stable royalty stream if the
venture is successful.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
We have provided you with a summary of our historical financial
statements. The following information should be read in conjunction with the
sections "Selected Consolidated Financial Data" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations." Our results of
operations reflect the operating results of MFSNT, COMSAT and other acquired
businesses only from the respective dates of acquisition. Accordingly, our
results are not necessarily comparable on a period-to-period basis. For
additional information with respect to the impact of certain acquisitions, see
our Pro Forma Financial Statements referenced on page P-1 of this Prospectus.
See also the Consolidated Financial Statements for the Company, the
Consolidated Financial Statements for MFSNT, the Financial Statements for
COMSAT, and the related notes to those statements, which are included in this
Prospectus. The financial data for the nine months ended July 31, 1997 and 1998
include, in the opinion of management, all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the financial
position and results of the Company for such period. Due to seasonality and
other market factors, the consolidated historical results for the nine months
ended July 31, 1998 are not necessarily indicative of results for a full year.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------
1993 1994 1995 1996 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues ........................................................ $ 20,048 $ 25,784 $ 35,408 $ 48,906 $ 86,334
-------- -------- -------- -------- --------
Costs and expenses:
Costs of revenues .............................................. 8,874 16,395 27,720 40,486 68,164
General and administrative ..................................... 1,060 4,167 5,464 8,403 8,780
Depreciation and amortization .................................. 399 854 1,914 2,750 4,532
Charges and transaction/ translation losses (gains) related to
Latin American operations ..................................... 828 2,382 96 3,553 17
-------- -------- -------- -------- --------
Total costs and expenses ....................................... 11,161 23,798 35,194 55,193 81,494
-------- -------- -------- -------- --------
Income (loss) from operations .................................. 8,887 1,987 214 (6,287) 4,840
-------- -------- -------- -------- --------
Other expenses (income), net:
Loss on sale of investments .................................... -- -- 100 -- --
Interest expense ............................................... 64 397 1,118 1,350 1,565
Interest and dividend income ................................... -- (418) (673) (270) (449)
Other expenses ................................................. -- -- -- 32 (153)
-------- -------- -------- -------- --------
Total other expenses (income), net ............................. 64 (21) 546 1,112 963
-------- -------- -------- -------- --------
Income (loss) before income taxes and minority interest ......... 8,823 2,008 (332) (7,399) 3,877
Income tax (benefit) expense .................................... 2,242 632 (368) (891) 727
-------- -------- -------- -------- --------
Income (loss) before minority interest .......................... 6,581 1,375 36 (6,508) 3,150
Minority interest ............................................... 2,023 (429) (317) (598) (292)
-------- -------- -------- -------- --------
Net income (loss) ............................................... 4,558 946 (281) (5,910) 2,858
Preferred stock dividends ....................................... -- -- -- -- (260)
Discount attributable to beneficial conversion privilege of
preferred stock ................................................ -- -- -- -- (1,266)
-------- -------- -------- -------- --------
Income (loss) applicable to common stock ........................ $ 4,588 $ 946 $ (281) $ (5,910) $ 1,332
======== ======== ======== ======== ========
PER SHARE DATA(1):
Earnings per share--basic ....................................... $ .71 $ .12 $ (.03) $ (.71) $ .16
Earnings per share--diluted ..................................... .66 .12 (.03) (.71) .16
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents ....................................... $ 2,137 $ 3,432 $ 2,952 $ 3,267 $ 6,230
Total assets .................................................... 11,571 36,604 32,482 38,919 50,346
Total debt ...................................................... 518 8,293 5,255 10,115 17,294
Total shareholders' equity ...................................... 7,346 15,832 17,467 11,598 15,247
<PAGE>
<CAPTION>
NINE MONTHS ENDED JULY
31,
------------------------
1997 1998
----------- ------------
<S> <C> <C>
INCOME STATEMENT DATA:
Revenues ........................................................ $ 61,181 $ 114,524
-------- ---------
Costs and expenses:
Costs of revenues .............................................. 47,640 89,691
General and administrative ..................................... 6,366 12,703
Depreciation and amortization .................................. 3,237 4,468
Charges and transaction/ translation losses (gains) related to
Latin American operations ..................................... 13 (50)
-------- ---------
Total costs and expenses ....................................... 57,256 106,812
-------- ---------
Income (loss) from operations .................................. 3,925 7,712
-------- ---------
Other expenses (income), net:
Loss on sale of investments .................................... -- --
Interest expense ............................................... 852 2,492
Interest and dividend income ................................... (362) (131)
Other expenses ................................................. 165 296
-------- ---------
Total other expenses (income), net ............................. 655 2,657
-------- ---------
Income (loss) before income taxes and minority interest ......... 3,270 5,055
Income tax (benefit) expense .................................... 850 1,670
-------- ---------
Income (loss) before minority interest .......................... 2,420 3,385
Minority interest ............................................... (130) (756)
-------- ---------
Net income (loss) ............................................... 2,290 2,629
Preferred stock dividends ....................................... (185) (204)
Discount attributable to beneficial conversion privilege of
preferred stock ................................................ (939) (723)
-------- ---------
Income (loss) applicable to common stock ........................ $ 1,166 $ 1,702
======== =========
PER SHARE DATA(1):
Earnings per share--basic ....................................... $ .14 $ .18
Earnings per share--diluted ..................................... .14 .18
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents ....................................... $ 6,382 $ 5,079
Total assets .................................................... 45,811 234,597
Total debt ...................................................... 18,191 62,272
Total shareholders' equity ...................................... 13,377 35,076
</TABLE>
- ---------------
(1) Per share data have been restated, where applicable, in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share,"
which became effective for the Company during the current fiscal year.
6
<PAGE>
RISK FACTORS
INVESTING IN THE COMMON STOCK IS RISKY AND YOU SHOULD BE ABLE TO BEAR A
COMPLETE LOSS OF YOUR INVESTMENT. YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING
FACTORS AND OTHER INFORMATION IN THIS PROSPECTUS BEFORE DECIDING TO INVEST IN
SHARES OF COMMON STOCK. YOU SHOULD ALSO BE AWARE THAT THIS SECTION CONTAINS
"FORWARD-LOOKING STATEMENTS." YOU SHOULD READ THESE STATEMENTS TOGETHER WITH
THE DISCUSSION OF THE RISKS AND UNCERTAINTIES REGARDING THESE STATEMENTS
CONTAINED UNDER THE HEADING "FORWARD-LOOKING STATEMENTS" IN THIS PROSPECTUS.
RISKS RELATED TO NON-COMPLIANCE WITH COVENANTS MADE TO THE HOLDERS OF SERIES B
SECURITIES
In connection with the sale of the Series B Securities described under
"Prospectus Summary-- Recent Developments" and "Business--Recent Developments,"
we granted to the holders of the Series B Securities registration rights with
respect to the Common Stock underlying the Series B Securities. Under certain
circumstances, including if the registration statement that includes the Common
Stock underlying the Series B Securities is not declared effective by the SEC
by December 27, 1998, or if we are delisted under certain circumstances from
any securities exchange, or if any representation or warranty made by us to the
holders of the Series B Securities was not true, then we may be forced to
redeem all or part of the Series B Securities at a 30% premium over what was
paid for the Series B Securities. In addition, we will be required to make
certain default payments for each thirty-day period after December 27, 1998
until the Common Stock underlying the Series B Securities is not listed on the
Nasdaq Stock Market (or other securities exchange and/or market on which the
Common Stock is then listed). Although we will use our best efforts to have the
registration statement declared effective by December 27, 1998 and to have the
Common Stock listed on the Nasdaq Stock Market by that time, we cannot
guarantee that we will be successful, in part because we are dependent upon the
efforts or approvals of others (such as the SEC with respect to the
effectiveness of the registration statement). If the holders of the Series B
Securities exercise their redemption rights, we may not have sufficient cash to
redeem the securities and may then be in default under the terms of our Secured
Credit Facility, with the likely result that our business, financial condition
and results of operations would be materially impacted.
RISKS ASSOCIATED WITH SENIOR NOTES
Pursuant to certain amendments with the holders of our Senior Notes, the
$10.0 million aggregate principal amount of Senior Notes mature November 30,
1998. The Company will also be required to pay a prepayment penalty of $2.0
million. In addition, such retirement will result in the accelerated
amortization of approximately $1.0 million of deferred financing costs.
We do not currently have sufficient funds to retire the Senior Notes.
Accordingly, the Company must obtain additional capital through the liquidation
of assets and/or the sale of additional debt and/or equity securities. We
cannot guarantee that we will be able to obtain sufficient capital to retire
the Senior Notes on a timely basis. In addition, the terms and conditions of
the asset liquidations and/or refinancings could have a material adverse effect
on the Company's financial condition and results of operations.
RISKS ASSOCIATED WITH THE WORLDCOM NOTE
Under the terms of the September Agreement with WorldCom Network, we
agreed to execute the WorldCom Note for $30.0 million in favor of WorldCom
Network. As of September 30, 1998, the entire principal amount and
approximately $0.6 million in interest were outstanding under the WorldCom
Note. All remaining principal and interest on the WorldCom Note is due and
payable by December 15, 2000. We have pledged our stock in New MFSNT as
collateral for the WorldCom Note. If we default on our obligations under the
WorldCom Note, it is anticipated that WorldCom will be able to do any or all of
the following:
/bullet/ Accelerate all principal and interest we owe WorldCom under the
WorldCom Note
7
<PAGE>
/bullet/ Acquire all of our stock in New MFSNT
/bullet/ Keep all principal and interest we may have already paid under
the WorldCom Note
/bullet/ Require us to pay an 18% annual default rate of interest while we
are in default
/bullet/ Cause WorldCom Network to apply 12% of the payment it owes us at
the time of default under the WorldCom Master Services Agreement to the
outstanding principal and interest due under the WorldCom Note
In addition, it is anticipated that if we do not repay the WorldCom Note
in full by December 15, 2000, WorldCom will be able to:
/bullet/ Reduce the minimum yearly and aggregate revenues we would receive
under the WorldCom Master Services Agreement
/bullet/ Refuse to give us additional work under the WorldCom Master
Services Agreement while we are in default
In addition, because the definitive documentation relating to the WorldCom
Note has not been finalized, there are likely to be certain ambiguities and
inconsistencies with respect to the parties' relative interpretations of the
Company's obligations to WorldCom.
Our business and financial condition would be materially affected by any
default under the WorldCom Note.
HIGH LEVEL OF INDEBTEDNESS; ABILITY TO SERVICE INDEBTEDNESS
We have incurred a high level of debt. At July 31, 1998, we had
approximately $62.3 million of total debt. We may incur future debt to acquire
other businesses or for our working capital or operations. However, existing
credit facilities will restrict our ability to incur future debt.
Payments of principal and interest on borrowings may leave us with
insufficient cash resources for our operations. Further, a high debt level
creates an increased risk that we may default on our obligations. If we
default, the lenders who lent us funds on a secured basis could take the
property securing their loans and can immediately require us to pay our
obligations in full. Our ability to repay our debt depends upon a number of
factors, many of which are beyond our control. These factors include, among
other things:
/bullet/ Changes in interest rates
/bullet/ The state of the economy
/bullet/ Our financial condition
/bullet/ The amount of competition we face
/bullet/ Changes in the law
/bullet/ Changes in the communications industry, generally
/bullet/ Changes in our customer base
/bullet/ Timing of our customers' payment for existing work orders and
projects
/bullet/ Seasonal factors that may hinder our ability to work on projects,
including weather conditions
As discussed under "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources," based on
current operations and the Company's
8
<PAGE>
asset base, we believe that our cash on hand, cash flows from operations and
available borrowings under the Secured Credit Facility will be sufficient to
fund our capital requirements for the next twelve months but may not allow us
to repay our debts as or before they become due. There can be no assurance that
the Company will not experience adverse operating results or other factors,
including the inability to refinance the Senior Notes or a default in
connection with its obligations to the holders of Series B Securities, which
could materially increase its cash requirements or adversely affect its
liquidity position.
The amount of our debt could have important consequences on our future
performance and to the holders of any future debt instruments. Our debt or
credit facilities may limit our ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions or general
corporate purposes. Our debt levels may prevent us from timely responding to
changing market conditions and increase our vulnerability in the event of a
downturn in general economic conditions or our business.
We conduct substantially all of our operations through our subsidiaries
and are essentially a holding company. We rely on dividends, loan repayments
and other intercompany cash flows from our subsidiaries to generate the funds
necessary to repay our debts and other obligations. The payment of dividends
from our subsidiaries and the making and repayment of loans and advances are
subject to statutory, contractual and other restrictions, are dependent upon
the earnings of our subsidiaries and are subject to various business
considerations. See "Market Price of Common Stock and Dividend Policy."
RISKS RELATED TO LEGAL PROCEEDINGS
On May 21, 1998, SIRIT Technologies, Inc. ("SIRIT") filed a lawsuit in the
United States District Court for the Southern District of Florida against us
and Thomas M. Davidson, who has since become a member of our Board of
Directors. SIRIT asserts claims against us for tortious interference,
fraudulent inducement, negligent misrepresentation and breach of contract in
connection with our agreement to purchase the shares of MFSNT and seeks
injunctive relief and compensatory damages in excess of $100.0 million. In the
opinion of management, the lawsuit will not have a material adverse effect upon
our consolidated financial position or results of operations. We intend to
vigorously defend this matter.
On September 10, 1998, Shipping Financial Services Corp. ("SFSC") filed a
lawsuit in the United States District Court for the Southern District of
Florida against Able, Chairman of the Board Gideon Taylor, Chief Executive
Officer Frazier L. Gaines, Chief Accounting Officer Jesus Dominguez, and Chief
Financial Officer Mark A. Shain. SFSC asserts claims under the federal
securities laws against us and four of our officers that the defendants
allegedly caused us to falsely represent and mislead the public with respect to
two acquisitions, COMSAT and MFSNT, and our ongoing financial condition as a
result of the acquisitions and the related financing of those acquisitions.
SFSC seeks certification as a class action on behalf of itself and all others
similarly situated and seeks unspecified damages and attorneys' fees. We are
currently assessing the allegations set forth in the lawsuits and we intend to
vigorously defend this matter. An adverse outcome in this lawsuit would likely
have a material adverse effect upon our consolidated financial position and
results of operations.
We are aware of the filing of additional shareholder lawsuits. The
allegations of these lawsuits appear to be based on allegations similar to
those set forth in the SFSC lawsuit. We intend to vigorously defend these
similar lawsuits as well.
We are party, from time to time, to other various legal proceedings. In
the opinion of management, none of these other proceedings is expected to have
a material adverse effect on our consolidated financial position or results of
operations.
9
<PAGE>
SUBSTANTIAL RELIANCE ON KEY CUSTOMERS; DEPENDENCE ON MAJOR CONTRACTS; FAILURE
TO WIN PUBLIC BIDS
Our customer base is highly concentrated and our key customers may change
from year to year. We receive, and expect to continue to receive, a substantial
portion of our total revenues and operating income from a concentrated group of
customers, including WorldCom. If we were to lose any of our customers and were
unable to replace them, our business, financial condition and results of
operations could be materially affected. WorldCom Network is not required to
extend or renegotiate the WorldCom Master Services Agreement after it
terminates in five years. The WorldCom Master Services Agreement presently
accounts for a significant portion of our total revenues and the termination of
this agreement or our default under the WorldCom Note may materially affect our
financial condition and results of operations. See "--Risks Associated with the
WorldCom Note."
Under most of our master services agreements, the customer may typically
terminate the agreement for any reason on 90 to 180 days prior written notice.
A notable exception to this statement is the WorldCom Master Services
Agreement, which may be terminated by WorldCom Network only for cause, as
defined in the agreement. The termination or renegotiation of any such
contracts or our failure to enter into new master services agreements with our
customers could have a material adverse effect on our business and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations." Many of our contracts, including master contracts,
are also opened to bid at the expiration of the contract term, and we may not
be able to renew existing contracts that come up for bid. Our failure to win a
significant number of existing contracts upon re-bid could have a material
adverse effect on our results of operations or financial condition.
MFSNT ACQUISITION INTEGRATION RISKS; POTENTIAL FUTURE ACQUISITIONS
In order for the MFSNT Acquisition to be beneficial to us, we will need to
successfully combine the operations of MFSNT into Able. Until now, we have not
acquired the assets and liabilities of a company the size of MFSNT, and this
integration process will require substantial time and attention of our
management. This process will divert our management's time and attention from
our business and operations, which could have a material adverse effect on our
results of operations and financial condition. We may not be able to
successfully integrate the operations of MFSNT into Able without difficulty, if
at all. MFSNT had significant operating losses (approximately $21.5 million for
the six-month period ended July 2, 1998) prior to the MFSNT Acquisition. We
cannot guarantee that New MFSNT will not incur substantial operating losses in
the future. If the losses continue, our financial condition and results of
operation likely would be materially adversely affected. See the Consolidated
Financial Statements for MFSNT and the Unaudited Pro Forma Financial Statements
for the Company included elsewhere in this Prospectus.
We have grown rapidly through the acquisition of other companies. We
anticipate that we may make additional acquisitions on a selective basis as
opportunities arise. However, there can be no assurance that we will be able to
continue to identify and acquire appropriate businesses on satisfactory terms.
Further, our acquired companies may not perform as expected. In growing the
Company through acquisitions, we face inherent risks in assessing the value,
strengths and weaknesses of growth opportunities, in evaluating the costs and
uncertain returns of expanding our operations and in integrating existing
operations with new acquisitions. Future competition for acquisition candidates
could raise prices for these targets and lengthen the time period required to
recoup our investment. Our anticipated growth may place significant demands on
our management and our operational, financial and marketing resources. Our
operating results and financial condition could be materially and adversely
affected if we are unable to successfully integrate and manage acquired
businesses, such as MFSNT. For future acquisitions, we may also need to incur
additional debt and contingent liabilities, or to amortize expenses related to
goodwill and other intangible assets. The terms of our existing or future debt
and credit facilities may prevent us from acquiring new companies without our
lenders' consent. These events could materially adversely affect our financial
condition and results of operations.
10
<PAGE>
MANAGEMENT OF GROWTH
The growth in size and complexity of our business and expansion of our
services and customer base have placed, and are expected to continue to place,
significant demands on our management and operations. In particular, we have
agreed to provide up to $130 million in infrastructure services annually to
WorldCom Network pursuant to the five-year WorldCom Master Services Agreement.
In order to perform this work, we will need to hire sufficient laborers,
subcontractors and additional management personnel. We may not be able to hire
enough subcontractors or personnel to complete this work. Even if we are able
to perform these services, our performance under the WorldCom Master Services
Agreement may hurt our ability to provide services to our other customers. In
addition, our ability to compete effectively and to manage future growth will
depend on our ability to continue to implement and improve operational and
financial systems on a timely basis. We may not be able to manage our future
growth, and the failure to do so could have a material adverse effect on our
business, financial condition and results of operations.
DEPENDENCE ON LABOR FORCE
Our business is labor intensive with high employee turnover in many
operations. The low unemployment rate in the United States could continue to
make it more difficult to find qualified personnel at low cost in some areas
where we operate. Shortages of labor or increased labor costs could have a
material adverse effect on our operations. There can be no assurance that we
will be able to continue to hire and retain a sufficient labor force of
qualified persons.
RISKS ASSOCIATED WITH THE TELECOMMUNICATIONS INDUSTRY AND TECHNOLOGICAL CHANGE
A number of factors could adversely affect our customers and their ability
or willingness to fund capital expenditures in the future, which in turn could
have a material adverse effect on our results of operations. These factors
include the potential adverse nature of, or the uncertainty caused by, changes
in governmental regulation, technological changes, increased competition,
adverse financing conditions for the industry and economic conditions
generally. State and federal lawmakers may propose legislation that could
potentially affect us, either beneficially or adversely. Various governmental
authorities may propose or enact rules and regulations that may also affect us.
These laws, rules and regulations, if adopted or enacted, could adversely
affect our business, operations and financial condition, or require us to
change the way we do business.
Further, our customer base for our telecommunications services includes
public utilities. Public utilities often rely upon funding from government
sources. If utilities with whom we do business do not receive necessary
government funding, they may be unable to pay us for our work or order new
work. If this occurs, the utilities may be forced to reduce the amount of our
work, cancel proposed projects, or delay payments under the contract, which
would lower our revenues and profits.
The telecommunications industry is subject to rapid changes in technology.
Wireline systems used for the transmission of video, voice and data are subject
to potential displacement by various technologies, including wireless
technologies. Other companies may develop new technologies that allow users to
enhance their telecommunications services without significantly upgrading their
existing networks. These new technologies could reduce the need for wireline
services, undermine our ability to compete in the telecommunications business
and otherwise harm our business, financial condition and results of operations.
UNCERTAINTIES REGARDING PATENTS AND PROTECTION OF PROPRIETARY RIGHTS
Our success will depend, to a large extent, on our ability to protect our
proprietary technology. We do not hold or own any patents for our technology
and currently rely on a combination of contractual rights, exclusive and
nonexclusive licenses, trade secrets and trademarks, to establish and protect
our proprietary rights. Despite these efforts, our proprietary rights
protection may not be
11
<PAGE>
sufficient to prevent competitors from developing similar technology. Moreover,
our business may be adversely affected by competitors that independently
develop functionally equivalent technology.
We currently license certain hardware and software technology from third
parties pursuant to contractual license arrangements and plan to continue to do
so in the future. We may not be able to retain any or all of our licenses for
software and hardware technology, and our inability to continue to utilize such
technology could have a material adverse effect upon our results of operations
and financial condition. We attempt to ensure that our trade names, trademarks,
technology and processes, including patents, trade names, trademarks,
technology and processes owned by third parties that have been licensed to us,
do not infringe patents and other proprietary rights; however, third parties
may allege that these proprietary rights infringe upon the proprietary rights
they hold. If infringement is alleged, we may try to obtain a license to use
the proprietary right, but we may be unable to do so on acceptable terms, if at
all. We may also try to challenge the infringement claim in court, but we may
ultimately lose the challenge and could be required to pay the winning party
damages, costs, and legal fees. Intellectual property litigation is often
lengthy and, if initiated or prosecuted by or against us, would divert
management's attention and resources from our operations. The legal costs and
other expenses we may incur to challenge an infringement claim, even for claims
that we may ultimately win, could also have a material adverse effect upon our
business, results of operations and financial condition.
On July 2, 1998, we received an 18-month license to use the trade name
"MFSNT" (and related trademarks and trade names) pursuant to the terms and
conditions of a License Agreement between the Company and MFSCC. After the
expiration of this 18-month period, we will lose all rights to use these
trademarks and trade names. Our inability to use these trademarks and trade
names after the expiration of the License Agreement may have a material adverse
effect upon the Company and its operations. See "Business--Proprietary
Technology and Rights."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
As part of our business strategy, we expect to seek opportunities to
expand our services in various international markets. For the nine months ended
July 31, 1998, our international operations accounted for approximately 3% of
our revenues and approximately 2% of income from continuing operations, after
adjustment for minority interest. We believe that our international efforts are
important to our ability to continue to grow and to sell our products and
services. However, in marketing our products and services internationally, we
will face new competitors, some of whom may have established strong
relationships with potential customers. We may not be successful in marketing
or distributing our services abroad. If we do not succeed in selling our
products and services internationally, we may experience losses from these
international operations, which would have a material adverse effect on the
financial condition of our consolidated operations. In addition, we currently
face and will continue to face certain difficulties and risks inherent in doing
business internationally, such as:
/bullet/ Compliance with regulatory requirements and changes in these
requirements
/bullet/ Export restrictions and controls relating to technology
/bullet/ Foreign tariffs and other trade barriers
/bullet/ Difficulties in staffing and managing international operations
/bullet/ Longer payment cycles and problems in collecting accounts
receivable
/bullet/ Political and social instability
/bullet/ Fluctuations in foreign economies and currency exchange rates
/bullet/ Seasonal reductions in business activity during the summer months
in Europe and certain other parts of the world
/bullet/ Potentially adverse tax consequences
12
<PAGE>
Any or all of the foregoing could have a material adverse effect on our
international operations and, consequently, on our business, financial
condition and results of operations.
COMPETITION
The Telecommunications Systems Integration division of the Network
Services Group competes for business in two segments: the traditional request
for proposal ("RFP")/bid based segment for the installation and integration of
infrastructure projects and a less traditional "project development" segment.
Our largest competitors in the traditional RFP/bid based segment are
telecommunications service providers. The Telecommunications Systems
Integration division has identified and pursued a "niche" market for its
services, providing network alternatives to large public agencies, utilities
and telecommunications service providers through the use of public-private
memberships and other financing models unique to the industry. In assembling
viable business plans for these large customers to develop their own networks,
we face high costs associated with developing and building these networks, as
well as the political and financing risks associated with the customer building
its own network. We have focused on these "project development" opportunities,
presenting ownership or participation opportunities that can generate recurring
revenues. Based upon the past experience with these opportunities, we believe
that we are a dominant provider for this type of project in the United States.
Despite our past achievements, other companies may develop the expertise,
experience and resources to provide services that receive greater market
acceptance or that are superior in both price and quality to our services. If
this occurs, we may not be able to maintain our competitive position.
The Telecommunications Construction division of the Network Services Group
competes for business in a market made up of a large number of smaller size
private companies that compete for business in a small area or with few
principal customers. In addition, several competitors compete with the
Telecommunications Construction division on a much larger scale. The
Telecommunications Construction division's largest competitors are MasTec, Inc.
and Dycom, Inc. There are relatively few, if any, barriers to entry into this
market. As a result, any organization that has adequate financial resources and
access to technical expertise may become a competitor to the Company. Existing
or prospective customers of the Company may decide not to outsource
telecommunications infrastructure construction services in the future.
The Transportation Systems Integration division of the Transportation
Services Group believes it has only two major competitors in the North American
market: Lockheed Information Systems Management Co., a division of Lockheed
Martin, and Syntonic Technology, Inc., doing business as Transcore
("Transcore"), a division of SAIC Corporation. We have entered into a
memorandum of understanding (the "MOU") with Transcore regarding a possible
business relationship whereby Transcore would provide operations and management
services for the Transportation Systems Integration division. The MOU
contemplates that Transcore would render advice on how to profitably operate
the Transportation Systems Integration division. Transcore would be compensated
either in the form of a premium over their costs incurred or by an allocation
of the profits and losses allocable to the division. The MOU also contemplates
that Transcore would be granted an option to purchase the Transportation
Systems Integration division. The purchase price would be the net book value of
the assets of the division. The MOU is non-binding with respect to the material
business terms and will terminate on November 1, 1998 unless definitive
agreements are entered into prior to that time. There can be no assurance that
the Company will enter into definitive agreements.
The market in which the Transportation Construction division of the
Transportation Services Group competes is characterized by small private
companies competing for projects of $3 million or less. This market operates in
limited geographic areas and features larger companies which meet the
experience, bonding and licensure requirements for larger projects. The
Transportation Construction division's smaller competitors are High Power of
Florida, MICA Corporation of Texas and Fishback & Moore. The Transportation
Construction division's larger competitors include Lockheed Martin, Traffic
Control Devices of Florida and MasTec, Inc.
13
<PAGE>
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
We have experienced and expect to continue to experience quarterly
variations in revenues, income before income taxes and net income. These
variations result from many factors, including the following:
/bullet/ The timing and volume of work under new or existing construction
and maintenance projects
/bullet/ The budgetary spending patterns of customers
/bullet/ Timing of services the Company performs under new master services
agreements
/bullet/ The termination of existing master services agreements
/bullet/ Costs incurred by the Company to support growth by acquisition or
otherwise
/bullet/ The change in mix of the Company's customers and business
/bullet/ Fluctuations in insurance expense accruals due to changes in
claims experience and actuarial assumptions
/bullet/ Changes in construction and design costs
/bullet/ General economic conditions
/bullet/ The effect of the change of business between negotiated contracts
as opposed to bid contracts; and
/bullet/ The timing of additional general and administrative expenses to
support the growth of the Company's business.
Revenues and income before income taxes in our first quarter and,
occasionally, the fourth quarter, have in the past been, and may in the future
be, adversely affected by weather conditions and the year-end budgetary
spending patterns of our customers.
DEPENDENCE ON KEY PERSONNEL; TRANSITION PERIOD
We depend highly upon the continued services and experience of our senior
management team, including Billy V. Ray, Jr., the Company's Executive Vice
President of Mergers and Acquisitions and Treasurer, Gideon D. Taylor,
Chairman, and Frazier L. Gaines, the Company's President and Chief Executive
Officer, and one or more managers of key operating subsidiaries. The loss of
the services of these individuals could have a material adverse effect on the
business, financial condition and results of operations of the Company. Our
executive team is currently operating in a transition period and is currently
seeking to hire a permanent Chief Executive Officer. Despite these efforts, we
may not be able to hire a permanent Chief Executive Officer in the immediate
future or at all. This would result in continued overlapping of
responsibilities of the current management team and certain inefficiencies.
When we hire a permanent Chief Executive Officer, Mr. Gaines intends to return
to his position of President of Able Telcom International, Inc. ("ATI"), a
wholly owned subsidiary of the Company.
As a result of the MFSNT Acquisition, we are dependent on the continued
services and experience of certain members of MFSNT's former management, as we
integrate our services to include the network and transportation services that
MFSNT provided prior to the MFSNT Acquisition. Certain key members of MFSNT's
former management have resigned. These resignations may have a material adverse
effect on the success of the MFSNT Acquisition and on the business, financial
condition and results of operations of the Company. Further, other former
employees of
14
<PAGE>
MFSNT may choose to resign. Further resignations, especially while integrating
the operations of MFSNT into the Company, could have a material adverse effect
upon these integration efforts and upon our financial condition and results of
operations. See "--MFSNT Acquisition Integration Risks; Potential Future
Acquisitions." We do not maintain key-person life insurance on the lives of any
of our executives. See "Management."
BACKLOG
Our order backlog may fluctuate and does not necessarily indicate the
amount of future revenues. The current order backlog may not necessarily lead
to revenues in any future period. As of July 31, 1998, our backlog was
approximately $1.2 billion. Approximately 30% of this backlog was attributable
to WorldCom Network. We can cancel a substantial amount of our order backlog
without penalty. However, in some cases, we may not be able to recover our
actual committed costs and profit on work performed up to the date of
cancellation. Cancellations of pending purchase orders or termination or
reductions of purchase orders in progress from our customers could have a
material adverse effect on our business, operating results and financial
condition.
RESTRICTIVE COVENANTS IMPOSED BY THE SECURED CREDIT FACILITY
The Secured Credit Facility restricts our ability to, among other things,
dispose of assets, merge or consolidate with another entity, incur additional
indebtedness, create liens, make capital expenditures, pay dividends or make
other investments or acquisitions. To secure our obligations under this
facility, we granted the lenders a first priority security interest in all of
our tangible property, including the stock of several of our subsidiaries. This
facility also requires us to maintain certain financial ratios and restricts
our ability to prepay other indebtedness, including the Senior Notes. Our
ability to comply with these restrictions may be affected by events that are
beyond our control.
If we violate any of these provisions, we could default on our obligations
under the Secured Credit Facility, even though we are able to pay our debts on
time and when due. If we default, the lenders who lent us funds under the
Secured Credit Facility could elect to declare all principal and interest we
owe them to be immediately due and payable. Additionally, these lenders could
exercise their right to take control of all our tangible property, including
the stock of the subsidiaries we pledged as collateral. These lenders could
also refuse to extend any additional credit to us. A default under the Secured
Credit Facility could trigger default provisions in our other loans, which
would also make all principal and interest under those loans to be immediately
due and payable. If this happens, we may not have sufficient funds to pay off
all our defaulting loans. If these lenders retain control of our tangible
assets, we would lose several of our operational subsidiaries. These
restrictions may also prevent us from taking action we believe is necessary or
desirable to respond to changing business and economic conditions. We also may
be prevented from engaging in transactions that might otherwise be considered
beneficial to us. See "Description of Certain Indebtedness--Secured Credit
Facility."
YEAR 2000 COMPLIANCE
Many computer programs and applications define the applicable year using
two digits rather than four in order to save memory and enhance the speed of
repeated date-based calculations. The "Year 2000 problem" refers to the
inability of these computer programs on and after January 1, 2000 to recognize
that "00" refers to "2000" rather than "1900." The term "Year 2000-compliant"
means a computer or a computer system which has been designed or modified to
recognize dates on and after January 1, 2000. Many of our computer programs
that have time-sensitive software may not be Year 2000-compliant. If our
systems are not Year 2000-compliant, they could malfunction or fail altogether,
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities.
We are conducting an internal audit with, and obtaining certificates from,
our software vendors to verify Year 2000 compliance with our software. We have
initiated a conversion from existing
15
<PAGE>
accounting software to programs that are Year 2000-compliant. Management has
determined that the Year 2000 problem will not pose significant operational
problems for our computer systems. As a result, all costs associated with the
conversion of our accounting software are being expensed as incurred. We will
utilize both internal and external resources to reprogram, or replace, and test
the software for Year 2000 modifications. We anticipate completing the Year
2000 project within one year but not later than October 31, 1999, which is
prior to any anticipated impact on our operating systems.
We have initiated formal communications with all of our significant
suppliers and large customers to determine the extent to which our interface
systems are vulnerable to those third parties' failure to become Year
2000-compliant. There can be no guarantee that our customers or suppliers, or
any other company upon which our systems rely or with which we do business,
will be Year 2000-compliant by January 1, 2000, if ever. The inability of such
systems to achieve Year 2000 compliance may have a material adverse affect on
the Company and its operations.
The costs of the project and the date on which we believe we will complete
the Year 2000 modifications are based on management's best estimates, which
were derived utilizing numerous assumptions of future events, including the
continued availability of certain resources, third party modification plans and
other factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are
not limited to, the availability and cost of personnel trained in this area,
the ability to locate and correct all relevant computer codes, and similar
uncertainties.
PREFERRED STOCK
The Board of Directors has the authority to issue up to 994,800 shares of
preferred stock in one or more series with such rights, preferences and terms
as may be determined by the Board of Directors. The Board of Directors may
issue and designate shares or series of preferred stock without approval or
ratification from the holders of Common Stock. The Company could issue
preferred stock with voting and conversion rights that could adversely affect
the voting power of holders of Common Stock. The Company could also issue
preferred stock to delay, defer or prevent a change in control of the Company,
even if the change in control would be desired by a majority of the Company's
shareholders. However, the Senior Notes, the Senior Credit Facility and the
Series B Preferred Sock may restrict or prohibit altogether our ability to
issue preferred stock in certain circumstances. The Company does not presently
intend to issue any additional shares of preferred stock. On June 26, 1998, the
Board of Directors authorized 4,000 shares of Series B Preferred Stock, and the
Company issued these shares on June 30, 1998 in a private placement. See
"Description of Securities--Series B Preferred Stock."
SHARES ELIGIBLE FOR FUTURE SALE
As of October 13, 1998, the Company had approximately 11.1 million shares
of Common Stock issued and outstanding. Assuming that as of October 13, 1998,
the holders of the Series B Preferred Stock, the Series B Preferred Stock
Warrants, the John Hancock Warrants, and the MFSCC Option (subject to the
"cashless" exercise limitations) had converted or exercised all of their
securities into shares of Common Stock, the Company would have had
approximately 19.0 million shares of Common Stock issued and outstanding on
that date, substantially all of which would be eligible for sale in the public
market.
POSSIBLE VOLATILITY OF SHARE PRICE
The market price of the Common Stock has been and may continue to be
highly volatile. Many factors could cause the market price of the Common Stock
to continue to fluctuate substantially, including, among other things:
/bullet/ Our announcements of operating results and other significant
events
16
<PAGE>
/bullet/ Actions by persons who engage in "short sales" and other similar
activities with respect to the Common Stock
/bullet/ Quarterly fluctuations in our operating results
/bullet/ Changes in general conditions of the economy
/bullet/ Health and status of the financial markets generally, including
that of securities listed on Nasdaq
/bullet/ Actions and recommendations from time to time by investment
bankers and others in the financial markets with respect to the Common
Stock
/bullet/ Fluctuations in price and volume of high technology and
telecommunications companies generally
/bullet/ Conditions in our industry
/bullet/ Developments affecting us, our customers, suppliers, and others
with whom we transact business
/bullet/ Future issuances of our Common Stock or other securities
/bullet/ The integration of MFSNT into Able
/bullet/ Future acquisitions
/bullet/ Other reasons unrelated to our operating performance
DIVIDENDS
We have never paid any dividends to holders of shares of Common Stock.
Holders of Series B Preferred Stock are generally entitled to receive
cumulative quarterly dividends at a rate of 4% per year. We may pay these
dividends in shares of Common Stock, or, at our election after notifying the
holders of the Series B Preferred Stock, in cash. We expect that, except as to
the Series B Preferred Stock, we will retain our earnings, if any, to finance
operations. Thus, we do not expect to pay dividends to holders of Common Stock
for the foreseeable future. In addition, the Series B Preferred Stock, the
WorldCom Note, the Senior Notes and the Secured Credit Facility restrict the
Company's ability to declare or pay dividends on its capital stock. See "Market
Price of Common Stock and Dividend Policy."
ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS OF FLORIDA LAW AND FINANCING
ARRANGEMENTS
Florida has enacted legislation that may deter or frustrate takeovers of
Florida corporations. The Florida Control Share Act generally provides that
shares acquired in a "control share acquisition" will not possess any voting
rights unless such voting rights are approved by a majority of the
corporation's disinterested shareholders. A "control share acquisition" is an
acquisition, directly or indirectly, by any person of ownership of, or the
power to direct the exercise of voting power with respect to, issued and
outstanding "control shares" of a publicly held Florida corporation. "Control
shares" are shares, which, except for the Florida Control Share Act, would have
voting power that, when added to all other shares owned by a person or in
respect to which such person may exercise or direct the exercise of voting
power, would entitle such person, immedately after acquisition of such shares,
directly or indirectly, alone or as a part of a group, to exercise or direct
the exercise of voting power in the election of directors within any of the
following ranges: (a) at least 20% but less than 33 1/3% of all voting power,
(b) at least 33 1/3% but less than a majority of all voting power; or (c) a
majority or more
17
<PAGE>
of all voting power. The Florida Affiliated Transactions Act generally requires
supermajority approval by disinterested shareholders of certain specified
transactions between a public corporation and holders of more than 10% of the
outstanding voting shares of the corporation (or their affiliates). See
"Description of Securities." In addition, the documents relating to our debt
and equity financings restrict or prohibit certain issuances of equity
securities and provide for acceleration of certain indebtedness upon a change
in control of the Company. The potential acceleration of indebtedness may deter
an attempted takeover of the Company.
USE OF PROCEEDS
We are not selling any of the shares offered in this Prospectus, and we
will not receive any of the proceeds from the sale of those shares. However, we
may receive proceeds from the exercise of the MFSCC Option, the Series B
Preferred Stock Warrants and the John Hancock Warrants, as follows:
/bullet/ To the extent that MFSCC exercises the MFSCC Option by paying the
cash exercise price, we will receive gross proceeds in an amount equal to
the number of shares of Common Stock exercised for cash and not on a
"cashless" basis, multiplied by $7.00 per share.
/bullet/ To the extent that the Series B Preferred Stock Warrants are
exercised, we will receive gross proceeds in an amount equal to the number
of shares exercised, multiplied by $19.80 per share, subject to
adjustment.
/bullet/ To the extent that the John Hancock Warrants are exercised, we
will receive gross proceeds in an amount equal to the number of shares
exercised, multiplied by $8.25 per share.
We will bear all of the costs and expenses associated with registering the
shares. The gross proceeds that we receive from the exercise of these
securities will be reduced by the amount of related expenses. We anticipate
that we will use the gross proceeds, if any, for working capital and general
corporate purposes.
18
<PAGE>
MARKET PRICE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is traded on the Nasdaq National Market under the trading
symbol "ABTE." The following table provides for each period indicated the high
and low closing sale prices for the Common Stock.
<TABLE>
<CAPTION>
SALE PRICE RANGE
----------------------
HIGH LOW
---------- ---------
<S> <C> <C>
YEAR ENDED OCTOBER 31, 1996
1st Quarter .................................... $ 7.50 $ 5.25
2nd Quarter .................................... 6.50 5.25
3rd Quarter .................................... 7.25 5.375
4th Quarter .................................... 9.625 5.375
YEAR ENDED OCTOBER 31, 1997
1st Quarter .................................... $ 9.125 $ 7.50
2nd Quarter .................................... 9.000 7.625
3rd Quarter .................................... 8.75 7.25
4th Quarter .................................... 10.1875 7.875
YEAR ENDED OCTOBER 31, 1998
1st Quarter .................................... $ 9.8675 $ 6.625
2nd Quarter .................................... 12.4375 7.3125
3rd Quarter .................................... 20.3125 9.375
4th Quarter (through October 13, 1998) ......... 9.875 2.6875
</TABLE>
On October 13, 1998, the last reported sales price of the Common Stock was
$4.125 and there were 404 record holders of the Common Stock.
We have never paid any dividends to holders of shares of Common Stock. The
terms of the Secured Credit Facility, the Series B Preferred Stock, the
WorldCom Note and the Senior Notes restrict or prohibit our ability to declare
or pay dividends on shares of Common Stock. See "Management's Discussion of
Financial Condition and Results of Operations--Liquidity and Capital
Resources," and "Consolidated Audited Financial Statements of the Company."
Holders of Series B Preferred Stock are generally entitled to receive
cumulative quarterly dividends at a rate of 4% per year. We may pay these
dividends in shares of Common Stock, or, at our election, in cash, provided
that we give the holders of the Series B Preferred Stock 20 days prior written
notice.
We expect that, except for the dividends required to be paid or payable to
the holders of the Series B Preferred Stock, we will retain our earnings, if
any, to finance operations. Thus, we do not expect to pay dividends to holders
of Common Stock for the foreseeable future.
19
<PAGE>
CAPITALIZATION
The following table sets forth, as of July 31, 1998, the unaudited
capitalization of the Company, on a consolidated basis. This table should be
read in conjunction with the historical financial statements of the Company and
the related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT JULY 31, 1998
-----------------
(IN THOUSANDS)
<S> <C>
Total debt(1):
Secured Credit Facility ................................................... $ 25,698
Senior Notes(2) ........................................................... 8,865
WorldCom Note(3) .......................................................... 20,000
Other long-term debt(4) ................................................... 7,709
---------
Total debt ............................................................... 62,272
Series B Convertible Preferred Stock, par value $.10 per share, 4,000 shares
authorized, 4,000 shares issued and outstanding(5) ....................... 14,690
Stockholders' equity:
Common Stock, par value $.001 per share, 25,000,000 shares authorized,
10,057,743 shares issued and outstanding(6) ............................. 10
Additional paid-in capital ................................................. 33,686
Retained earnings .......................................................... 1,380
---------
Total stockholders' equity ................................................ 35,076
---------
Total capitalization ..................................................... $ 112,038
=========
</TABLE>
- ----------------
(1) For information concerning Able's indebtedness outstanding at July 31,
1998, see Note 3 of Notes to Able's Condensed Consolidated Financial
Statements.
(2) Amount is net of discount of $1.1 million in debt discount arising from
valuation of the John Hancock Warrants.
(3) See "Business--Recent Developments--The MFSNT Acquisition" for discussion
of the WorldCom Note.
(4) Consists primarily of capital leases for construction equipment.
(5) A total of 1,000,000 shares of preferred stock is authorized, of which
1,200 shares have been designated Series A Convertible Preferred Stock and
4,000 shares have been designated Series B Convertible Preferred Stock. At
July 31, 1998, all of the Series A Convertible Preferred Stock had been
converted. See Note 4 of Notes to Able's Consolidated Financial
Statements.
(6) Excludes 875,085 shares of Common Stock subject to currently outstanding
options and 141,240 shares of Common Stock reserved for future issuance
under the Company's 1995 Stock Option Plan, as amended (the "Plan"). See
"Management--1995 Stock Option Plan."
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
We have provided you with a summary of our historical financial
statements. The following information should be read in conjunction with the
sections "Selected Consolidated Financial Data" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations." Our results of
operations reflect the operating results of MFSNT, COMSAT and other acquired
businesses only from the respective dates of acquisition. Accordingly, our
results are not necessarily comparable on a period-to-period basis. For
additional information with respect to the impact of certain acquisitions, see
our Pro Forma Financial Statements referenced on page P-1 of this Prospectus.
See also the Consolidated Financial Statements for the Company, the
Consolidated Financial Statements for MFSNT, the Financial Statements for
COMSAT, and the related notes to those statements, which are included in this
Prospectus. The financial data for the nine months ended July 31, 1997 and 1998
include, in the opinion of management, all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the financial
position and results of the Company for such period. Due to seasonality and
other market factors, the consolidated historical results for the nine months
ended July 31, 1998 are not necessarily indicative of results for a full year.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------
1993 1994 1995 1996 1997
----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues ......................................................... $ 20,048 $ 25,784 $ 35,408 $ 48,906 $ 86,334
-------- -------- -------- --------- --------
Costs and expenses:
Costs of revenues ............................................... 8,874 16,395 27,720 40,486 68,164
General and administrative ...................................... 1,060 4,167 5,464 8,403 8,780
Depreciation and amortization ................................... 399 854 1,914 2,750 4,532
Charges and transaction/ translation losses (gains) related to
Latin American operations ...................................... 828 2,382 96 3,553 17
-------- -------- -------- --------- --------
Total costs and expenses ........................................ 11,161 23,798 35,194 55,193 81,494
-------- -------- -------- --------- --------
Income (loss) from operations ................................... 8,887 1,987 214 (6,287) 4,840
-------- -------- -------- --------- --------
Other expenses (income), net:
Loss on sale of investments ..................................... -- -- 100 -- --
Interest expense ................................................ 64 397 1,118 1,350 1,565
Interest and dividend income .................................... -- (418) (673) (270) (449)
Other expenses .................................................. -- -- -- 32 (153)
-------- -------- -------- --------- --------
Total other expenses (income), net .............................. 64 (21) 546 1,112 963
-------- -------- -------- --------- --------
Income (loss) before income taxes and minority interest ......... 8,823 2,008 (332) (7,399) 3,877
Income tax (benefit) expense ..................................... 2,242 632 (368) (891) 727
-------- -------- -------- --------- --------
Income (loss) before minority interest ........................... 6,581 1,375 36 (6,508) 3,150
Minority interest ............................................... 2,023 (429) (317) (598) (292)
-------- -------- -------- --------- --------
Net income (loss) ................................................ 4,558 946 (281) (5,910) 2,858
Preferred stock dividends ........................................ -- -- -- -- (260)
Discount attributable to beneficial conversion privilege of
preferred stock ................................................ -- -- -- -- (1,266)
-------- -------- -------- --------- --------
Income (loss) applicable to common stock ........................ $ 4,588 $ 946 $ (281) $ (5,910) $ 1,332
======== ======== ======== ========= ========
PER SHARE DATA(1):
Earnings per share--basic ....................................... $ .71 $ .12 $ (.03) $ (.71) $ .16
Earnings per share--diluted ..................................... .66 .12 (.03) (.71) .16
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents ....................................... $ 2,137 $ 3,432 $ 2,952 $ 3,267 $ 6,230
Total assets .................................................... 11,571 36,604 32,482 38,919 50,346
Total debt ...................................................... 518 8,293 5,255 10,115 17,294
Total shareholders' equity ...................................... 7,346 15,832 17,467 11,598 15,247
<PAGE>
<CAPTION>
NINE MONTHS ENDED JULY
31,
------------------------
1997 1998
----------- ------------
<S> <C> <C>
INCOME STATEMENT DATA:
Revenues ......................................................... $ 61,181 $ 114,524
-------- ---------
Costs and expenses:
Costs of revenues ............................................... 47,640 89,691
General and administrative ...................................... 6,366 12,703
Depreciation and amortization ................................... 3,237 4,468
Charges and transaction/ translation losses (gains) related to
Latin American operations ...................................... 13 (50)
-------- ---------
Total costs and expenses ........................................ 57,256 106,812
-------- ---------
Income (loss) from operations ................................... 3,925 7,712
-------- ---------
Other expenses (income), net:
Loss on sale of investments ..................................... -- --
Interest expense ................................................ 852 2,492
Interest and dividend income .................................... (362) (131)
Other expenses .................................................. 165 296
-------- ---------
Total other expenses (income), net .............................. 655 2,657
-------- ---------
Income (loss) before income taxes and minority interest ......... 3,270 5,055
Income tax (benefit) expense ..................................... 850 1,670
-------- ---------
Income (loss) before minority interest ........................... 2,420 3,385
Minority interest ............................................... (130) (756)
-------- ---------
Net income (loss) ................................................ 2,290 2,629
Preferred stock dividends ........................................ (185) (204)
Discount attributable to beneficial conversion privilege of
preferred stock ................................................ (939) (723)
-------- ---------
Income (loss) applicable to common stock ........................ $ 1,166 $ 1,702
======== =========
PER SHARE DATA(1):
Earnings per share--basic ....................................... $ .14 $ .18
Earnings per share--diluted ..................................... .14 .18
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents ....................................... $ 6,382 $ 5,079
Total assets .................................................... 45,811 234,597
Total debt ...................................................... 18,191 62,272
Total shareholders' equity ...................................... 13,377 35,076
</TABLE>
- ---------------
(1) Per share data have been restated in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings Per Share," which became effective
for the Company during the current fiscal year.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Able specializes in the design, installation, maintenance and system
integration services for advanced voice, data and video communication networks
which includes services within the telecommunication infrastructure, traffic
management systems, automated manufacturing systems and utility network areas.
Currently, Able conducts business through three operating groups: the Network
Services Group, the Transportation Services Group, and the Communications
Development Group.
Able was originally incorporated in 1987 as "Delta Venture Fund, Inc." and
changed its name to Able Telcom Holding Corp. in 1989. From 1992 to 1994, the
majority of Able's operations were in the Venezuelan telecommunications
business. Beginning in 1994, Able began expanding its operations in other
industries by implementing a plan of growth through acquisition. This plan is
ongoing and has resulted in several acquisitions in the southeastern United
States over the past four years. These acquisitions include operations relating
to the installation and maintenance of traffic control signage, signalization
and lighting systems, performance of outside plant telecommunications and
electrical power services, the installation, testing and maintenance of
intelligent highway and communication systems, as well as the erection of
towers for wireless and cellular service providers.
The following table sets forth, for the periods indicated, selected
elements of Able's condensed consolidated statements of operations as a
percentage of its revenues:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JULY 31, YEARS ENDED OCTOBER 31,
--------------------- ------------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenues: 100.00% 100.00% 100.00% 100.00% 100.00%
Cost of revenues ...................... 78.27 77.89 78.95 82.78 78.29
General and administrative ............ 11.09 10.41 10.17 17.18 15.43
Depreciation and amortization ......... 3.90 5.29 5.25 5.62 5.41
Income (loss) from operations ......... 6.73 6.42 5.60 (12.85) 0.60
Other expense, net .................... 2.32 1.07 1.12 2.27 1.54
Net income (loss) ..................... 2.30 3.74 3.31 (12.08) (0.79)
</TABLE>
The Company's results of operations reflect the operating results of
MFSNT, COMSAT and other acquired businesses only from the respective dates of
acquisition. Accordingly, the Company's results are not necessarily comparable
on a period-to-period basis. For additional information with respect to the
impact of certain acquisitions, see the Company's Pro Forma Financial
Statements commencing on page P-1 of this Prospectus.
NINE MONTHS ENDED JULY 31, 1998 COMPARED WITH NINE MONTHS ENDED JULY 31, 1997
RESULTS OF OPERATIONS. The following discussion and analysis relates to
the financial condition and results of operations of Able for the nine months
ended July 31, 1998 and 1997. This information should be read in conjunction
with Able's condensed consolidated financial statements appearing elsewhere in
this document. Except for historical information contained herein, the matters
discussed below contain forward looking statements that involve risks and
uncertainties, including but not limited to economic, competitive, governmental
and technological factors affecting Able's operations, markets and
profitability. See "Forward-Looking Statements."
REVENUES. For the nine months ended July 31, 1998 revenues increased $53.3
million, from $61.2 million through July 31, 1997 to $114.5 million, for the
nine months ended July 31, 1998. This increase in revenues is due primarily to
growth in the Company's operations through the acquisition of MFSNT in the
third quarter and the acquisition of COMSAT and Patton in the second quarter of
fiscal 1998, as well as increased demands for services in the traffic
management and telecommunications industry.
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For the nine months ended July 31, 1998, revenues increased by approximately
$18.6 million, $15.5 million and $10.3 million related to the acquisitions of
MFSNT, COMSAT and Patton, respectively.
COSTS OF REVENUES. For the nine month periods ended July 31, 1998 and 1997
cost of revenues as a percentage of revenues increased slightly from 77.89% to
78.27%. The increase was due to increased cost related to the Network Services
Group resulting from tighter margins and competition in the telecommunications
industry, as well as inclement weather which restricted some work during the
winter months and extended completion dates into later periods, offset by
decreased costs related to the Transportation Services Group acquisition of
COMSAT's operations.
GENERAL AND ADMINISTRATIVE EXPENSES. For the nine months ended July 31,
1998 general and administrative expenses were $12.7 million, an increase of
$6.4 million over the same period in the prior year. This increase was due to
the overall increase in the management structure, at the corporate level as
well as the division offices, necessary to support the Company's increased
revenue in accordance with the Company's strategic objective of growth through
acquisitions and an increase in costs resulting from the acquisition of MFSNT.
For the nine-month period ended July 31, 1998, general and administrative
expenses relating to the operations of MFSNT were approximately $1.7 million.
DEPRECIATION AND AMORTIZATION. For the nine month period ended July 31,
1998, depreciation and amortization expense as a percentage of revenue
decreased from 5.29% to 3.90% as compared to the same period in 1997. This
decrease, as a percentage of revenue, is due to the significant increase in
revenues which did not require the same percentage increase in capital assets
to support the operations of the Company. The MFSNT Acquisition resulted in
negative goodwill which resulted in the reduction in the depreciable base of
the fixed assets to zero. Therefore no depreciation is recorded for the MFSNT
operations.
OTHER EXPENSE, NET. Other expense, net increased by $1.9 million to $2.6
million for the nine month period ended July 31, 1998 as compared to $0.7
million for the comparable period in 1997. This increase is due to increased
interest costs relating to the acquisitions of MFSNT, the write-off of loan
costs on the Credit Facility (discussed below) of approximately $0.2 million,
and a non-cash expense of approximately $0.1 million relating to the earnout
agreement associated with the acquisition of Georgia Electric Company ("GEC").
Other expense, net was also impacted by non-cash charges associated with stock
options granted at below market prices, the amortization of the cost basis of
the Series B Preferred Stock Warrants and amortization of loan costs associated
with the Secured Credit Facility.
INCOME TAXES. Able has paid income taxes at a rate which approximates the
rate used when applying federal and state statutory tax rates to pre-tax
income, after adjusting for the amortization of nondeductible goodwill.
INCOME FROM OPERATIONS. For the nine months ended July 31, 1998 income
from operations was $7.7 million compared to $3.9 million for the same period
in the prior year, primarily as a result of the Company's growth through
acquisitions.
NET INCOME. For the nine months ended July 31, 1998 net income was $2.6
million compared to $2.3 million for the comparable period in 1997 for the
reasons described above.
FISCAL YEAR ENDED OCTOBER 31, 1997 COMPARED WITH FISCAL YEAR ENDED OCTOBER 31,
1996
REVENUES. Revenues for the year ended October 31, 1997 increased $37.4
million over the year prior period, from $48.9 million to $86.3 million, an
increase of 76.5%. The acquisition of Georgia Electric Company ("GEC") in
October 1996 and Dial Communications, Inc. ("Dial") in December 1996 accounted
for approximately $35.0 million of the revenue increase between the 1996 and
1997 fiscal years. The remaining increases in revenue for fiscal year 1997 over
fiscal year 1996 were
23
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generated from increased demand for services from the other subsidiaries.
Revenue for Latin American operations totaled $4.2 million and $3.7 million in
the years ended October 31, 1997 and 1996, respectively.
COSTS OF REVENUES. Costs of revenues increased $27.7 million, from $40.5
million for the 1996 fiscal year to $68.2 million for the 1997 fiscal year.
Costs of revenues as a percentage of revenues decreased from 82.8% in 1996 to
78.9% in 1997. The assimilation of GEC and Dial accounted for approximately
$27.4 million of the increase in costs of revenues. The increase in gross
margin from 17.2% in 1996 to 21.1% in 1997 is due primarily to the increase in
profitability in the transportation services industry as a result of measures
implemented during fiscal year 1997 to improve labor productivity, control
costs, and generate other operational efficiencies as well as the assimilation
of GEC. Costs of revenues for Latin American operations totaled $2.2 million
and $2.1 million in 1997 and 1996, respectively.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the year ended October 31, 1997, were $8.8 million, or 10.2% of revenues,
compared to $8.4 million, or 17.2% of revenues, in 1996. The increase in
general and administrative expenses for the fiscal year 1997 can be attributed
to the assimilation of GEC and Dial which accounted for $1.0 million and $1.5
million, respectively, of the total increase for 1997. This increase was
partially offset by a decline in general and administrative expenses from the
implementation of cost cutting and containment strategies at the subsidiary
level. These expense totals represent a significant decline as a percentage of
revenues from prior years as a result of Able's efforts to enhance financial
controls and the implementation of its cost-containment program. General and
administrative expenses for Latin America were $1.3 million and $1.6 million in
1997 and 1996, respectively.
In 1997 and 1996, Able incurred approximately $.2 million and $1.1
million, respectively, of start-up and marketing costs related to NeuroLAMA,
Able's proprietary telephone call data and billing system, with no
corresponding revenues. These amounts have been included in general and
administrative expenses for both 1997 and 1996. There can be no assurance that
Able will generate sufficient revenues from this business to offset its start
up costs.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense was $4.5 million for the year ended October 31, 1997, or 5.2% of
revenues, compared to $2.7 million or 5.6% of revenues for 1996. The GEC and
Dial acquisitions accounted for $.6 million and $.8 million, respectively, of
the total increase in depreciation and amortization expense for 1997. The
remaining increase resulted from the continuing improvement and updating of
Able's equipment. Depreciation and amortization expense relating to Latin
American operations totaled approximately $.5 million in both 1997 and 1996.
INTEREST EXPENSE. Interest expense was $1.6 million for 1997, or 1.8% of
revenues, compared to $1.4 million, or 2.8% of revenues, for 1996. This
increase in interest expense is a result of acquisition-related debt and the
financing of equipment purchases, which was partially offset by the payment of
debt with the proceeds from the issuance of the Series A Convertible Preferred
Stock (the "Series A Preferred Stock").
OTHER (INCOME) EXPENSE, NET. Other (income) expense, net increased to $.6
million in 1997 from $.2 million in 1996. These changes reflect the $.3 million
non-cash charge for compensation recognized on stock options granted to certain
officers and directors at a discount to market during the year ended October
31, 1997. Additional income and expense items for fiscal year 1997 include a
reduction in reserves for settlement of litigation of $.5 million and interest
and dividend income of $.4 million.
NET INCOME. Able reported a net income of $2.9 million. or $.34 per share
of Common Stock for both basic and diluted, for the year ended October 31,
1997, compared to a net loss of $5.9 million, or a loss of $.71 per share of
Common Stock for both basic and diluted for 1996, before taking into account
the non-cash charge for a discounted conversion feature associated with the
Series A
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Preferred Stock (the "Accretive Dividend"). For fiscal 1997, the Accretive
Dividend was $1.3 million which resulted in net income applicable to Common
Stock of $1.3 million, or $.16 per share of Common Stock for both basic and
diluted.
The increase in net income for the fiscal year ended October 31, 1997,
compared to the previous year is due to the assimilation of GEC, the continued
improvement in margins within the Transportation Services Group, and the
improvement in margins within the Latin American operations coupled with a
reduction in special charges relating to these operations.
Revenues and net income (loss) from the Company's international operating
subsidiaries are presented below for the fiscal years ended October 31, 1997,
and 1996. These figures exclude costs associated with the continued marketing
and development cost of NeuroLAMA and general and administrative costs of the
international management group.
LATIN AMERICAN OPERATIONS. For the year ended October 31, 1997, Able's net
income from Latin American operations increased by $3.5 million over the year
ended October 31, 1996. In 1996, the Latin American operations incurred losses
of $2.8 million relating to the write-down of goodwill and other assets.
Additionally, costs associated with marketing NeuroLAMA decreased from $1.1
million in 1996 to $.2 million in 1997.
For the year ended October 31, 1997, Latin American revenues increased $.5
million as compared to the year ended October 31, 1996. Revenues generated by
Able's Venezuelan operations are largely dependent upon one customer. In the
fiscal year ended October 31, 1997, Able's Venezuelan operations were expanded
to include a reclamation project that was responsible for approximately $1.0
million of the increase in revenues which was offset by a decrease in activity
under the existing contracts in Latin America.
Revenues and net income (loss) pertaining to Latin American operations are
presented below for the years ended October 31, 1997, 1996, and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------------- --------------- -------------
<S> <C> <C> <C>
Revenues ................... $4,163,317 $ 3,745,858 $3,227,750
Net income (loss) .......... 16,556 (3,628,503) (54,835)
</TABLE>
Able's net assets of Latin American subsidiaries totaled $2.6 million and
$2.1 million at October 31, 1997 and 1996, respectively. In addition, Able's
net equity in Latin American operations totaled $1.8 million and $1.6 million
at October 31, 1997 and 1996, respectively.
The foreign currency translation and transaction losses improved during
fiscal year 1997. The stabilization of the Venezuelan Bolivar resulted in a
decrease in foreign currency losses of $.9 million for the fiscal year ended
October 31, 1997, as compared to 1996.
INCOME TAXES. Income tax expense (benefit) for the year ended October 31,
1997 and 1996, differs from the amounts that would result from applying federal
and state statutory tax rates to pre-tax income (loss) primarily due to
non-deductible goodwill and losses from foreign operations.
MINORITY INTEREST. Minority interest represents a shareholder's 50%
interest in the earnings of Able's Venezuelan corporations for the fiscal year
ended October 31, 1997. For fiscal year 1996, losses were allocated to minority
interest to the extent of its invested capital.
YEAR ENDED OCTOBER 31, 1996 COMPARED TO YEAR ENDED OCTOBER 31, 1995
REVENUES. Revenues for the year ended October 31, 1996 as compared to the
prior year period increased $13.5 million, or 35%, from $35.4 million to $48.9
million. The overall increase in total revenues is primarily a result of the
acquisition of H.C. Connell, Inc. ("Connell") in December 1995
25
<PAGE>
which provided $12.1 million of revenues. The decrease in revenues from
existing businesses is primarily attributable to the Transportation Services
Group which provided revenues of $21.2 million for 1996 compared to revenues of
$22.9 million in 1995. Revenues from Latin American operations totaled $3.7
million and $3.2 million in 1996 and 1995, respectively.
COSTS OF REVENUES. Costs of revenues increased from $27.8 million in 1995
to $40.5 million in 1996, and was 82.8% and 78.3% of revenues for the years
ended October 31, 1996, and 1995, respectively. The decline in gross margin
percentage in fiscal year 1996 is primarily attributable to a significant
decline in labor productivity in the Transportation Services Group. Costs of
revenues for Latin American operations totaled $2.1 million and $1.6 million in
1996 and 1995, respectively.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the year ended October 31, 1996, were $8.4 million, or 17.2% of revenues,
compared to $5.5 million, or 15.4% of revenues for 1995. The increase in
general and administrative expenses in fiscal 1996 was primarily attributable
to the acquisition of Connell which accounted for $.8 million of such expenses
and the inclusion of $.9 million of charges representing the write-off of
various assets in the Transportation Services Group, primarily accounts
receivable. General and administrative expenses for Latin America were $1.6
million in 1996 and $1.2 million in 1995.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense was $2.7 million for the year ended October 31, 1996, or 5.6% of
revenues, compared to $1.9 million, or 5.4% of revenues, for 1995. The increase
in such expenses is primarily attributable to the acquisition of Connell and
additional depreciation resulting from the purchase during 1996 of $2.6 million
of equipment required to meet growth primarily in the Network Services Group.
Depreciation and amortization expense relating to Latin American operations
totaled $0.5 million in both 1996 and 1995.
INTEREST EXPENSE. Interest expense was $1.4 million in 1996, or 2.8% of
revenues, compared to $1.1 million, or 3.2%, of revenues for 1995. This
increase is due primarily to approximately $2.3 million of debt incurred in
connection with the acquisition of Connell and additional equipment debt of $.6
million.
INCOME TAXES. For fiscal year 1996, Able recorded a benefit for income
taxes of $.9 million on a pretax loss of $7.4 million, or an effective income
tax rate of (12)% compared to an income tax benefit of $.4 million on pretax
loss of $.3 million, or an effective tax rate of (111)% in 1995. The rate in
1995 results primarily from the reduction in taxes provided on foreign
operations.
MINORITY INTEREST. Minority interest, prior to August 1, 1995, represents
a shareholder's 20% share of the earnings of Able's Venezuelan corporations. On
August 1, 1995, Able entered into an agreement whereby the shareholder's
proportionate share of any future earnings increased from 20% to 50%. For
fiscal year 1996, losses were allocated to minority interest to the extent of
its invested capital.
NET LOSS. Able reported a net loss of $5.9 million, or a loss of $.71 per
share for both basic and diluted, for the year ended October 31, 1996, compared
to a net loss of $.3 million, or a loss of $.03 per share for both basic and
diluted, for 1995. The net loss for fiscal 1996 is attributable primarily to
translation/transaction losses related to Able's Latin American operations of
$3.6 million, including costs associated with marketing Able's proprietary
telephone billing system and with the restructuring of the Transportation
Services Group.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash resources were $5.1 million at July 31, 1998 compared to
$6.2 million at October 31, 1997.
Cash provided from operating activities of $5.9 million is a result of net
income generated by the Company of $2.6 million for the nine month period,
increased by depreciation and amortization
26
<PAGE>
charges of $4.5 million, $0.8 million for contingent consideration for a
non-cash charge related to the acquisition of GEC, and $0.8 million for a
non-cash charge for the accretive dividend on the Series B Preferred Stock, and
offset by increases in accounts receivable balances due to increased revenues
as a result of the Company's significant growth in operations.
Cash used in investing activities of $10.0 million is due to net capital
expenditures required to support increased operations and replacement of
existing equipment and net expenditures for acquisitions of businesses.
Cash provided from financing activities of approximately $2.9 million is
due primarily to net increases in long term debt and other borrowings in order
to fund the acquisitions of MFSNT and Patton, general corporate needs, and
working capital requirements.
Effective January 6, 1998, the Company issued $10.0 million of 12%
unsecured Senior Subordinated Notes due January 6, 2005 (the "Senior Notes")
with detachable warrants to purchase 409,505 shares of Common Stock at a price
of $8.25 per share. The warrants were valued at approximately $1.2 million and
are reflected as debt discount on the consolidated balance sheet at July 31,
1998. Amortization of debt discount for the nine months ended July 31, 1998
totaled $0.1 million. Interest under the Senior Notes is payable semi-annually
in arrears. Equal principal payments are due in January 2004 and 2005 giving
the Senior Notes an average life of 6.5 years. The agreement pursuant to which
the Senior Notes were issued contains covenants which require, among other
conditions, that the Company maintain certain tangible net worth, minimum fixed
charge coverage and limitations on total debt and which limit the Company's
ability to pay dividends and make certain other payments, make investments and
sell assets or subsidiaries. The proceeds from issuance of the Senior Notes
were used for current working capital needs, to pay off existing debt and to
provide liquidity to finance growth and certain expenditures, including
acquisitions, associated with the Company's overall strategic plan. Between May
29, 1998 and September 17, 1998, the Company received either waivers and/or
consents, or letters of forbearance relating to the acquisition of MFSNT and
the related financing of the acquisition. These letters also accelerated the
expiration date of the Senior Notes to August 31, 1998, which was extended
through October 16, 1998 and further extended to November 30, 1998 by letter
dated October 16, 1998. At July 31, 1998, this amount has been reflected as
long-term debt as it is expected to be refinanced with long-term debt. The
Company believes that it will be able to refinance or further extend the time
for payment of the Senior Notes due November 30, 1998. However, there can be no
assurance that the Company will be able to so satisfy the Senior Notes by such
date, or if satisfied, that the terms and conditions of such refinancing or
extension will not be adverse to the Company. Failure to timely satisfy the
Senior Notes would constitute a default under the Secured Credit Facility
(described below) and could have a material adverse effect on the Company.
In addition to the Senior Notes, on April 6, 1998, the Company obtained a
$25.0 million three year senior secured revolving credit facility (the "Credit
Facility") with a $2.0 million sub-limit for the issuance of standby letter(s)
of credit. The Credit Facility allows the Company to select an interest rate
based upon the prime rate or on a short-term LIBOR, in each case, plus an
applicable margin, with respect to each draw the Company makes thereunder.
Interest was payable monthly in arrears on base rate advances and at the
expiration of each period for LIBOR advances. The Credit Facility contained
certain covenants which required, among other conditions, that the Company
maintain certain net worth, minimum fixed charge coverage and limitations on
total debt, and was secured by a perfected first priority security interest on
all tangible assets of the Company. The proceeds of the Credit Facility were
used to finance working capital requirements and for other general corporate
purposes, including acquisitions and equipment capital expenditures, not to
exceed $15.0 million, associated with the Company's overall strategic plan. On
June 11, 1998 this amount was repaid with proceeds from the Company's Secured
Credit Facility defined below.
On June 11, 1998, the Company replaced the Credit Facility with a new
$35.0 million three year senior secured revolving credit facility (the "Secured
Credit Facility") with a $5.0 million sub-limit for
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<PAGE>
the issuance of standby letter(s) of credit. The Secured Credit Facility allows
the Company to select an interest rate based upon the prime rate or on a
short-term Eurodollar rate, in each case plus an applicable margin, with
respect to each draw it makes thereunder. Interest will be payable monthly in
arrears on base rate advances and at the expiration of each interest period for
Eurodollar rate advances. The Secured Credit Facility contains certain
financial covenants which require, among other conditions, that the Company
maintain certain minimum ratios, including current and debt leverage, minimum
fixed charge coverage, interest coverage, as well as limitations on total debt.
The Secured Credit Facility is secured by a perfected first priority security
interest on all tangible assets of the Company and a pledge of the shares of
stock of each of the Company's subsidiaries operating in the United States. On
June 30, 1998, the Secured Credit Facility was amended to include (i) the
Company's acquisition of MFSNT and the related financing of such transaction,
(ii) changes in financial covenants related thereto, and (iii) other amendments
relating to investments, pledging and intercompany matters. The Company is
currently engaged in discussions with its senior lenders under the Secured
Credit Facility with respect to the waiver or consent of various provisions of
such facility (of which it may be in violation) arising out of the MFSNT
Acquisition, including the September Agreement. In connection with the
Company's quarterly reporting obligations to such senior lenders, and again in
connection with a recent draw request by the Company for the balance of funds
available under the Secured Credit Facility, the senior lenders granted the
Company a limited waiver with regard to compliance with one of the minimum
financial ratios required under the Secured Credit Facility. The Company
anticipates that it will need additional waivers with respect to such minimum
financial ratio in the future, including in connection with its future
quarterly reporting obligations to the senior lenders. The Company also
anticipates that, and is analyzing the extent to which, additional waivers or
consents with respect to other provisions of the Secured Credit Facility may be
necessary arising out of the MFSNT Acquisition, including the September
Agreement. The Company also intends to seek additional financing. There can be
no assurance, however, that the Company will be able to obtain additional
appropriate waivers or consents, or additional financing on commercially
reasonable terms. The failure to obtain appropriate waivers or consents could
have a material adverse effect on the Company. The Secured Credit Facility
matures in June 2001.
On July 2, 1998 the Company entered into a promissory note (the "Old
Note") with MFSCC for $86.4 million, at an interest rate of 12%, due on August
31, 1998. As security for the Old Note and an indemnity agreement, the Company
pledged to WorldCom and MFSCC all of the shares of MFSNT. Pursuant to the
September Agreement, the Old Note will be replaced with a new note (the
"WorldCom Note") in the principal amount of $30.0 million bearing interest at
11.5%. The WorldCom Note represents $20.0 million associated with the purchase
price of MFSNT and $10.0 million related to an estimated advance for
receivables at MFSNT, subject to certain adjustments. The WorldCom Note matures
on December 15, 2000, may be prepaid without penalty, and will be reduced by
the proceeds from the sale of certain assets which were acquired in the
transaction.
The amount available under the Secured Credit Facility was used to repay
existing secured indebtedness, and will be used to finance working capital
requirements of existing and acquired businesses, to fund acquisitions and
capital expenditures and for other general corporate purposes.
Subject to the foregoing discussion regarding the necessity of various
consents and waivers from the Company's senior lenders under the Secured Credit
Facility and the discussion below, the Company expects that its cash on hand,
cash flow from operations and available borrowing capacity under the Secured
Credit Facility will be sufficient to fund its capital requirements for the
next twelve months. Nonetheless, pursuant to the terms of the documents
relating to the Series B Securities, under certain circumstances, including
without limitation, if the registration statement that includes the shares of
common stock underlying the Series B Securities is not declared effective by
December 27, 1998, the Company is delisted under certain circumstances from any
securities exchange, or any representation or warranty by the Company to the
holders is not true and correct, then the holders of the Series B Securities,
in whole or in part, have the option to require the Company to redeem their
securities at premium prices. Although the Company intends to use its best
efforts to comply with the provisions in the documents relating to the Series B
Securities, the failure of which would provide the
28
<PAGE>
holder the right to exercise such redemption option, there can be no assurance
that the Company will be able to do so, in part, because certain of such
matters are dependent upon the efforts or approval of others (such as the
Securities and Exchange Commission with respect to the effectiveness of the
aforementioned registration statement). Additionally, there are certain
ambiguities or inconsistencies in the documents relating to the Series B
Securities, which if interpreted contrary to the interpretation given by the
Company, could result in a default or acceleration of the foregoing redemption
option. To the extent the holders of the Series B Securities become entitled to
exercise a redemption right and seek to require the redemption of their shares,
such exercise would materially increase the cash requirements of the Company,
could result in a default under the terms of its Secured Credit Facility (which
in turn, would constitute a default under the Senior Notes) and would likely
have a material adverse impact on the Company. In addition, there can be no
assurance, however, that the Company will not experience adverse operating
results or other factors, including the inability to refinance the Senior Notes
or a default in connection with its obligations to the holders of Series B
Securities, which could materially increase its cash requirements or adversely
affect its liquidity position.
YEAR 2000 COMPLIANCE
Many computer programs and applications define the applicable year using
two digits rather than four in order to save memory and enhance the speed of
repeated date-based calculations. The "Year 2000 problem" refers to the
inability of these computer programs on and after January 1, 2000 to recognize
that "00" refers to "2000" rather than "1900." The term "Year 2000-compliant"
means a computer or a computer system which has been designed or modified to
recognize dates on and after January 1, 2000. Many of the Company's computer
programs that have time-sensitive software may not be Year 2000-compliant. If
the Company's systems are not Year 2000-compliant, they could malfunction or
fail altogether, causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
The Company is conducting an internal audit with, and obtaining
certificates from, its software vendors to verify Year 2000 compliance with its
software. The Company has initiated a conversion from existing accounting
software to programs that are Year 2000-compliant. Management has determined
that the Year 2000 problem will not pose significant operational problems for
its computer systems. As a result, all costs associated with the conversion of
its accounting software are being expensed as incurred. The Company will
utilize both internal and external resources to reprogram, or replace, and test
the software for Year 2000 modifications. The Company anticipates completing
the Year 2000 project within one year but not later than October 31, 1999,
which is prior to any anticipated impact on its operating systems.
The Company has initiated formal communications with all of its
significant suppliers and large customers to determine the extent to which the
Company's interface systems are vulnerable to those third parties' failure to
achieve Year 2000-compliance. There can be no guarantee that the Company's
customers or suppliers, or any other company upon which the Company's systems
rely or with which the Company does business, will be Year 2000 compliant by
January 1, 2000, if ever. The inability of such systems to achieve Year 2000
compliance may have a material adverse affect on the Company and its
operations.
The costs of the project and the date on which the Company believes it
will complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ materially
from those anticipated. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct all relevant
computer codes, and similar uncertainties.
29
<PAGE>
BUSINESS
GENERAL OVERVIEW
We are a contractor for the construction and maintenance of
facilities-based communications systems for both public and private sector
customers in the United States and South America. Through our Network Services
Group, we provide development, design, engineering, project management,
installation, construction, operation and maintenance services for
telecommunications systems. In addition, our Transportation Services Group
provides services for the design, development, integration, installation,
construction, project management, maintenance and operation of advanced
intelligent transportation systems, automated toll collection systems and
electronic traffic management and control systems. Our Communication
Development Group provides communications design, installation and maintenance
services to foreign telephone companies.
COMPANY STRUCTURE
We were incorporated in Colorado in 1987 as "Delta Venture Fund, Inc." We
adopted our current name in 1989 and changed our corporate domicile to Florida
in 1991. From 1992 until 1994, 95% of our revenues and profits were derived
from telecommunications services provided primarily through two majority-owned
subsidiaries located in Caracas, Venezuela. To decrease our exposure to foreign
markets, in 1994 we expanded our business focus by marketing our services in
the southeastern United States with the acquisition of Florida-based
Transportation Safety Contractors, Inc. and its affiliates (collectively,
"TSCI"). TSCI installs and maintains traffic control signage, signalization and
lighting systems and performs outside plant telecommunication services.
To further expand in the domestic market and to facilitate a continued
acquisition program, during the fourth quarter of fiscal 1995 we reorganized
our management and operational structure into three operating groups described
above and embarked on a series of acquisitions. From December 1995 to July
1998, we have experienced significant growth by completing strategic
acquisitions, including Connell, GEC, Patton, Dial, COMSAT and MFSNT.
Substantially all of our assets and operations are held by or conducted
through domestic and foreign subsidiaries. Each of TSCI, Connell, GEC, Dial,
Patton and MFSNT continue to operate as wholly-owned subsidiaries of the
Company. See "--Recent Developments."
RECENT DEVELOPMENTS
THE MFSNT ACQUISITION. On July 2, 1998, we acquired MFSNT's network
construction and transportation systems business. At closing, we agreed to pay
approximately $101.4 million, plus additional consideration in the form of
stock options, to MFS Communications Company, Inc. ("MFSCC"), MFSNT's parent
company, to acquire these businesses. MFSCC is a wholly-owned subsidiary of
WorldCom, Inc. ("WorldCom"). The $101.4 million purchase price was estimated
based on the shareholders' equity of MFSNT at March 31, 1998, subject to
certain adjustments. On September 9, 1998 we entered into an agreement (the
"September Agreement") with WorldCom Network Services, Inc. ("WorldCom
Network"), a wholly owned subsidiary of WorldCom, which was assigned the rights
of MFSCC under the MFSNT Acquisition. The September Agreement modified various
terms of the MFSNT Acquisition and finalized the cash portion of the purchase
price at approximately $58.8 million. The cash portion of the purchase price is
subject to additional amounts payable as contingent consideration on December
29, 2000, which relate to the resolution of certain pre-acquisition
contingencies for pending litigation, claims, assessments and losses on certain
projects. Of the $58.8 million, $38.8 million has been paid and $30.0 million
(including $10.0 million related to an estimated advance from receivables of
MFSNT) remains subject to a promissory note expected to be given by us,
pursuant to the September Agreement, to WorldCom Network (the "WorldCom Note").
As of September 30, 1998, approximately $30.0 million of principal and
$0.6 million of accrued and unpaid interest were outstanding under the WorldCom
Note. We must repay the WorldCom Note
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in full on December 15, 2000. The WorldCom Note bears interest at 11.5% per
year, payable every three months commencing November 30, 1998. The principal
amount of the WorldCom Note is to be prepaid in part by applying a portion of
certain fees (i) due to us by WorldCom and (ii) received by us in connection
with the sale and installation of certain conduit projects. We have pledged all
of the shares of capital stock in New MFSNT to WorldCom and MFSCC to secure our
obligations under the WorldCom Note. Other than our pledge of our stock in New
MFSNT, our obligations under the WorldCom Note are junior to those under the
Secured Credit Facility (as defined below) and our 12% senior subordinated
notes due January 6, 2005 (the "Senior Notes"). If we default on our
obligations under the WorldCom Note, it is expected that WorldCom will be able
do any or all of the following:
/bullet/ Accelerate all principal and interest we owe WorldCom under the
WorldCom Note
/bullet/ Acquire all of our stock in New MFSNT
/bullet/ Keep all principal and interest we may have already paid on the
WorldCom Note
/bullet/ Require us to pay an 18% annual default rate of interest as long
as we are in default
/bullet/ Cause WorldCom Network to apply 12% of the payment WorldCom
Network owes us at the time of default under the WorldCom Master
Services Agreement, described below, to the outstanding principal and
interest under the WorldCom Note
In addition, if we do not repay the WorldCom Note in full by December 15,
2000, it is anticipated that WorldCom also will be able to:
/bullet/ Reduce the minimum yearly and aggregate revenues we would
otherwise receive under the WorldCom Master Services Agreement
/bullet/ Refuse to give us additional work under the WorldCom Master
Services Agreement while we are in default
In connection with the expected issuance of the WorldCom Note pursuant to
the September Agreement, the lenders under the Secured Credit Facility and the
holders of the Senior Notes consented to the issuance of the WorldCom Note and
the grant of the stock pledge to WorldCom and MFSCC. In return for the consent,
we agreed to prepay the Senior Notes, together with a prepayment penalty, on
August 31, 1998, which was extended to October 16, 1998, and was further
extended to November 30, 1998.
As part of the MFSNT Acquisition, we have agreed to provide
telecommunication infrastructure services to WorldCom NS pursuant to the Master
Services Agreement, dated July 2, 1998, among WorldCom NS, New MFSNT and Able
(the "WorldCom Master Services Agreement"). We are permitted to use the trade
name "MFSNT" during the 18-month transition period immediately following the
MFSNT Acquisition but we will not be entitled to use it after such 18-month
period.
As part of the MFSNT Acquisition, we granted an option to MFSCC (the
"MFSCC Option") to purchase up to 2,000,000 shares of Common Stock, at an
exercise price of $7.00 per share. MFSCC may elect to exercise some or all of
the MFSCC Option on a "cashless" basis, up to the equivalent of 1,817,941
shares of Common Stock, which is the maximum number of shares that may be
issued upon exercise of the MFSCC Option. A "cashless" exercise means that
MFSCC will receive shares of Common Stock with a total "market value" equal to
the per share excess of the "market value" over the exercise price multiplied
by the number of shares of the MFSCC Option being exercised. Under the original
terms of the MFSCC Option, the MFSCC Option expires six months after the date
we repay all of our obligations under the WorldCom Note. The September
Agreement extended the expiration date of the MFSCC Option. We will not receive
any cash for the part of the MFSCC Option that MFSCC exercises on a "cashless"
basis. We have allowed MFSCC to designate a representative to our Board of
Directors if it exercises the MFSCC Option, for so long as MFSCC retains at
least 5% of our outstanding Common Stock. Also, as part of the September
Agreement, we
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agreed to issue to WorldCom Network a phantom stock award or other equity
participation award equivalent to 600,000 shares of Common Stock, payable in
cash, stock, or a combination of both at our option. The phantom stock or other
equity participation award is exercisable only on the following three days:
July 2, 1999, July 2, 2000, or July 2, 2001. WorldCom will be entitled to
receive any appreciation of the Common Stock over a base price of $5 3/32 per
share, but not more than $30 3/32 per share. See "Description of Securities--The
MFSCC Option."
As part of the MFSNT Acquisition and pursuant to the WorldCom Master
Services Agreement, the Company has agreed to provide telecommunication
infrastructure services to WorldCom Network on a cost-plus 12% basis for a
minimum of $40 million per year, and the aggregate sum payable to the Company
for the five-year contract is guaranteed to be no less than $325.0 million,
subject to certain adjustments if we default on the WorldCom Note. To achieve
these established minimums, WorldCom Network has agreed to award the Company at
least 75% of all of WorldCom Network's outside plant work related to its local
network projects up to $500 million and the Company has agreed to accept and
perform work orders from WorldCom Network for as much as $130 million of
services during each year of the five-year contract. The Company has also
agreed that WorldCom Network will have met all of its commitments to the
Company, to the extent that payments made to the Company reach an aggregate of
$500 million at any time during the five-year term of the contract.
Pursuant to the terms of the WorldCom Master Services Agreement, if the
Company is in default under the WorldCom Note, WorldCom Network will apply 12%
of the sums due from WorldCom Network to New MFSNT toward partial prepayment of
the principal first and then to all other amounts owing under the WorldCom Note
until the it is paid in full. In addition, if the WorldCom Note is not paid in
full by December 15, 2000, WorldCom Network will not be obligated to execute
work orders and agreements for other work as provided for therein during the
period the WorldCom Note remains unpaid.
In connection with the MFSNT Acquisition, the Company entered into an
Assumption and Indemnity Agreement, dated as of July 2, 1998 (the "Assumption
and Indemnity Agreement"), by and among the Company and WorldCom, MFSCC, MFS
Intelenet, Inc., MFS Datanet, Inc., MFS Telecom, Inc. and MFS Communications,
Limited (collectively, the "Assumption Agreement Beneficiaries"). Pursuant to
the terms of the Assumption and Indemnity Agreement, the Company has agreed to
pay and discharge all of the liabilities and obligations of the Assumption
Agreement Beneficiaries under (i) the Credit Agreement, dated November 1, 1996,
among Kanas Telecom, Inc. and Credit Lyonnais, New York Branch, as
Administrative Agent and the lenders thereunder (the "Credit Lyonnais
Guaranty") and (ii) certain surety indemnity agreements, bonds or contracts,
and to settle or defend any actions or proceedings and pay any judgment entered
relating to any claim brought against MFSNT or any other principal, surety and
Assumption Agreement Beneficiary arising out of certain surety agreements,
bonds or contracts. New MFSNT owns a 25% interest in Kanas Telecom, Inc.
THE SERIES B CONVERTIBLE PREFERRED STOCK OFFERING. On June 30, 1998, we
received $20 million from the sale of 4,000 shares of Series B Convertible
Preferred Stock (the "Series B Preferred Stock"), at a purchase price of $5,000
per share. Dividends accrue on the Series B Preferred Stock at a rate of 4% per
year and are cumulative. We may pay dividends in shares of Common Stock, or, at
our option, in cash if we provide 20 days advance written notice to each holder
of the Series B Preferred Stock. See "Description of Securities--Series B
Preferred Stock." We sold the Series B Preferred Stock to finance part of the
purchase price for MFSNT. The holders of the Series B Preferred Stock may
convert their shares at any time into shares of Common Stock at a conversion
rate equal to 97% of the "market value" of the Common Stock. However, each
holder of the Series B Preferred Stock has agreed that it will convert its
shares of Series B Preferred Stock into Common
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Stock only to the extent that, after the conversion, the holder and its
affiliates would beneficially own 4.99% or less of the Common Stock. For these
purposes, we have agreed that "market value" equals the lesser of:
/bullet/ The average of the lowest intraday trading price of the Common
Stock for any three trading days within the 22 trading days prior to the
date of conversion; or
/bullet/ The lowest intraday trading price of the Common Stock on the
trading day immediately prior to the date of conversion; however, this
amount cannot be less than 95% of the lowest intraday trading price of the
Common Stock on the date of conversion.
In addition, we issued warrants (the "Series B Preferred Stock Warrants")
to purchase a total of up to 1,000,000 shares of Common Stock to certain of the
holders of the Series B Preferred Stock. These warrants are exercisable at a
price of $19.80 per share. However, each holder of the Series B Preferred Stock
Warrants has agreed that it will exercise the warrants only to the extent that,
after the exercise, the holder and its affiliates would beneficially own 4.99%
or less of the Common Stock. See "Description of Securities--Series B Preferred
Stock Warrants." The warrants are immediately exercisable and expire on June
30, 2003.
We granted the holders of the Series B Preferred Stock and the Series B
Preferred Stock Warrants (the "Series B Securities") certain rights to cause us
to register the Common Stock underlying the Series B Securities. Under certain
circumstances, including if the registration statement that includes the shares
of Common Stock underlying the Series B Securities is not declared effective by
December 27, 1998, or if we are delisted under certain circumstances from any
securities exchange, or any representation or warranty made by us to holders of
the Series B Securities was not true, then the holders of the Series B
Securities, in whole or in part, have the option to require us to redeem their
securities at premium prices. Although we intend to use our best efforts to
comply with all provisions of our documents with the holders of the Series B
Securities, we cannot guarantee that we will be able to do so, in part because
certain of such matters are dependent upon the efforts or approval of others
(such as the Securities and Exchange Commission with respect to the
effectiveness of the aforementioned registration statement). To the extent the
holders of the Series B Securities become entitled to exercise a redemption
right and seek to require the redemption of their shares, such exercise could
materially increase our cash requirements, could result in a default under the
terms of our Secured Credit Facility and, to the extent replacement financing
is not available on commercially reasonable terms (if at all), would likely
have a material adverse impact on us. Furthermore, so long as any of the Series
B Securities is outstanding, we are prohibited from declaring or paying any
dividends (other than to holders of Series B Preferred Stock) or purchasing any
of our equity securities.
SECURED CREDIT FACILITY. In June 1998, we replaced our previous bank
credit agreement with a new $35 million revolving credit facility with a
syndicate of lenders (the "Secured Credit Facility"). The Secured Credit
Facility has a letter of credit sublimit of $5 million. We used a portion of
the proceeds from the Secured Credit Facility to repay the previous credit
facility and to finance $10 million of the MFSNT Acquisition purchase price. On
June 30, 1998, the Secured Credit Facility was amended to permit (i) the
Company's acquisition of MFSNT and the related financing of such transaction,
(ii) changes in financial covenants related thereto, and (iii) other amendments
relating to investments, pledging and intercompany matters.
We have granted a security interest in certain of our assets to the
lenders under the Secured Credit Facility, including:
/bullet/ All of the stock in our existing and future Restricted
Subsidiaries (as defined in the Pledge Agreement with respect to the
Senior Credit Facility); and
/bullet/ A pledge of all existing intercompany notes issued to any
Restricted Subsidiary by any of its subsidiaries.
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The Secured Credit Facility also includes covenants which, among other
things, restrict our ability to:
/bullet/ Incur additional debt
/bullet/ Declare dividends or redeem or repurchase capital stock
/bullet/ Prepay, redeem or purchase debt
/bullet/ Incur liens
/bullet/ Make loans and investments
/bullet/ Make capital expenditures
/bullet/ Engage in mergers, acquisitions and asset sales, and
/bullet/ Engage in transactions with affiliates.
We are also required to comply with financial covenants with respect to
certain minimum ratios, including debt covenants, interest, fixed charges and
current ratio. See "Risk Factors--High Level of Indebtedness; Ability to
Service Indebtedness" and "--Restrictive Covenants Imposed by the Secured
Credit Facility."
ACQUISITION OF PATTON MANAGEMENT CORPORATION. On April 1, 1998, we
purchased all of the outstanding common stock of Patton Management Corporation
("Patton") for approximately $4.0 million. Patton provides advanced
telecommunication network services to upgrade existing networks and to provide
connectivity to office buildings, local and wide area networks.
ACQUISITION OF CERTAIN COMSAT ASSETS. On February 25, 1998, we acquired
certain assets and assumed certain liabilities of CRSI Acquisition, Inc. (doing
business as COMSAT RSI JEFA Wireless Systems) ("COMSAT"), a subsidiary of
COMSAT Corporation. We acquired the accounts receivable and the fixed assets of
the seller and assumed its trade payables, and received a cash payment from the
seller at closing of approximately $4.7 million. We also assumed certain
construction contracts with the Texas Department of Transportation and various
other telecommunications customers. COMSAT engaged in the installation of
intelligent traffic management systems and the design and construction of
wireless communication networks. COMSAT operated in twenty-one states,
primarily in Texas and Alabama.
JOINT VENTURE WITH CLARION RESOURCES COMMUNICATION CORP. On September 23,
1997, we entered into a five-year joint venture with Clarion Resources
Communication Corp. ("Clarion"). Clarion is principally owned by Telenor, the
telephone company of Norway. We have agreed with Clarion to jointly market,
manufacture and license our proprietary telephone call record and data
collection technology, called NeuroLAMA, in Europe and Asia. Clarion has agreed
to provide us with an international sales force and to obtain suitable
financing to purchase and install NeuroLAMA. The venture will not require a
capital investment from us but should provide a stable royalty stream if the
venture is successful.
SERVICES, MARKETS AND CUSTOMERS
We conduct three distinct types of business activities, two of which are
primarily conducted in the United States and one of which is conducted abroad.
Domestically, we provide telecommunication network services and traffic
management services. Abroad, principally in Venezuela, we conduct communication
development activities. Each of these activities is discussed in more detail
below.
NETWORK SERVICES GROUP. Our Network Services Group provides
telecommunications network services through two divisions: (i) the
Telecommunications Systems Integration division that provides
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general contracting services for large-scale telecommunications projects, and
(ii) the Telecommunications Construction division that specializes in the
construction of network projects or project phases.
We provide turn-key telecommunications infrastructure solutions through
the Telecommunications Systems Integration division. As a telecommunications
systems integrator, we provide "one-stop" capabilities that include project
development, design, engineering, construction management, and on-going
maintenance and operations services for telecommunications networks. Our
projects include the construction of fiber optic networks that provide advanced
digital voice, data and video communications and wireless infrastructure
deployment.
The Telecommunications Construction division provides construction and
technical services for building both outside plant and inside plant
telecommunications systems. Outside plant services are large-scale installation
and maintenance of coaxial and fiber optic cable (installed either aerial or
underground) and ancillary equipment for digital voice, data and video
transmissions. These installations are most often undertaken to upgrade or
replace existing communications networks. Inside plant services, also known as
premise wiring, include design, engineering, installation and integration of
telecommunications networks for voice, video and data inside customers'
facilities. Additionally, we provide maintenance and installation of electric
utility grids and water and sewer utilities. We provide outside plant
telecommunications services primarily under hourly and per unit basis contracts
to local telephone companies. We also provide these services to long distance
telephone companies, electric utility companies, local municipalities and cable
television multiple system operators.
TRANSPORTATION SERVICES GROUP. Similar to the Telecommunications Systems
Integration division, the Transportation Services Group provides intelligent
transportation and traffic management services through two divisions: (i) the
Transportation Systems Integration division, that provides full-service general
contracting services for large-scale projects, and (ii) the Transportation
Construction division that specializes in the construction of network projects
or project phases.
The Transportation Systems Integration division provides "one-stop"
electronic toll and traffic management solutions for intelligent transportation
system infrastructure projects, including project development and management,
design, development, integration, installation, engineering, construction, and
systems operation and maintenance. Additionally, we develop proprietary
software and applications designed to support these systems. The electronic
toll and traffic management segment of the intelligent transportation system
industry uses technology to automate toll collection for bridges and highways
allowing for "non-stop" toll collection. Electronic toll and traffic management
systems use advanced scanning devices to identify a car's type, combined with
the user's account information, as the car passes a tolling station and
immediately debits the appropriate toll from the user's account. In addition,
significant support systems must be developed to maintain electronic toll and
traffic management accounts, and process violations. We developed Automatic
Vehicle Identification technology jointly with Texas Instruments and used it in
many of our electronic toll and traffic management projects. The Transportation
Systems Integration division markets its services to state and local government
transportation departments.
Our Transportation Construction division installs and maintains traffic
control and signalization devices. These services include the design and
installation of signal devices (such as stoplights, crosswalk signals and other
traffic control devices) for rural and urban traffic intersections, drawbridge
and railroad track signals and gate systems, and traffic detection and data
gathering devices. We also design, develop, install, maintain and operate
"intelligent highway" communications systems that involve the interconnection
of data and video systems, fog detection devices, remote signalization or
computerized signage. These systems monitor traffic conditions, communicate
such conditions to central traffic control computers, and provide real-time
responses to dynamic changes in traffic patterns and climate conditions by
changing speed limit display devices, lowering traffic control gates, or
changing the text on remote signs and signals. We also install and maintain
computerized
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manufacturing systems for various industrial businesses. Many of the functions
of the traffic management group, particularly those involved in intelligent
highway systems, complement those of the telecommunications services group.
COMMUNICATIONS DEVELOPMENT GROUP. Our Communications Development Group
operates in Latin America, primarily in Venezuela. These activities consist of
management of our joint venture arrangements, which were formed to provide
telecommunications installation and maintenance services to privatized local
phone companies. These joint ventures are in the form of subsidiaries in which
we have an 80% voting and ownership interest and a 50% share of profits and
losses. In 1996, we expanded our communications development activities to
include the marketing to Latin American telephone companies of NeuroLAMA, an
internally developed proprietary telephone call record and data collection
system. Significant capital expenditures will be required to install NeuroLAMA
in South America. During fiscal years 1997, 1996 and 1995, our Latin American
operations accounted for 5%, 8% and 9% of our revenues on a consolidated basis.
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INDUSTRY AND GEOGRAPHIC AREA SEGMENT INFORMATION
The Company currently operates primarily in two industry segments:
telecommunication network services and intelligent transportation and traffic
management systems and devices. Traffic management services are conducted
primarily in the United States with small projects in South America, Canada and
Asia while telecommunication network services are conducted both in the United
States and Latin America. Revenues, income (loss) from operations, identifiable
assets, capital expenditures and depreciation and amortization pertaining to
the industries and geographic areas in which the Company operates are presented
below (in thousands).
<TABLE>
<CAPTION>
OCTOBER OCTOBER OCTOBER
INDUSTRY SEGMENTS 1995 1996 1997
- ---------------------------------------------- ----------- ------------ ----------
<S> <C> <C> <C>
Sales to unaffiliated customers:
Traffic management operations ............... $22,873 $ 22,662 $ 46,795
Telecommunications network services ......... 12,535 26,244 39,539
------- --------- --------
Total ..................................... $35,408 $ 48,906 $ 86,334
======= ========= ========
Income (loss) from operations:
Traffic management operations ............... $ 286 $ (3,454) $ 3,771
Telecommunication network services .......... (72) (2,833) 1,069
------- --------- --------
Total ..................................... $ 214 $ (6,287) $ 4,840
======= ========= ========
Identifiable Assets:
Traffic management operations ............... $21,702 $ 25,099 $ 28,885
Telecommunication network services .......... 10,780 13,820 21,461
------- --------- --------
Total ..................................... $32,482 $ 38,919 $ 50,346
======= ========= ========
Capital Expenditures:
Traffic management operations ............... $ 353 $ 1,276 $ 1,636
Telecommunication network services .......... 1,898 2,216 2,851
------- --------- --------
Total ..................................... $ 2,251 $ 3,492 $ 4,487
======= ========= ========
Depreciation and Amortization:
Traffic management operations ............... $ 996 $ 1,229 $ 1,711
Telecommunication network services .......... 918 1,521 2,821
------- --------- --------
Total ..................................... $ 1,914 $ 2,750 $ 4,532
======= ========= ========
GEOGRAPHIC AREAS
- ----------------------------------------------
Revenues:
United States ............................... $32,180 $ 45,160 $ 82,171
Latin America ............................... 3,228 3,746 4,163
------- --------- --------
Total ..................................... $35,408 $ 48,906 $ 86,334
======= ========= ========
Income (loss) from operations:
United States ............................... $ 364 $ (2,073) $ 4,824
Latin America ............................... (150) (4,214) 16
------- --------- --------
Total ..................................... $ 214 $ (6,287) $ 4,840
======= ========= ========
Identifiable Assets:
United States ............................... $26,956 $ 36,410 $ 47,781
Latin America ............................... 5,526 2,509 2,565
------- --------- --------
Total ..................................... $32,482 $ 38,919 $ 50,346
======= ========= ========
</TABLE>
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INDUSTRY OVERVIEW
TELECOMMUNICATIONS INFRASTRUCTURE. The International Telecommunications
Union estimates that between 1996 and 2000, telecommunications infrastructure
investment will exceed $50 billion in the United States and $600 billion
worldwide. In addition, we believe that utility and telecommunications
companies, including regional Bell operating companies ("RBOCs"), competitive
local exchange carriers ("CLECs") and inter-exchange carriers ("IXCs"), which
still conduct a significant portion of their construction work in-house, will
outsource more infrastructure construction in the future in response to rapid
deregulation and competitive pressures to reduce costs and focus on the
operation and marketing of their telecommunications services.
The Telecommunications Act of 1996 (the "Telecommunications Act") created
a structural change in the telecommunications industry by removing the barriers
to entry that the RBOCs and IXCs had previously enjoyed. The Telecommunications
Act established less restrictive regulations for CLECs and other
telecommunications companies to compete with the RBOCs. As a result, the RBOCs
must allow competing telecommunications companies, under the performance party
principle, to compete in their markets. This has led to intense competition
among all players in the telecommunications and data/information transfer and
services industries. Prices for services and equipment have been falling, and
new technologies and services are being offered. In addition, the battle to
attract and retain customers has led to higher levels of customer service.
These conditions have forced the RBOCs to compete for customers. As a
result, more money is being dedicated to construction and upgrades of fiber
optic and coaxial networks and other assets by many participants in the
telecommunications and data/information transfer industries. RBOCs searching
for ways to reduce costs and become more efficient. Internal operations such as
network installation are increasingly being outsourced to companies such as
Able.
The infrastructure and network services segment of the communications
industry is poised for significant growth due to the changing regulatory
environment and rapid advancements in technology, which require increases in
bandwidth to carry voice, video and data. These trends are resulting in a
significant need for rapid replacement and upgrade of existing communications
infrastructure and network systems. In addition, new entrants to the
telecommunications industry are increasingly turning to experienced,
full-service communications infrastructure and network integrators for
assistance and support.
Significant growth has also been forecast in the international market for
telecommunications infrastructure. In many emerging and developing areas such
as Latin America, the Pacific Rim, and Africa, the infrastructure required to
support telecommunications on a widespread local level is incomplete or
nonexistent. What telecommunications infrastructure that does exist is
typically almost completely analog based. For developing countries, the main
focus is to establish or expand their telecommunications infrastructure rather
than convert and upgrade existing lines. The lack of telecommunications
infrastructure in developing economies creates an opportunity to provide
turn-key telecommunications infrastructure project managerial services. We
expect to selectively bid on new opportunities and further develop existing
telecommunications infrastructure projects.
TRANSPORTATION SYSTEMS. The market for traffic management and, more
specifically, intelligent transportation services, is significant and growing
due to federal and state legislation to create economically efficient and
environmentally safe transportation systems. The Intermodal Surface and
Transportation Efficiency Act of 1996 ("ISTEA") provides $217 billion to state
departments of transportation over the next six years and is expected to
significantly increase spending on advanced transportation infrastructure. In
addition, the deployment of intelligent highway systems, as well as
telecommunications infrastructure along the highway rights-of-way, offer new
revenue sources for the responsible government agencies. Intelligent
transportation services include electronic toll collection, highway fiber optic
network, computerized traffic signal and other traffic management tools.
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SUPPLIERS AND RAW MATERIALS
The majority of raw materials and supplies necessary to carry out our work
are supplied by us, except that the Network Services Group's telecommunication
construction customers supply the majority of their own raw materials. We have
no material dependence on any one supplier of raw materials.
BACKLOG
As of July 31, 1998, backlog was approximately $1.2 billion, approximately
30% of which was attributable to WorldCom Network. We expect to complete
approximately 40% of this backlog within the next fiscal year. As of January
29, 1998, our backlog was approximately $159 million. Due to the nature of our
contractual commitments, in many instances our customers do not commit to the
volume of services to be purchased under the contract, but rather commit us to
perform these services if requested by the customer and commit to obtain these
services from us if they are not performed internally. Many of the contracts
are multi-year agreements, and we include the full amount of services projected
to be performed over the life of the contract. We include all services
projected to be performed over the life of the contract in our backlog due to
our historical relationships with our customers and experience in the
procurements of this nature. Contract backlog of approximately $499 million is
under performance bonds and we may be subject to liquidated damages for failure
to perform in a timely manner. Our backlog may fluctuate and does not
necessarily indicate the amount of future sales. A substantial amount of our
order backlog can be canceled at any time without penalty, except, in some
cases, the recovery of our actual committed costs and profit on work performed
up to the date of cancellation. Cancellations of pending purchase orders or
termination or reductions of purchase orders in progress from our customers
could have a material adverse effect on our business, operating results and
financial condition. In addition, there can be no assurance as to the
customer's requirements during a particular period or that such estimates at
any point in time are accurate.
DEPENDENCE UPON KEY CUSTOMERS
During fiscal 1997, approximately 15% of our total revenues were derived
from Cooper Tire, 12% from BellSouth Telecommunications, Inc. and 9% from
United Telephone of FL/Sprint. We believe that a substantial portion of our
total revenues and operating income will continue to be derived from a
concentrated group of customers, in particular WorldCom Network. The loss of
WorldCom Network (or any of such other customers) could have a material adverse
effect on our business, financial condition and results of operations.
CONTRACTS WITH GOVERNMENTAL AUTHORITIES
The Company derived approximately 17% of its total revenues for the fiscal
year ended October 31, 1997 from contracts with state and local governments. No
individual government customer accounted for more than 6% of the Company's
total consolidated revenues. Government business is, in general, subject to
special risks, such as delays in funding, termination of contracts or
subcontracts for the convenience of the government or for the default by a
contractor, reduction or modification of contracts or subcontracts, changes in
governmental policies, and the imposition of budgetary constraints. The
Company's contracts with governmental agencies provide specifically that such
contracts are cancelable for the convenience of the government. Historically,
the Company has not experienced cancellations or renegotiations of its
contracts in any material amounts.
BIDDING PROCESS
In order to procure large telecommunications network and intelligent
transportation system projects as a general contractor, we must complete a
complex and time-consuming bid process. Following the receipt of a RFP, we
develop a detailed bid which meets the unique specifications and
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requirements for each project. The bid process may take up to two years to
complete, requiring strategic business analysis and planning, network design,
cost studies and engineering studies, and in certain cases, the development of
financing alternatives for the project. In preparing a bid for construction
services, we estimate project costs including sub-contracted construction,
materials and equipment, and internal project development costs plus any
maintenance and operating costs. Bids may be structured as fixed price or cost
plus bids depending on the requirements of the RFP.
SALES AND MARKETING
We market our systems integration services through a dedicated sales
group. Our salespeople market directly to existing and potential customers,
including municipalities and other government authorities, telecommunications
companies and utility companies. Our salespeople work with those responsible
for project development and funding to facilitate network design and funding
procurement.
Typically, the sales process for systems integration projects entails: (i)
the development of a list of qualified bidders and the establishment of a bid
schedule; (ii) the distribution of, and response to, an RFP; and (iii) the
awarding of the contract to an approved service provider. Important elements in
determining the qualifications of a bidder are its reputation, its previous
projects and its ability to secure bonding for the project. The selling cycle,
which is usually 12 to 24 months in duration, is protracted due to the scope
and complexity of the services provided.
We market our telecommunications construction services to local and long
distance telephone companies, utility companies, local municipalities and
certain corporations with particular communications needs. In addition, we
market our construction services to certain systems integrators. A dedicated
sales force, as well as members of each subsidiary's senior management,
actively market our services in their defined geographic regions. Additionally,
we market our transportation construction services to state and local
departments of transportation, public/private toll authorities and certain
international authorities.
COMPETITION
NETWORK SERVICES GROUP. The Telecommunications Systems Integration
division of the Network Services Group competes for business in two segments:
the traditional RFP/bid based segment for the installation and integration of
infrastructure projects and a less traditional "project development" segment.
Our largest competitors in the traditional RFP/bid based segment are
telecommunications service providers. The Telecommunications Systems
Integration division has identified and pursued the "project development"
segment as a "niche" market for its services, providing network alternatives to
large public agencies, utilities and telecommunications service providers
through the use of public-private memberships and other financing models unique
to the industry. These customers often must choose between building their own
networks or using an existing telecommunication service provider's network.
Once a customer has decided to build its own network, we assist the customer in
preparing a viable and customized project business plan that addresses the
customer's specific telecommunications needs, including budgetary and other
concerns. We also have focused on "project development" opportunities
presenting ownership or participation opportunities that can generate recurring
revenues. We believe that no other company presently provides these kind of
complete, turnkey project development services for these customers. There can,
however, be no assurance that other systems integration companies will not
develop the expertise, experience and resources to provide services that
achieve greater market acceptance or that are superior in both price and
quality to our services, or that we will be able to maintain our competitive
position.
The Telecommunications Construction division competes for business with
several competitors on a much larger scale. In addition, the Telecommunications
Construction division also competes in a market characterized by a large number
of smaller size private companies that compete for business generally in a
limited geographic area or with few principal customers. The Telecommunications
Construction division's largest competitors are MasTec, Inc. and Dycom, Inc.
40
<PAGE>
TRANSPORTATION SERVICES GROUP. The Transportation Systems Integration
division believes its major competitors in the North American market are
Lockheed Information Management Co., a division of Lockheed Martin, and
Syntonic Technology, Inc., doing business as Transcore ("Transcore"), a
division of SAIC Corporation. We have entered into a memorandum of
understanding (the "MOU") with Transcore regarding a possible business
relationship whereby Transcore would provide operations and management services
for the Transportation Systems Integration divisions. The MOU contemplates that
Transcore would render advice on how to profitably operate the Transportation
Systems Integration division. Transcore would be compensated either in the form
of a premium over their costs incurred or by an allocation of the profits and
losses allocable to the division. The MOU also contemplates that Transcore
would be granted an option to purchase the Transportation Systems Integration
divisions. The purchase price would be the net book value of the assets of the
division. The MOU is non-binding with respect to the material business terms
and will terminate on November 1, 1998 unless definitive agreements are entered
into prior to that time. There can be no assurance that the Company will enter
into definitive agreements.
The market in which the Transportation Construction division competes is
characterized by large competitors who meet the experience, bonding and
licensure requirements for larger projects and by small private companies
competing for projects of $3 million or less in limited geographic areas. The
Transportation Construction division's large competitors include Lockheed
Martin, Traffic Control Devices of Florida and MasTec, Inc. The Transportation
Construction division's smaller competitors are High Power of Florida, MICA
Corporation of Texas and Fishback & Moore.
COMMUNICATIONS DEVELOPMENT GROUP. The Communications Development Group
competes for business in the international market, primarily in Latin America.
Presently, the operations of the Communications Development Group are in
Venezuela and Brazil. In Venezuela, the market is characterized by a single
customer, CANTV, the telephone company of Venezuela, and a large number of
smaller sized private companies that compete for business generally in a
limited geographic area. In Brazil, the market consists of four regional
telephone companies, which have been recently privatized. Competition consists
of a myriad of smaller companies competing for a growing but limited market,
which forces margins down. There are also several products similar to the
Neurolama call data collection system for billing purposes, which compete for
the very large analog market, although we are not aware of any that can produce
the same results.
EMPLOYEES
As of September 30, 1998, we had approximately 2,200 employees. The number
of employees considered as laborers can vary significantly according to
contracts in progress. Such employees are generally available to us through an
extensive network of contacts within the communications industry. None of our
employees is represented by a labor union and we consider relations with key
and other employees to be good.
PROPERTIES
Our corporate offices are in West Palm Beach, Florida, where we occupy
5,110 square feet under a lease that expires January 31, 2004. We lease 33,571
square feet of office space in Omaha, Nebraska under a lease that expires
September 30, 1999, and which houses New MFSNT's network operations, and 40,111
square feet in Mt. Laurel, New Jersey under a lease that expires February 28,
2003 and which houses New MFSNT's transportation operations. We lease 6,400
square feet of space in Fairbanks, Alaska for a network operations center. We
lease 6,800 square feet of office space in Fort Lauderdale, Florida under a
lease which expires September 30, 2003, which facility houses the Company's
corporate accounting offices and the general and administrative offices for the
Network Services Group. We lease several field offices and numerous smaller
offices. We also lease on a short-term or cancelable basis temporary equipment
yards or storage locations in various areas as necessary to enable us to
efficiently perform our service contracts.
41
<PAGE>
We own (subject to a mortgage) and operate a 10,000 square foot facility
for operations based in Chesapeake, Virginia. Our Venezuelan subsidiaries own
and operate from a 33,000 square foot floor of an office building located in
Caracas, Venezuela, and lease an additional 50,000 square feet of covered
parking and shop facilities. We also own a 15,000 square foot facility located
on approximately three acres of land for operations in Tampa, Florida.
SEASONALITY
Our operations are seasonal, resulting in reduced revenues and profits
during the first quarter (November, December and January) relative to other
quarters. Factors affecting the seasonality of our business are holiday season
shut-downs, winter weather and capital expenditure patterns by telephone
companies that can impede outside plant construction activities. The impact of
seasonality is mitigated somewhat by the presence of part of our operations in
the southern United States.
LEGAL PROCEEDINGS
On May 21, 1998, SIRIT Technologies, Inc. ("SIRIT") filed a lawsuit in the
United States District Court for the Southern District of Florida against us
and Thomas M. Davidson, who has since become a member of our Board of
Directors. SIRIT asserts claims against us for tortious interference,
fraudulent inducement, negligent misrepresentation and breach of contract in
connection with our agreement to purchase the shares of MFSNT and seeks
injunctive relief and compensatory damages in excess of $100.0 million. In the
opinion of management, the lawsuit will not have a material adverse effect upon
our consolidated financial position or results of operations. We intend to
vigorously defend this matter.
On September 10, 1998, Shipping Financial Services Corp. ("SFSC") filed a
lawsuit in the United States District Court for the Southern District of
Florida against Able, Chairman of the Board Gideon Taylor, Chief Executive
Officer Frazier L. Gaines, Chief Accounting Officer Jesus Dominguez, and Chief
Financial Officer Mark A. Shain. SFSC asserts claims under the federal
securities laws against us and four of our officers that the defendants
allegedly caused us to falsely represent and mislead the public with respect to
two acquisitions, COMSAT and MFSNT, and our ongoing financial condition as a
result of the acquisitions and the related financing of those acquisitions.
SFSC seeks certification as a class action on behalf of itself and all others
similarly situated and seeks unspecified damages and attorneys' fees. We are
currently assessing the allegations set forth in the lawsuits and we intend to
vigorously defend this matter. An adverse outcome in this lawsuit would likely
have a material adverse effect upon our consolidated financial position and
results of operations.
We are aware of the filing of additional shareholder lawsuits. The
allegations of these lawsuits appear to be based on allegations similar to
those set forth in the SFSC lawsuit. We intend to vigorously defend these
similar lawsuits as well.
We are party, from time to time, to other various legal proceedings. In
the opinion of management, none of these other proceedings is expected to have
a material adverse effect on our consolidated financial position or results of
operations.
RESEARCH AND DEVELOPMENT; PROPRIETARY TECHNOLOGY AND RIGHTS
Able acquired proprietary software from MFSNT in the MFSNT Acquisition
including applications at the lane, plaza, host, and customer service center
levels within a sophisticated electronic toll collection system architecture.
Prior to the MFSNT Acquisition, MFSNT had also developed a proprietary video
and data multiplexing system used for surveillance, monitoring, and system
audit purposes. The benefits of this proprietary software include reduced
operating costs, non-stop tolling, reduced traffic congestion, efficient
traffic management, and increased revenue accountability.
LANE SYSTEM APPLICATIONS. The lane system application is designed to be
modular in nature to allow and accommodate tolling operations in various
configurations in accordance with a customer's
42
<PAGE>
specific needs and operational requirements. The lane controller application is
the heart of the lane system. It runs on a standard PC and under a real-time
operating environment. The lane controller controls the various in-lane
equipment items and gathers data from the in-lane sensors to provide
transaction records for each vehicle that travels through a toll lane. The lane
controller coordinates and controls revenue collection events and transactions.
The lane controller also interacts with and can recognize individual vehicles
as well as cars that evade toll collection. The transaction data created at the
lane level is sent to the plaza computer system for further processing. The
lane controller also has the unique capability of operating in a completely
autonomous mode if communications to the plaza system are disrupted.
PLAZA SYSTEM APPLICATIONS. The plaza system is the central repository of
the transaction data received from each toll lane. The data is stored in a
relational database and is then used for reporting and tracking purposes.
Traffic reports, revenue reports, and collector performance reports are among
several reports that can be generated from the plaza system. A real-time plaza
supervisor system allows client personnel to monitor traffic and collection
events (as well as equipment and security status) as each event actually
occurs. The data received at the lane plaza system level is forwarded to the
host system for further processing and review.
HOST SYSTEM APPLICATIONS. The primary role of the host application is to
provide the client with the capability to generate system-wide reports for
traffic and revenue, as well as audit and reconciliation capabilities. The host
system also acts as the primary interface to the customer service center
("CSC") system and is the "conduit" for electronic toll transactions and patron
account information. The host application also controls the download of
information to the plaza and lane systems, such as toll schedules, employee
identification information, patron account status, time synchronization, and
other information required for daily operation of the system.
CSC SYSTEM APPLICATIONS AND SERVICES. The Company provides numerous CSC
systems and services, including hardware and software system applications and
CSC staffing, operations and management. The CSC application is a highly
reliable and robust, user friendly, efficient, and fully auditable software
application. Our system incorporates automated internal controls for audit and
reconciliation purposes and also employs a flexible design to accommodate
potential changes to customer policies, procedures, and/or operations.
VIDEO TRANSACTION DATA MULTIPLEXER ("VTDM") PRODUCT. The VTDM system is a
patented product that compiles video and data based records for every vehicle
that travels through a monitored lane. The VTDM provides auditors, toll
supervisors and other Customer personnel with the unique capability to records,
review, and analyze lane event data in an efficient and cost-effective manner.
This system can also be used for problem resolution relating to system and/or
toll collector performance. The VTDM system provides information (lane event
data) in the form of video and transaction event text (text-over-video
display). Cameras and VCRs are used to visually record lane activity on a
24-hour basis.
The Company has spent an aggregate of approximately $1.0 million on
research and development activities during the prior three fiscal years,
primarily in connection with its development of NeuroLAMA. Management believes
that the acquisition of MFSNT will increase the Company's future research and
development expenditures.
43
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information, as of the date of this
Prospectus, about each person who is a director or executive officer of the
Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- ----- -----------------------------------------------------
<S> <C> <C>
Gideon D. Taylor ................ 56 Chairman of the Board and Director
Frazier L. Gaines ............... 58 President, Chief Executive Officer and Director
Billy V. Ray, Jr. ............... 40 Executive Vice President of Mergers and Acquisitions
and Treasurer
Mark A. Shain ................... 44 Vice President and Chief Financial Officer
Jesus G. Dominguez .............. 53 Chief Accounting Officer
Curtis A. "Butch" Dale .......... 51 Chief Operating Officer
Jonathan A. Bratt ............... 45 Director
Carl F. Swartz .................. 60 Director
Thomas M. Davidson .............. 61 Director
</TABLE>
GIDEON D. TAYLOR has served as a Director of the Company since its
inception and as Chairman of the Board of the Company since April 1997. Mr.
Taylor was President and Chief Executive Officer of the Company from October
1988 to August 1992.
FRAZIER L. GAINES has been a Director of the Company since August 1992.
Mr. Gaines has served as President and Chief Executive Officer of the Company
since March 1998, and as President of Able Telcom International, Inc., a
wholly-owned subsidiary of the Company ("ATI"), since June 1994. Mr. Gaines
also serves as President and Chief Executive Officer of a number of the
Company's subsidiaries. From 1992 to 1994, Mr. Gaines was Chief Operating
Officer of Able. From 1987 to 1992, Mr. Gaines was Vice President of Judycom,
Inc. and Judycom Construction Corporation, both of which were located in
Lexington, Kentucky, and engaged in fiber optic installation.
BILLY V. RAY, JR. has been the Company's Executive Vice President of
Mergers and Acquisitions and Treasurer since October 1998. From May 1998 to
October 1998 and from January 1997 to June 1997, Mr. Ray served as a consultant
to the Company. Mr. Ray served as the Chief Financial Officer of the Company
from June 1997 to April 1998. From December 1995 to January 1997 and from April
1997 to July 1997, Mr. Ray was the President of Ten-Ray Utility Construction,
Inc., a utility construction company. During a part of that period, he also
served as a consultant to Alcatel, a maker of intelligent highway systems. From
September 1994 to November 1995, Mr. Ray was the Controller for Tri-Duct, a
utility construction company, and served as a consultant to such company from
November 1995 to March 1996. From March 1994 to September 1994, Mr. Ray was the
staff manager at Mastec, Inc., a utility construction company, and he was
assistant to the president at Burnup & Sims, a utility construction company,
from January 1993 to March 1994.
MARK A. SHAIN has been the Company's Vice President and Chief Financial
Officer since April 1998. Mr. Shain served as Vice President and Chief
Financial Officer of The Stiffel Company, a Chicago-based high-end lighting and
fixture company, from March 1996 until November 1997. From November 1994 until
October 1995, Mr. Shain served as Vice President and Chief Financial Officer of
Landmark Industries, a manufacturing company. Previously, he was associated
with Starcraft Corporation, a manufacturing company, from April 1994 to
November 1994.
JESUS G. DOMINGUEZ has been the Chief Accounting Officer since April 1998.
Mr. Dominguez has served as Vice President--Finance of ATI since May 1995 and
controller of the Company from October 1993 to May 1995. From April 1993 to
October 1993, Mr. Dominguez served as Vice President--Finance of Novatek
International Inc., a construction company. Mr. Dominguez is a licensed
certified public accountant.
44
<PAGE>
CURTIS A. "BUTCH" DALE has served as Chief Operating Officer of the
Company since August 1998. Prior to that time, from March 1998 until his
appointment as Chief Operating Officer, Mr. Dale was Vice President of
Operations for the Company. From March 1970 to January 1998, Mr. Dale was
either a manager or a consultant to GTE, a telecommunications company.
JONATHAN A. BRATT was elected to the Board of Directors in June 1997. Mr.
Bratt, a Venezuelan businessman, is on the boards of several Venezuelan
companies in the oil and gas and telecommunications industries. Mr. Bratt is a
director of BFGP Ingenieros, C.A., a software engineering firm ("BFGP") (from
January 1980 until the present); Infotrol, C.A., an engineering integration
firm (from January 1987 until the present); Cybertrol, C.A., a petroleum
engineering firm; Inversiones Tocolica, C.A., a construction firm (from January
1996 until the present); I.T.S., an engineering consulting joint venture; and
Inacom, an IBM wholesale dealer. He is also Managing Director of Able Telcom,
CA, a joint venture of BFGP and Able.
CARL F. SWARTZ was elected to the Board of Directors in June 1998. Mr.
Swartz has been retired since November 1994. Prior thereto, he was employed for
over five years by GTE.
THOMAS M. DAVIDSON was elected to the Board of Directors in June 1998. Mr.
Davidson was an investment banker with Washington Equity Partners from July
1997 to April 1998. From February 1997 to July 1997, Mr. Davidson practiced law
at Reed, Smith, Shaw and McClay, located in Washington, D.C. Prior to that, Mr.
Davidson practiced law at Coffield, Ungaretti and Harris, in Washington, D.C.,
from April 1995 to January 1997 and at Verner, Liipfert, Bernhard, McPherson
and Hand, in Washington, D.C., from April 1993 to April 1995.
OTHER EMPLOYEES
STACY JENKINS was named President of New MFSNT in July 1998. Prior to
joining New MFSNT, from 1990 to July 1998, Mr. Jenkins served at MFSNT as
Senior Vice President, Operations; Vice President, Engineering and Estimating;
and as Project Manager for the nationally recognized Iowa Communications
Network. During this time, he directed operations for more than 40 projects,
with a combined value in excess of $300 million, in the U.S. and abroad.
45
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain summary information for the years
indicated concerning the compensation awarded to, earned by, or paid to (i) the
Chief Executive Officer, (ii) the other four most highly compensated executive
officers of the Company who were serving as such at October 31, 1997, and (iii)
up to two additional individuals who had served as an executive officer of the
Company during the 1997 fiscal year but who were not executive officers at
October 31, 1997, except that persons referred to in clauses (ii) and (iii)
above are not included in the table if they received total annual salary and
bonus of $100,000 or less for the 1997 fiscal year. The persons named in this
table shall collectively be referred to as the "Named Executive Officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION ------------------
FISCAL -------------- SHARES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) OPTIONS(#) COMPENSATION($)
- ---------------------------- ------- -------------- ------------------- ----------------
<S> <C> <C> <C> <C>
Frazier L. Gaines(1) 1997 110,000 5,000 $1,024,375
President and 1996 110,000 -- 36,000
Chief Executive Officer 1995 104,000 -- 36,000
J. Barry Hall 1997 161,538 27,500 --
President, Traffic
Management Group
Gerry W. Hall(2) 1997 180,769 27,500 3,200
Former President and
Chief Executive Officer
William J. Mercurio(3) 1997 107,901 75,000 243,100
Former President, Chief 1996 204,000 20,000 6,000
Executive Officer and 1995 66,600 -- 2,000
Chief Financial Officer
</TABLE>
- ----------------
(1) Mr Gaines was appointed President and Chief Executive Officer of Able in
March 1998 and, prior thereto, was President of Able Telcom International,
Inc. (a position that he continues to hold). Other compensation consists
of an automobile allowance and a housing allowance and includes for fiscal
1997 an amount of $991,375, which represents the difference between the
price paid by Mr. Gaines upon the exercise of certain stock options and
the fair market value of the underlying Common Stock on the date of
exercise.
(2) Gerry W. Hall served as President of GEC during the fiscal year ended
October 31, 1997, and was appointed President and Chief Executive Officer
of the Company on June 12, 1997 at an annual salary of $200,000. Mr. Hall
resigned from such positions with Able and as a Director of the Company on
March 2, 1998. Other compensation consists of an automobile allowance.
(3) Other compensation for fiscal years 1995 and 1996 consists of an automobile
allowance. For fiscal year 1997, other compensation represents the
difference between the price paid by Mr. Mercurio upon the exercise of
certain stock options and the fair market value of the underlying Common
Stock on the date of exercise. Mr. Mercurio resigned as President, Chief
Executive Officer and Chief Financial Officer of the Company effective
June 12, 1997.
46
<PAGE>
OPTION GRANTS DURING THE FISCAL YEAR ENDED OCTOBER 31, 1997
The following table shows all grants during the fiscal year ended October
31, 1997 of stock options to the Named Executive Officers.
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PERCENTAGE OF PRICE APPRECIATION
NUMBER OF TOTAL OPTIONS MARKET FOR
SHARES GRANTED TO EXERCISE PRICE ON OPTION TERM(1)
UNDERLYING EMPLOYEES IN PRICE DATE OF EXPIRATION --------------------
NAME OPTION FISCAL YEAR ($/SH) GRANT DATE 5%($) 10%($)
- ----------------------------- ------------ --------------- ---------- --------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Gerry W. Hall ............... 27,500 5.24% $6.00 $8.25 3/10/99 82,130 109,519
J. Barry Hall ............... 27,500 5.24 6.00 8.25 3/10/99 82,130 109,519
William J. Mercurio ......... 75,000 14.30 6.00 8.25 3/10/99 232,172 298,688
</TABLE>
- ----------------
(1) The potential realizable values are based upon assumed 5% and 10%
annualized stock price growth rates and are not intended to forecast
future price appreciation of the Company's Common Stock. Actual gains, if
any, on stock option exercises will depend on the amount, if any, by which
the fair market value exceeds the option exercise price on the date the
option is exercised. There is no assurance that the amounts reflected in
this table will be achieved.
OPTION EXERCISES AND PERIOD-END VALUES
The following table provides information on options exercised in the
fiscal year ended October 31, 1997 by Named Executive Officers, the number of
unexercised options each of them held at October 31, 1997 and the value of the
unexercised "in-the-money" options each of them held as of that date.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
YEAR-END(#) YEAR-END($)(1)
------------------- ---------------------
NUMBER OF SHARES
ACQUIRED ON EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(1) VALUE REALIZED UNEXERCISABLE UNEXERCISABLE
- ----------------------------- ----------------- --------------- ------------------- ---------------------
<S> <C> <C> <C> <C>
Frazier L. Gaines ........... 110,000 $991,375 --/-- --/--
Gerry W. Hall ............... -- -- 27,500/-- 218,281/--
J. Barry Hall ............... -- -- 27,500/-- 218,281/--
William J. Mercurio ......... 55,000 243,100 101,800/382,000 808,038/303,213
</TABLE>
- ----------------
(1) Based on the closing sale price of the Common Stock of $7 15/16 on October
31, 1997.
EMPLOYMENT AGREEMENTS
Gerry W. Hall, former President and Chief Executive Officer of Able, is
party to an employment agreement (the "Gerry Hall Employment Agreement"), dated
October 12, 1996, with GEC pursuant to which he served as the President of GEC.
The Gerry Hall Employment Agreement terminates on October 11, 2001 and provides
for Mr. Hall to be paid a salary of $150,000 per year, plus insurance and other
benefits. The Gerry Hall Employment Agreement also contains a covenant by Mr.
Hall not to compete with the Company for a period of two years following his
employment, unless the Company terminates the Hall Employment Agreement for
cause or Mr. Hall terminates the agreement with good reason, in which case the
non-competition period will terminate after six months (which period may be
extended by the Company up to one year in exchange for additional
compensation). The Board of Directors increased Mr. Hall's annual base salary
to $200,000 in connection with his appointment on June 12, 1997 as Able's
President and Chief Executive Officer. Mr. Hall resigned from such positions on
March 2, 1998 and resumed his duties with GEC on a full time basis. Mr. Hall
currently functions as a consultant to GEC. Gerry Hall has assigned $100,000 of
his annual salary to J. Barry Hall.
47
<PAGE>
J. Barry Hall is party to an employment agreement (the "Barry Hall
Employment Agreement"), dated October 12, 1996, with TSCI. Mr. Hall was
subsequently appointed President of GEC and the Company's Transportation
Services Group and currently serves in that capacity. The Barry Hall Employment
Agreement terminates October 11, 2001 and provides for Mr. Hall to be paid a
salary of $150,000 per year, plus insurance, and other benefits. The Barry Hall
Employment Agreement also contains a covenant by Mr. Hall not to compete with
the Company for a period for two years following his employment, unless the
Company terminates the Barry Hall Employment Agreement for cause or Mr. Hall
terminates the agreement with good reason, in which case the non-competition
period will terminate after six months (which period may be extended by the
Company up to one year in exchange for additional compensation). In addition,
an additional $100,000 in annual salary has been assigned to J. Barry Hall from
Gerry Hall.
None of the Company's Named Executive Officers are parties to any
agreements that are triggered upon a "change of control" of the Company,
although the acquisition agreement for the purchase of GEC provides for an
acceleration of certain contingent payments of the purchase price to Gerry W.
Hall and J. Barry Hall in the event that Company should sell GEC prior to
October 31, 2001.
1995 STOCK OPTION PLAN
The Company has adopted the 1995 Stock Option Plan (the "Plan") pursuant
to which 550,000 shares of Common Stock were originally authorized for
issuance. In April 1998, the shareholders of the Company approved the amendment
of the Plan to increase the number of shares outstanding under the Plan to
1,300,000. The Company intends to amend its registration statement on Form S-8
to register the additional 750,000 shares of Common Stock reserved for issuance
under the Plan.
The Company may grant stock options (both Nonqualified Stock Options and
Incentive Stock Options, as defined in the Plan) and restricted stock under the
Plan to Non-Affiliate Directors (as defined in the Plan), key employees,
advisors and consultants (the "Participants"). The Plan also provides for the
automatic grant to Non-Affiliate Directors, at such time as an individual
becomes a Non-Affiliate Director of the Company, of Nonqualified Stock Options
to purchase 5,000 shares of Common Stock at an exercise price per share equal
to 100% of the fair market value of the shares on the date of grant.
With respect to the grant of awards under the Plan to persons other than
Non-Affiliate Directors, the Board of Directors, or a committee appointed by
the Board of Directors (in either case, the "Plan Administrators"), will
determine persons to be granted stock options and restricted stock, the amount
of stock to be optioned or granted to each such person, and the terms and
conditions of any stock options and restricted stock. Both Incentive Stock
Options and Nonqualified Stock Options may be granted under the Plan. An
Incentive Option is intended to qualify as an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). Any Incentive Stock Option granted under the Plan will have an
exercise price of not less than 100% of the fair market value of the shares on
the date on which such option is granted. With respect to an Incentive Stock
Option granted to a Participant who owns more than 10% of the total combined
voting stock of the Company or any parent or subsidiary of the Company, the
exercise price for such option must be at least 110% of the fair market value
of the shares subject to the option on the date the option is granted. A
Nonqualified Stock Option granted under the Plan (i.e., an option to purchase
the Common Stock that does not meet the Code's requirements for Incentive
Options) shall be as determined by the Plan Administrators.
Subject to the terms of the Plan, the Plan Administrators may award shares
of restricted stock to the Participants. Generally, a restricted stock award
will not require the payment of any option price by the Participant but will
call for the transfer of shares to the Participant subject to forfeiture,
without payment of any consideration by the Company, if the Participant's
employment terminates during a "restricted" period (which must be at least six
months) specified in the award of the restricted stock.
48
<PAGE>
There are 1,300,000 shares authorized for possible issuance under the
Plan. As of the date of this Prospectus, options to purchase 1,158,760 of such
reserved shares of Common Stock have been granted (net of cancelled options).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended October 31, 1997, compensation for the
Company's officers was determined by the entirety of the Company's Board of
Directors. During such time, Frazier D. Gaines, and Richard J. Sandulli and
Robert L. Nelles, neither of whom is presently a director of the Company,
served as officers of the Company. The Company has since established a
Compensation Committee consisting of Messrs. Carl F. Swartz, Thomas Davidson
and Gideon Taylor to determine compensation for future years.
On October 12, 1996, the Company acquired all of the issued and
outstanding capital stock of Georgia Electric Company ("GEC"), which prior to
the acquisition was owned equally by Gerry W. and J. Barry Hall (collectively,
the "Halls"). In connection with the acquisition, Gerry Hall was employed as
President of GEC and Barry Hall was employed as President of TSCI pursuant to
the employment agreements described above under "Employment Agreements".
Following the acquisition, Gerry Hall was elected to the board of directors of
the Company, and on June 12, 1997, was elected President and Chief Executive
Officer of the Company. Gerry Hall resigned as President, Chief Executive
Officer and a director of the Company on March 2, 1998. The purchase price for
the GEC acquisition was $3 million in cash, plus the issuance at the end of
each of the next five fiscal years of a number of shares of Common Stock to be
determined pursuant to a formula contained in the acquisition agreement by
dividing a dollar figure derived from GEC's actual pre-tax profits and
operating margins compared with target profits and margins for each such fiscal
year by a discounted per share price. In the event that GEC is sold by the
Company prior to the end of fiscal year 2001, the Company is obligated to issue
to Gerry Hall and Barry Hall a number of shares of Common Stock having a market
value (as determined in accordance with the contract) of $1 million for each
year that earn-out consideration remains payable. The GEC acquisition agreement
was amended in February 1998 to increase the percentage discount applicable to
the price of the Common Stock for purposes of determining the number of shares
to be issued with respect to each fiscal year and to limit the total market
value of the shares of Common Stock which could be issued under the agreement
to $9 million.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In April 1998, the Company engaged Washington Equity Partners ("WEP") as
an advisor in connection with the MFSNT Acquisition, including the financing
thereof, and agreed to pay WEP a fee if the Company consummated the financing
of the MFSNT Acquisition through an investor contacted by WEP. Such fee equals
2% of the gross proceeds of any senior indebtedness issued by the Company, 3%
of the gross proceeds of any subordinated indebtedness issued by the Company,
and 4% of the gross proceeds of any equity securities issued by the Company. In
addition, the Company agreed to pay WEP, upon the consummation of the MFSNT
Acquisition, a fee of 2% of the aggregate purchase price paid by the Company
for the MFSNT Acquisition up to $50 million, and 1 1/2% of the aggregate
purchase price in excess of $50 million. The Company also committed to
reimburse WEP for its reasonable travel and out-of-pocket expenses (up to a
maximum of $20,000 without prior approval) incurred in connection with its
engagement. Under the agreement, the Company agreed to indemnify WEP and its
permitted assigns against all losses and expenses, including reasonable counsel
fees and expenses, arising out of the MFSNT Acquisition or the financing,
except any losses or expenses found in a final judgment by a court of competent
jurisdiction to have resulted from WEP's bad faith, gross negligence or breach
of its agreement with the Company. At the time of this engagement, Thomas M.
Davidson was Managing Director of WEP. After he left that position in April
1998, WEP assigned its rights in the agreement to Mr. Davidson, who became a
director of the Company in June 1998. On October 21, 1998, Mr. Davidson and
the Company executed a letter agreement pursuant to which the Company agreed
to pay to Mr. Davidson $1,332,000 in satisfaction of amounts owing under the
agreement with WEP with respect to the MFSNT Acquisition and the related
financing.
On April 24, 1998, to finance part of the non-refundable deposit for the
MFSNT Acquisition, Frazier L. Gaines, the Company's President and Chief
Executive Officer, and Gideon D. Taylor, the Company's Chairman of the Board,
borrowed $5.0 million from a bank on an unsecured basis. This loan was secured
by a pledge of 1,047,000 shares of Common Stock owned by Messrs. Gaines and
Taylor. On July 2, 1998, to finance an additional non-refundable deposit on the
MFSNT Acquisition purchase price, Messrs. Frazier and Taylor borrowed an
additional $4.2 million. This loan was also secured by a pledge of 1,047,000
shares of Common Stock owned by Messrs. Gaines and Taylor. On June 11, 1998, the
Company repaid both these loans with $9.2 million of the proceeds from the
Secured Credit Facility. Interest on the loans in the amount of $50,000 was also
paid. On July 8, 1998, Messrs. Taylor and Gaines were granted two-year options
(which vested immediately) to purchase 120,000 shares and 80,000 shares,
respectively, of the Company's Common Stock, at an exercise price of $14.00 per
share, as compensation for providing the capital necessary to fund the initial
deposits required to consummate the MFSNT Acquisition.
On August 11, 1998, Messrs. Gaines and Taylor each loaned the Company $1
million on an unsecured basis to cover certain expenses of New MFSNT. These
loans were repaid in full on August 17, 1998 and interest of $2,200 was paid to
each of Messrs. Gaines and Taylor.
In November 1997, a subsidiary of the Company assumed the obligations of
Ten-Ray Utility Construction, Inc. ("Ten-Ray"), a North Carolina corporation,
as contractor under two network construction contracts and paid the costs
Ten-Ray had accrued under the contracts of approximately $131,000. On January
30, 1998, the Company purchased from Ten-Ray certain construction equipment
used in connection with the contracts. The purchase price for the equipment was
the satisfaction of Ten-Ray's bank loans secured by the equipment in the amount
of $330,188, including principal and interest, which in the opinion of the
executives of the subsidiary was not more than the fair market value of the
equipment. Billy V. Ray, Jr., then the Company's Chief Financial Officer,
beneficially owned approximately 7.7% of the voting stock of Ten-Ray and had
personally guaranteed the equipment loans to the bank.
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PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information known to the Company with
respect to the beneficial ownership of the Common Stock as of October 13,
1998, and as adjusted assuming the exercise in full of the John Hancock
Warrants, the Series B Preferred Stock, the Series B Preferred Stock Warrants,
and the Merger Option, in each case as of such date, by (i) each person known by
the Company to beneficially own more than 5% of the outstanding shares of Common
Stock, (ii) each director and Named Executive Officer of the Company,
(iii) certain other officers of the Company, (iv) each Selling Shareholder and
(v) all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING(2) NUMBER OF AFTER OFFERING(3)
--------------------------------- SHARES OFFERED ------------------------------
NAME OF BENEFICIAL OWNER(1) NUMBER PERCENTAGE HEREBY NUMBER PERCENTAGE
- ------------------------------------- -------------------- ------------ -------------------- ------------------ -----------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND
OFFICERS:
Jonathan A. Bratt(4)................. 36,500 * -- 36,500 *
Frazier L. Gaines(5)................. 684,430 6.07% -- 684,430 6.07%
Billy V. Ray, Jr.(6)................. 25,000 * -- 25,000 *
Gideon D. Taylor(7).................. 1,016,638 9.01% -- 1,016,638 9.01%
Carl F. Swartz(6).................... 20,000 * -- 20,000 *
Thomas M. Davidson(6)................ 20,000 * -- 20,000 *
J. Barry Hall(8) .................... 102,220 * -- 102,220 *
Gerry W. Hall(8) .................... 102,220 * -- 102,220 *
Mark A. Shain ....................... -- -- -- -- --
Jesus G. Dominguez(9) ............... 27,708 * -- 27,708 *
Curtis A. "Butch" Dale .............. 3,300 * -- 3,300 *
All directors and executive
officers as a group
(9 persons) ....................... 1,833,576(9) 15.78% -- 1,833,576(9) 15.78%
SELLING SHAREHOLDERS:
John Hancock Mutual Life
Insurance Company(11) ............. -- -- -- -- --
John Hancock Variable Life
Insurance Company(11) ............. -- -- -- -- --
Barnett & Co.(11)(12) ............... -- -- -- -- --
Colonial Penn Life
Insurance Company ................. 322,404(13) 2.91% 322,404(13) -- --
Halifax Fund, L.P. .................. 1,617,356(13) 14.62% 1,617,356(13) -- --
Palladin Partners I, L.P. ........... 322,404(13) 2.91% 322,404(13) -- --
Palladin Securities, L.L.C. ......... 436,154(13) 3.94% 436,154(13) -- --
Palladin Overseas Fund
Limited ........................... 436,154(13) 3.94% 436,154(13) -- --
The Gleneagles Fund
Company ........................... 549,904(13) 4.97% 549,904(13) -- --
RGC International
Investors, LDC..................... 3,391,452(13) 30.65% 3,391,452(13) -- --
MFS Communications
Company, Inc.
11808 Miracle Hills Drive
Omaha, Nebraska 68154 ............. 1,817,941(14) 14.11% 1,817,941(14) -- --
</TABLE>
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- ----------------
* Less than 1%.
(1) Unless otherwise indicated, the address of each beneficial owner of more
than 5% of the Company's voting securities is 1601 Forum Place, Suite
1110, West Palm Beach, Florida 33401.
(2) Beneficial ownership is determined in accordance with the rules of the SEC
that deem shares to be beneficially owned by any person who has or shares
voting or investment power with respect to such shares. Unless otherwise
indicated below, the persons and entities named in the table have sole
voting and sole investment power with respect to all shares beneficially
owned. Shares of Common Stock subject to options that are currently
exercisable or exercisable within 60 days of October 13, 1998 are deemed to
be outstanding and to be beneficially owned by the person holding such
options for the purpose of computing the percentage ownership of such
person but are not treated as outstanding for the purpose of computing the
percentage ownership of any other person.
(3) Assumes the sale of all of the shares offered by each Selling Shareholder.
(4) Including 30,000 shares underlying options which are immediately
exercisable.
(5) Includes 210,000 shares underlying options which are immediately
exercisable. Does not include an aggregate of 9,000 shares held as trustee
for four minors and as to which Mr. Gaines disclaims beneficial ownership.
(6) All of these shares are subject to options which are immediately
exercisable.
(7) Includes (i) 21,619 shares owned by Mr. Taylor's wife, and (ii) 220,000
shares underlying options which are immediately exercisable.
(8) Gerry W. Hall resigned as an executive officer and director of the Company
on March 2,1998. J. Barry Hall was deemed an executive officer of the
Company for fiscal year 1997 but is no longer deemed by the Company as an
executive officer for purposes of the Exchange Act. These shares represent
shares issued by the Company for earnout consideration in connection with
the GEC acquisition.
(9) Excludes shares of Common Stock beneficially owned by Gerry W. Hall and J.
Barry Hall, who are no longer executive officers or directors of the
Company.
(10) Includes 27,000 shares underlying options which are immediately
exercisable.
(11) The John Hancock Warrants will be exercisable on January 6, 1999.
(12) Barnett & Co. is the nominee for Signature 1A (Cayman), Ltd.
(13) The number of shares set forth in the table represents an estimate of the
number of shares of Common Stock that will be offered by each Selling
Shareholder. The actual number of shares of Common Stock issuable upon
conversion of the Series B Preferred Stock and exercise of the Series B
Preferred Stock Warrants is indeterminate, is subject to adjustment and
could be materially less or more than such estimated number, depending upon
factors which cannot be predicted by the Company at this time, including
without limitation the future market price of the Common Stock. The actual
number of shares of Common Stock offered hereby and included in the
Registration Statement of which this Prospectus forms a part, includes such
additional number of shares of Common Stock as may be issued or issuable
upon conversion of the Series B Preferred Stock and exercise of the Series
B Preferred Stock Warrants by reason of the floating rate conversion price
mechanism or other adjustment mechanisms described therein, or by reason of
any stock split, stock dividend or similar transaction involving the Common
Stock, in order to prevent dilution, in accordance with Rule 416 under the
Securities Act. The Company has agreed to register 200% of the actual
number of shares of Common Stock issuable pursuant to an assumed conversion
of the Series B Preferred Stock in full as of October 13, 1998. In
addition, the Company has agreed to register 150% of the actual number of
shares of Common Stock issuable pursuant to an assumed exercise of the
Series B Preferred Stock Warrants in full as of October 13, 1998. Pursuant
to the terms of the Series B Preferred Stock, the conversion price on
October 13, 1998 would have been $3.51625 (97% of $3.625, which is the
lowest intraday trading price for the Common Stock during the 22 trading
days immediately preceding October 13, 1998, the day of the conversion), at
which price the $20 million of Series B Preferred Stock would have been
converted into approximately 5,687,878 shares of Common Stock. The Series B
Preferred Stock Warrants are exercisable into 1,000,000 shares of Common
Stock at an exercise price of $19.80 per share. Pursuant to the terms of
the Series B Preferred Stock and the Series B Preferred Stock Warrants,
such securities are convertible or exercisable, as the case may be, by any
holder only to the extent that the number of shares of Common Stock thereby
issuable or convertible, together with the number of shares of Common Stock
owned by such holder and its affiliates (but not including shares of Common
Stock underlying unconverted shares of Series B Preferred Stock or Series B
Preferred Stock Warrants) would not exceed 4.99% of the then outstanding
Common Stock as determined in accordance with Section 13(d) of the Exchange
Act. Accordingly, the number of shares of Common Stock set forth in the
table for this Selling Shareholder exceeds the number of shares of Common
Stock that this Selling Shareholder could beneficially own at any given
time through its conversion of the Series B Preferred Stock or exercise of
the Series B Preferred Stock Warrants. In that regard, beneficial ownership
of this Selling Shareholder has not been determined in accordance with Rule
13d-3 under the Exchange Act.
(14) Includes 1,817,941 shares of Common Stock exercisable pursuant to an option
granted by the Company in connection with the MFSNT Acquisition. See
"Business--Recent Developments--The MFSNT Acquisition" and "Description of
Securities--The MFSCC Option." This information is based solely on a
Schedule 13D filed by WorldCom and MFSCC on May 7, 1998, as amended on July
8, 1998. Pursuant to such Schedule 13D, WorldCom has also claimed
beneficial ownership of these shares.
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<PAGE>
DESCRIPTION OF INDEBTEDNESS
The following discussions of certain of the provisions of the Company's
indebtedness are not intended to be complete or exhaustive and are qualified in
its entirety by references to the provisions of the documents and agreements
with respect to such indebtedness. These documents and agreements have been
filed as exhibits to the Registration Statement of which this Prospectus forms
a part.
SECURED CREDIT FACILITY
On June 11, 1998, Able entered into a Credit Agreement with NationsBank,
N.A., as Administrative Agent (the "Secured Credit Facility"). Pursuant to the
Secured Credit Facility, a syndicate of lenders will lend to the Company up to
$35 million in the form of senior secured revolving credit facilities (the
"Revolving Credit Facility"). The Revolving Credit Facility has a letter of
credit sublimit of $5 million.
The Revolving Credit Facility will mature on June 20, 2001.
The interest rate under the Secured Credit Facility will, at the option of
the Company, be based upon either (i) a Eurodollar rate or (ii) a base rate,
for any day, the greater of the prime rate announced from time to time by the
Administrative Agent as its U.S. dollar prime commercial lending rate (which
rate may or may not be the lowest rate of interest charged by the
Administrative Agent) and the weighted average of the rates on overnight
federal funds transactions with members of the Federal Reserve System in effect
on such day, plus 1%.
The Secured Credit Facility is guaranteed by all of the Company's existing
and future Restricted Subsidiaries. Each of the Company's subsidiaries are
Restricted Subsidiaries other than New MFSNT and the Company's international
subsidiaries. The Secured Credit Facility is secured by a pledge of 100% of the
capital securities of the Company's Restricted Subsidiaries (including all
existing intercompany notes issued to any Restricted Subsidiary by any of its
subsidiaries and all shares of capital securities set forth in the Pledge
Agreement, by and among the Administrative Agent and each of the Restricted
Subsidiaries).
The Secured Credit Facility contains covenants restricting the ability of
the Company and its Restricted Subsidiaries to, among others, (i) incur
additional debt, (ii) declare dividends or redeem or repurchase capital stock,
(iii) prepay, redeem or purchase debt, (iv) incur liens, (v) make loans and
investments, (vi) make capital expenditures, (vii) engage in mergers,
acquisitions and asset sales, and (viii) engage in transactions with
affiliates. The Company is also required to comply with financial covenants
with respect to certain minimum ratios, including debt coverage, interest,
fixed charges and current ratio.
On June 30, 1998, the Secured Credit Facility was amended to (i) permit
the Company's acquisition of MFSNT and the related financing of such
transaction, (ii) make certain changes in the financial covenants related
thereto, and (iii) make other amendments relating to investments, pledging and
intercompany matters.
SENIOR NOTES
In January 1998, Able issued $10 million in principal amount of 12% Senior
Subordinated Notes due January 6, 2005 (the "Senior Notes") to John Hancock
Mutual Life Insurance Company, John Hancock Variable Life Insurance Company and
Signature 1A (Cayman), Ltd., pursuant to the Note Agreement, dated as of
January 6, 1998 (the "Note Agreement"), by and among Able and each of the
holders of the Senior Notes. The Senior Notes bear interest at an annual rate
of 12%, in arrears, payable semiannually on January 6 and July 6 of each year
the Senior Notes remain outstanding. If a Change in Control (as defined in the
Note Agreement) occurs, we are required to offer to pay each
53
<PAGE>
holder of the Senior Notes all of the principal, accrued but unpaid interest
and, except in certain circumstances, the Prepayment Compensation Amount (as
defined in the Note Agreement), if any, on the Senior Notes. The Note Agreement
contains certain financial covenants restricting the ability of the Company and
its Restricted Subsidiaries (as defined in the Note Agreement) to, among other
things, (i) incur additional debt, (ii) declare dividends or redeem or
repurchase capital stock, (iii) prepay, redeem or purchase debt, (iv) incur
liens, (v) make loans and investments, (vi) make capital expenditures, and
(vii) engage in mergers, acquisitions and asset sales, (viii) engage in
transactions with affiliates. The Company is also required to comply with
financial covenants with respect to certain minimum ratios, including debt
coverage, interest, fixed charges and current ratio. Between May 29, 1998 and
September 17, 1998, the Company received either waivers and/or consents, or
letters of forbearance, relating to the MFSNT Acquisition and the related
financing of the acquisition. These letters also accelerated the maturity date
of the Senior Notes to August 31, 1998, which has been extended to October 16,
1998, and further extended to November 30, 1998.
WORLDCOM NOTE
In order to finance the MFSNT acquisition, we expect to issue the WorldCom
Note to MFSCC pursuant to the September Agreement. We must repay the WorldCom
Note in full on December 15, 2000. The WorldCom Note bears interest at 11.5%
per year, payable every three months commencing November 30, 1998. The
principal amount of the WorldCom Note is to be prepaid in part by applying a
portion of certain fees (i) due to us by WorldCom and (ii) received by us in
connection with the sale and installation of certain conduit projects. Pursuant
to a Pledge Agreement, dated as of July 2, 1998 (the "Pledge Agreement"), we
have pledged all of the shares of capital stock in New MFSNT (the "Pledged
Stock") to WorldCom and MFSCC to secure our obligations under the WorldCom
Note. Other than our pledge of our stock in New MFSNT, our obligations under
the WorldCom Note are junior to those under the Secured Credit Facility (as
defined below) and our 12% senior subordinated notes due January 6, 2005 (the
"Senior Notes").
An "Event of Default" will occur under the WorldCom Note upon (i) the
failure to pay or perform any obligations, liabilities or indebtedness of the
Company to MFSCC under the WorldCom Note or any other agreement, note or
instrument now or thereafter existing, (ii) a proceeding being filed or
commenced against the Company for dissolution or liquidation of the Company
(except where such proceeding is filed or commenced involuntarily and is
dismissed or discharged within sixty (60) days of the date of notice thereof)
or the Company voluntarily or involuntarily terminating or dissolving or being
terminated or dissolved, (iii) insolvency of, business failure of, the
appointment of a custodian, trustee, liquidator or receiver for, or for any of
the property of, or an assignment for the benefit of creditors by or the filing
of a petition under bankruptcy, insolvency, or debtor's relief law (except
where such appointment, assignment, or filing is involuntary and is dismissed
or discharged within sixty (60) days of the date of notice thereof) or for any
readjustment of indebtedness, composition or extension by or against the
Company, (iv) any attachments, liens or additional security instruments being
placed upon the Pledged Stock (or the collateral substituted therefor) (except
where such attachment or lien is created by a third party and is removed within
sixty (60) days of the date of notice thereof, (v) acquisition at any time or
from time to time of title to the whole of all or any part of the Pledged Stock
(or the collateral substituted therefor) by any person other than the Company,
(vi) any representation or warranty under the documents entered into in
connection with the MFSNT Acquisition made by the Company to MFSCC that is, or
was, untrue or materially misleading at the time such representation or
warranty was made, (vii) any default under the Pledge Agreement or the
Assumption and Indemnity Agreement or (viii) breach of any of certain covenants
in the WorldCom Note.
Upon an Event of Default, the entire balance of the WorldCom Note shall
automatically become due and payable, subject to certain subordination
provisions. In addition, upon a default of the WorldCom Note, it is anticipated
that WorldCom will be able to do any or all of the following:
/bullet/ Accelerate all principal and interest we owe WorldCom under the
WorldCom Note
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<PAGE>
/bullet/ Acquire all of our stock in New MFSNT
/bullet/ Keep all principal and interest we may have already paid under
the WorldCom Note
/bullet/ Require us to pay an 18% annual default rate of interest while we
are in default
/bullet/ Cause WorldCom Network to apply 12% of the payment it owes us at
the time of default under the WorldCom Master Services Agreement to the
outstanding principal and interest due under the WorldCom Note
In addition, if we do not repay the WorldCom Note in full by December 15,
2000, it is anticipated that WorldCom will be able to:
/bullet/ Reduce the minimum yearly and aggregate revenues we would receive
under the WorldCom Master Services Agreement
/bullet/ Refuse to give us additional work under the WorldCom Master
Services Agreement while we are in default
Notwithstanding the foregoing, pursuant to the terms of the Pledge
Agreement, if the event of default is a failure by the Company to pay money to
MFSCC, the Company may cure the event of default by paying such money at any
time before WorldCom enforces its remedies under the Pledge Agreement.
MFSCC's right to receive such payments on the WorldCom Note is a senior
obligation of the Company, except that MFSCC's right to receive the
Subordinated Amount (as defined below) is subordinated and junior in right of
payment to all of the Company's obligations under the Senior Notes and the Note
Agreement (collectively, the "Senior Note Obligations") and the notes issued,
and other obligations arising under, the Credit Agreement, dated June 11, 1998
(and amended as of June 30, 1998), between the Company and NationsBank, N.A.,
as Administrative Agent and CIBC Inc. as Documentation Agent and the Lenders
from time to time parties thereto (the "Secured Credit Agreement") (as the same
may be amended thereunder without increasing the "Commitments" thereunder)
(collectively the "Credit Agreement Obligations"). All Senior Note Obligations
and Credit Agreement Obligations must also be fully paid in cash and all
commitments to lend under the Secured Credit Agreement must have been
extinguished for 91 days before payment can be made by the Company on the
Subordinated Amount. In addition, so long as any amount is outstanding under
the Senior Note Obligations or the Credit Agreement Obligations, and for so
long as there is any commitment to lend existing under the Secured Credit
Agreement, MFSCC cannot exercise any remedies with respect to the WorldCom
Note, other than with respect to recourse against the Pledged Stock (or the
collateral substituted therefor), during any period (the "Standstill Period")
that MFSCC would have been entitled to enforce its claim for the Subordinated
Amount and ending upon the earlier of (i) 120 days after the commencement of
the Standstill Period, if an event of default in payment of the Senior Note
Obligations or the Credit Agreement Obligations has occurred and is continuing
and 150 days after the commencement of such Standstill Period if no such event
of default has occurred during that 120 day period, and (ii) the date that the
holder of the Senior Notes or the Credit Agreement Obligations commences the
exercise of any remedies in respect of the Senior Notes or the Credit Agreement
Obligations. As used herein, "Subordinated Amount" means (x) in the event
WorldCom or MFSCC acquires the Pledged Stock (or collateral substituted
therefor) pursuant to the terms of the Pledge Agreement, the outstanding
principal amount of the WorldCom Note plus accrued interest thereon, less the
Deemed Value, plus amounts representing certain costs, expenses and fees under
the WorldCom Note and the Pledge Agreement, (y) until such time, if ever, as
WorldCom or MFSCC acquires the Pledged Stock (or collateral substituted
therefor), the unpaid principal amount of and accrued interest on the WorldCom
Note, plus amounts representing certain costs, expenses and fees under the
WorldCom Note and the Pledge Agreement; provided, however, that neither
WorldCom nor MFSCC is required to repay to the Company or any holder of the
Senior
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<PAGE>
Notes or the Credit Agreement Obligations, any merger consideration, extension
fee or other amounts paid to WorldCom or MFSCC under the Merger Agreement
entered into in connection with the MFSNT Acquisition (the "Merger Agreement"),
any amounts that may be set off by MFSCC or WorldCom, or any Collections. If
WorldCom or MFSCC acquires the Pledged Stock (or the collateral substituted
therefor) pursuant to the terms of the Pledge Agreement, any unpaid claim under
the WorldCom Note which does not constitute a Subordinated Amount will be
satisfied solely from the proceeds of the Pledged Stock (or the collateral
substituted therefor).
GUARANTY AGREEMENT
In connection with the MFSNT Acquisition, we agreed to assume and pay and
fully discharge at our expense all of the liabilities and obligations of MFSCC
under its Guaranty Agreement, dated November 1, 1996 (the "Guaranty
Agreement"), with Credit Lyonnais, New York Branch, as agent for the several
lenders party to the Credit Agreement, dated November 1, 1996 (the "Kanas
Credit Agreement"), among such lenders, Credit Lyonnais and Kanas Telecom,
Inc., as borrower ("Kanas").
Pursuant to the Guaranty Agreement, under certain limited circumstances,
MFSCC has agreed to guarantee the payment obligations of Kanas under the Kanas
Credit Agreement and any related loan document and the payment obligations of
Kanas under any present or future hedging agreement between Kanas and any
lender under the Kanas Credit Agreement (collectively, the "Kanas
Obligations"). The aggregate commitment of the lenders under the Kanas Credit
Agreement is $85.4 million, and the purpose of the Kanas Credit Agreement is to
provide the funds necessary to complete the Alyeska project, which is governed
by the Alyeska Services Agreement (the "Services Agreement"), dated May 31,
1996, as amended, between Alyeska and Kanas.
The circumstances under which MFSCC has agreed to guarantee the Kanas
Obligations are (i) the payment of all obligations if final acceptance of the
Alyeska project does not occur on or prior to December 31, 1999, provided that
such date may be extended under certain conditions; (ii) the payment of the
Kanas Obligations due on any quarterly due date on which (x) certain specified
performance failures under the Services Agreement have occurred, (y) Alyeska
has terminated the Alyeska project, and (z) Kanas does not have sufficient
funds to pay certain expenses, including amounts due under the Credit
Agreement; (iii) the payment of the difference between the monthly fee owing to
Kanas pursuant to the Services Agreement and the amount Alyeska is permitted to
pay by the Alaska Public Utility Commission if such commission has determined
that such monthly fee is too high; and (iv) to the extent such amounts are not
at the time payable by Alyeska, the payment of the difference between the Kanas
Obligations then owed by Kanas to the lenders under the Kanas Credit Agreement
and the amount paid by Kanas if certain termination payments are then due from
Alyeska pursuant to the Services Agreement.
DESCRIPTION OF PERFORMANCE BONDS
There are numerous risks inherent in providing services in the
telecommunications industry, which may result in a contractor or subcontractor
being unable to complete the contracted work. As a contractor, we are required
to supply the project owners with a performance and payment bond and a
certificate of insurance to protect the owners from liability. Internally, we
make use of builders' risk insurance to protect our own interests. If we decide
to subcontract a portion of the work, we also require our subcontractors to
provide performance and payment bonds and certificates of insurance to protect
us from liability. Depending upon the contract and/or the state and local laws,
we may also need to make use of other types of insurance or bonds. As of
September 30, 1998, we have $499 million in bonding for our projects.
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<PAGE>
DESCRIPTION OF SECURITIES
We are authorized to issue 25,000,000 shares of Common Stock, par value
$.001 per share, and 1,000,000 shares of preferred stock, par value $.10 per
share (the "Preferred Stock"). The Board of Directors has designated 1,200
shares of the Preferred Stock as Series A Convertible Preferred Stock, par
value $.10 per share (the "Series A Preferred Stock") 4,000 shares of the
Preferred Stock as Series B Preferred Stock. As of October 13, 1998, there were
approximately 11.1 million shares of Common Stock outstanding, held of record
by approximately 404 shareholders, no shares of Series A Preferred Stock
outstanding, and 3,564 shares of Series B Preferred Stock outstanding.
The following summary description of the Company's Common Stock and
Preferred Stock is not intended to be complete or exhaustive and is qualified
in its entirety by reference to the Company's Amended and Restated Articles of
Incorporation (the "Articles") and Bylaws, copies of which are included as
exhibits to the Registration Statement of which this Prospectus forms a part.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on
all matters submitted to a vote of shareholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights
of any outstanding Preferred Stock. Upon the liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to receive
ratably the net assets of the Company available after the payment of all debts
and other liabilities and subject to the prior rights of any outstanding
Preferred Stock. Holders of Common Stock have no preemptive, subscription,
redemption or conversion rights. The outstanding shares of Common Stock are,
and the shares offered by Selling Shareholders will be, when issued and paid
for, fully paid and nonassessable. The rights, preferences and privileges of
holders of Common Stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of Preferred Stock which the
Company may designate and issue in the future.
PREFERRED STOCK
GENERAL. The Board of Directors has the authority, without further action
of the shareholders of the Company, to issue up to an aggregate of 1,000,000
shares of Preferred Stock in one or more series and to fix or alter the
designations, preferences, rights and any qualifications, limitations or
restrictions of the shares of each such series thereof, including the dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption
(including sinking fund provisions), redemption price or prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series.
The Board of Directors, without shareholder approval, can issue Preferred
Stock with voting and conversion rights that could adversely affect the voting
power of holders of Common Stock. The issuance of Preferred Stock may have the
effect of delaying, deferring or preventing a change in control of the Company.
SERIES B CONVERTIBLE PREFERRED STOCK. In June, 1998, the Board of
Directors adopted a resolution authorizing 4,000 shares of Series B Convertible
Preferred Stock, par value $.10 per share ("Series B Preferred Stock"). The
Company subsequently sold 4,000 shares of Series B Preferred Stock at a price
of $5,000 per share to certain investors in a non-public offering. The net
proceeds to the Company after related fees and expenses were approximately
$18.9 million.
The holders of the Series B Preferred Stock are generally entitled to
receive cumulative quarterly dividends payable in shares of Common Stock, or,
at the Company's option, in cash at the rate of 4%
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per year. However, the Company must provide the holders of the Series B
Preferred Stock with 20 days prior written notice of its intent to pay them
cash dividends. The Company is precluded from paying dividends in shares of
Common Stock, and must pay such dividends in cash, upon the occurrence of one
or more triggering events, as specified in the Articles. Any accrued and unpaid
dividends not paid, either in stock or in cash, as may be applicable, within
five business days of the dividend date shall bear interest at the rate of 2%
per month until such dividends are paid. No dividends or other distributions
are to be paid in respect of the Common Stock if the dividends on the Series B
Preferred Stock are in arrears.
In the event of a liquidation, dissolution or winding up of the Company,
the holders of the Series B Preferred Stock are entitled to receive, for each
share of Series B Preferred Stock, prior to and in preference to any
distribution of assets or surplus funds of the Company to any holder of Common
Stock, an amount equal to the sum of $5,000 plus any unpaid dividends and
default interest to which the holders of the Series B Preferred Stock are
entitled.
The holders of the Series B Preferred Stock are entitled to convert their
shares of Series B Preferred Stock into shares of Common Stock; provided,
however, that in no event shall any holder of Series B Preferred Stock be
entitled to convert shares of Series B Preferred Stock if and to the extent
that such holder (together with its affiliates) would beneficially own,
immediately after and giving effect to such conversion, greater than 4.99% of
the outstanding shares of Common Stock. Upon conversion, a holder of one share
of Series B Preferred Stock would receive a number of shares of Common Stock
equal to the quotient of:
(i) $5,000, plus any unpaid default interest through the conversion date,
plus any unpaid dividends with respect to such share of Series B
Preferred Stock, and
(ii) the Conversion Price, subject to adjustment as described below, equal
to 97% of the lesser of
(a) the lowest intraday trading price of the Common Stock for any three
trading days during the 22 trading days immediately preceding the
conversion date, and
(b) the lowest intraday trading price of the Common Stock on the trading
day immediately preceding the conversion date; provided, however,
that in no event shall the Conversion Price as calculated in this
clause (b) be less than 95% of the lowest intraday trading price on
the conversion date.
The Conversion Price shall be subject to proportional adjustment pursuant
to certain anti-dilution provisions in the event that the Company takes any of
the following actions:
/bullet/ A forward or reverse stock split
/bullet/ A stock dividend
/bullet/ A merger, consolidation, or transfer or sale of all or
substantially all of the Company's assets
/bullet/ A reorganization or reclassification of Common Stock
/bullet/ Certain issuances of Common Stock or any securities convertible or
exchangeable into Common Stock
/bullet/ Any other similar action of the type contemplated above
Any Series B Preferred Stock not previously converted will automatically
convert into shares of Common Stock on June 30, 2003 (the "Maturity Date"), or
as may be extended by the Articles and the Registration Rights Agreement
applicable to the shares of Common Stock underlying the Series B
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Preferred Stock. If the aggregate number of shares to be issued to the holders
of the Series B Preferred Stock and the holders of the Series B Preferred Stock
Warrants by the holders thereof would exceed 20% (the maximum permitted without
shareholder approval pursuant to Nasdaq's rules), then the Company has agreed
to use best efforts to promptly obtain shareholder approval for such issuances.
If the Company does not have a sufficient amount of Common Stock available
to satisfy its obligations to any holder of Series B Preferred Stock upon
receipt of a conversion notice therefrom, or if the Company is otherwise unable
or unwilling to issue Common Stock in conversion therefor, then the Company
must pay in cash to each such holder an amount equal to 3% of the liquidation
value of the Series B Preferred Stock for each 30-day period (or portion
thereof) that the Company fails or refuses to issue such Common Stock. At any
time five days after the commencement of the first 30-day period described
above, at the request of a holder of Series B Preferred Stock, the Company must
redeem, at a price equal to 130% of the liquidation value of the Series B
Preferred Stock (the "Premium Redemption Price"), (i) the number of shares of
Series B Preferred Stock equal to such holder's pro rata share of the
Deficiency (as defined below), if the failure to issue Common Stock results
from the lack of a sufficient number thereof, or (ii) all of such holder's
Series B Preferred Stock (or such lesser number as such holder may elect), if
the failure to issue Common Stock results from any other cause. The
"Deficiency" shall equal the number of shares of Series B Preferred Stock that
would not be able to be converted into Common Stock due to an insufficient
amount of Common Stock being available, assuming that all the outstanding
shares of Series B Preferred Stock were submitted for conversion at the
Conversion Price as of the date such Deficiency is determined.
The holders of the Series B Preferred Stock may also require the Company
to redeem their shares of such stock at the Premium Redemption Price if (i) the
Company fails or refuses to pay any default payment or honor any penalty or
similar amounts when due, or (ii) the Company fails to seek or obtain
shareholder approval for an issuance of Common Stock to the holders of the
Series B Preferred Stock that exceeds 20% of the Company's issued and
outstanding stock. In addition, the holders of the Series B Preferred Stock
have the right to require that the Company redeem their shares of Series B
Preferred Stock upon the occurrence of
(a) a Major Transaction, which is defined as:
(x) the consolidation, merger or other business combination of the
Company with or into another person, other than
(I) a transaction in which the holders of the Company's voting power
immediately prior to the transaction continue to hold after the
transaction the voting power of the surviving entity or entities
necessary to elect a majority of the members of the board of
directors of such entities, or
(II) a transaction entered into solely to change the domicile of the
Company,
(y) the sale or transfer of all or substantially all the assets of the
Company, or
(z) a purchase, tender or exchange offer made to and accepted by the
holders of more than 30% of the outstanding shares of Common Stock,
or
(b) a Triggering Event, which is defined as:
(v) the failure of a registration statement covering the Common Stock
underlying the Series B Preferred Stock to be declared effective on
or before December 27, 1998 (180 days after the date of issuance of
the Series B Preferred Stock),
(w) a lapse in effectiveness of a registration statement covering shares
of Common Stock underlying the Series B Preferred Stock, other than
during certain suspension grace periods,
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(x) a delisting or suspension from listing of the Common Stock on Nasdaq
for a period of five consecutive days or an aggregate of 10 days in
any 365-day period,
(y) the Company's notice to any holder of Series B Preferred Stock that
the Company intends not to comply with proper requests for
conversion, or the Company's failure to deliver shares of Common
Stock within 10 business days of a conversion date, or
(z) any representation or warranty by the Company not being true and
correct at the time made or the Company breaches any covenant or
other term or condition of the Series B Convertible Preferred Stock
Purchase Agreement (the "Series B Purchase Agreement"), the Articles,
the Registration Rights Agreement with respect to the Series B
Preferred Stock, or any agreement delivered in connection therewith.
In the event of a Major Transaction, the redemption price per share of
Series B Preferred Stock shall be the greater of:
(i) the Premium Redemption Price, and
(ii) the product of
(a) the Conversion Price at such time, and
(b) the closing bid price on the date of the public announcement of
such Major Transaction or on the next date on which the exchange
or market upon which the Common Stock is traded is open if such
public announcement is made after 12:00 p.m. Eastern Time on such
date or on a date upon which the exchange or market is closed.
In the event of a Triggering Event, the redemption price per share of
Series B Preferred Stock shall be the greater of:
(i) the Premium Redemption Price, and
(ii) the product of
(a) the Conversion Price on the date of such holder's delivery of a
proper notice of redemption, and
(b) the greater of
(x) the closing bid price on the trading day immediately preceding such
Triggering Event, or
(y) the closing bid price on the date of the holder's delivery of the
notice of redemption, or if such date of delivery is not a trading
day, the next date on which the exchange or market on which the
Common Stock is traded is open.
In the event the Company fails, refuses or is unable to cause the Common
Stock underlying the Series B Securities to be listed on Nasdaq and each other
securities exchange and market on which the Common Stock is then traded at all
times during the period (the "Listing Period") from the earlier of (i) December
27, 1998 and (ii) the date this registration statement is declared effective by
the SEC, until the Maturity Date (provided that such date shall be deferred 1
1/2 days for each day that this registration statement is not effective), then
the Company shall pay in cash to each holder of Series B Securities a default
payment in an amount equal to three percent of the liquidation value
represented by the Series B Preferred Stock held by such holder for each 30-day
period during the Listing Period from and after such failure, refusal or
inability to so list the Common Stock underlying the Series B Securities until
such securities are so listed.
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Without the prior written consent of the holders of not less than
two-thirds of the then-outstanding shares of Series B Preferred Stock, the
Company may not (i) issue additional or other capital stock which is senior or
equal rank to the Series B Preferred Stock in respect of distributions and
payments upon liquidation, dissolution and winding up of the Company, (ii)
amend the Articles in any way which would adversely affect or impair the rights
or priority of the holders of the Series B Preferred Stock relative to the
holders of the Common Stock or any other class of capital stock, or (iii)
declare any dividends on its Common Stock.
The holders of Series B Preferred Stock have no voting rights, except as
may be required by law.
SERIES B PREFERRED STOCK WARRANTS
In connection with the issuance of the Series B Preferred Stock, the
holders thereof received 1,000,000 Series B Preferred Stock Warrants to
purchase in the aggregate 1,000,000 shares of Common Stock. The Series B
Preferred Stock Warrants are immediately exercisable at a price of $19.80 per
share, and expire on June 30, 2003. However, the expiration date of these
warrants may be extended by 1.5 days for every day between December 27, 1998
and June 30, 2003 upon which a registration statement covering the shares of
Common Stock underlying the Series B Preferred Stock Warrants is not effective.
In no event shall any holder of Series B Preferred Stock Warrants be entitled
to exercise such warrants if and to the extent that such holder (together with
its affiliates) would beneficially own, immediately after and giving effect to
such conversion, greater than 4.99% of the outstanding shares of Common Stock.
At any time and from time to time until all of the Series B Preferred
Stock Warrants have been exercised, and provided that (i) the Company is not in
breach of any provision of the Series B Preferred Stock Warrant, the related
Registration Rights Agreement or the Series B Purchase Agreement, and (ii)
there is an effective registration statement covering the Common Stock
underlying the Series B Preferred Stock Warrants, the Company may purchase the
Series B Preferred Stock Warrants from the holders thereof (upon 30 days prior
written notice) at a purchase price equal to $35.00, multiplied by the number
of unexercised Series B Preferred Stock Warrants owned by such holder (the
"Repurchase Price").
The exercise price and the Repurchase Price shall be subject to
proportional adjustment pursuant to certain anti-dilution provisions in the
event that the Company takes any of the following actions:
/bullet/ A forward or reverse stock split
/bullet/ A stock dividend
/bullet/ Distributions of assets to holders of Common Stock
/bullet/ A merger, consolidation, or transfer of all or substantially all
of the Company's assets
/bullet/ A reorganization or reclassification of Common Stock
/bullet/ Certain issuances of Common Stock or any securities convertible or
exchangable into Common Stock
In addition, in the event of any distribution to the holders of Common
Stock of shares of capital stock, evidences of indebtedness or any assets,
other than Common Stock, the number of shares underlying the Series B Preferred
Stock may be proportionally increased to reflect the fair market value of the
assets or property so distributed.
The Company has agreed to register the shares of Common Stock underlying
the Series B Preferred Stock and the Series B Preferred Stock Warrants under
the Securities Act and to keep such registration statement effective until such
shares of Common Stock are freely tradeable under Rule 144(k).
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JOHN HANCOCK WARRANTS
In connection with the sale of the Senior Notes, the Company issued to the
holders thereof 409,505 warrants (the "John Hancock Warrants") to purchase in
the aggregate 409,505 shares of Common Stock at a purchase price of $8.25 per
share. The exercise price may be paid by (i) cash, (ii) Senior Notes, (iii)
Senior Notes and cash, or (iv) on a "cashless" basis. A cashless exercise means
that the holder of the John Hancock Warrants shall elect to receive a number of
shares of Common Stock whose aggregate market price is equal to the product of
(i) the number of shares of Common Stock exercised, and (ii) the per share
difference between the market price and the exercise price as of the date of
exercise. The John Hancock Warrants are exercisable in 100 share increments (or
such lesser amount as may remain unexercised) at any time and from time to time
commencing on January 6, 1999 but prior to January 6, 2003. However, the John
Hancock Warrants become immediately exercisable prior to January 6, 1999 upon
the occurrence of or the fixing of a record date with respect to (i) any
merger, consolidation, or similar combination of the Company into any person,
except where the Company is the surviving entity and in which its shareholders
retain the Common Stock held by them immediately prior to the occurrence of
such event, or (ii) or sale of all or substantially all the assets of the
Company.
The Company is required to file a registration statement to register the
shares of Common Stock underlying the John Hancock Warrants and to keep that
registration statement effective until January 1, 2000, or the holders of the
John Hancock Warrants no longer own securities covered by the registration
statement.
In the event that the Company consummates a spin-off or other similar
transaction involving Able Telcom International, Inc. ("ATI"), the holders of
the John Hancock Warrants shall receive a pro rata portion of the shares of ATI
common stock distributed to the Company's shareholders, based upon the Common
Stock ownership (on a fully-diluted basis) of the holders of the John Hancock
Warrants, assuming that all such warrants were exercised immediately prior to
such spin-off.
The exercise price, and, in certain circumstances, the number of shares
underlying the John Hancock Warrants, shall be subject to proportional
adjustment pursuant to certain anti-dilution provisions in the event that the
Company takes any of the following actions:
/bullet/ A forward or reverse stock split
/bullet/ A stock dividend
/bullet/ Certain redemptions or repurchases of Common Stock
/bullet/ Distributions of assets to holders of Common Stock
/bullet/ A merger, consolidation, or transfer of all or substantially all
of the Company's assets
/bullet/ A reorganization or reclassification of Common Stock
/bullet/ Certain issuances of Common Stock or any securities convertible or
exchangable into Common Stock
/bullet/ A spin-off of ATI
THE MFSCC OPTION
As part of the MFSNT Acquisition, we granted an option to MFSCC (the
"MFSCC Option") to purchase up to 2,000,000 shares of Common Stock, at an
exercise price of $7.00 per share. MFSCC may elect to exercise some or all of
the MFSCC Option on a "cashless" basis, up to the equivalent of
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1,817,941 shares of Common Stock, which is the maximum number of shares that
may issued upon exercise of the MFSCC Option. A "cashless" exercise means that
MFSCC will receive shares of Common Stock with a total "market value" equal to
the per share excess of the "market value" over the exercise price multiplied
by the number of shares of the MFSCC Option being exercised. The MFSCC Option
expires six months after the date we repay all of our obligations under the
WorldCom Note. We will not receive any cash for the part of the MFSCC Option
that MFSCC exercises on a "cashless" basis. As part of the September Agreement,
we agreed to issue to WorldCom Network a phantom stock award or other equity
participation award equivalent to 600,000 shares of Common Stock, payable in
cash, stock, or a combination of both at our option. The phantom stock or other
equity participation award is exercisable only on the following three days:
July 2, 1999, July 2, 2000, or July 2, 2001. WorldCom will be entitled to
receive any appreciation of the Common Stock over a base price of $5 3/32 per
share, but not more than $30 3/32 per share.
For purposes of the MFSCC Option, the market price of the Common Stock
shall be deemed to equal the average of the closing "bid" and "asked" price for
the Common Stock as reported by Nasdaq for the ten trading days preceding the
date of exercise of the MFSCC Option.
The Option may be exercised by MFSCC, in whole or in part, by delivery of
an exercise notice to the Company during the period commencing on the
consummation date of the MFSNT Acquisition and continuing through the date six
months following the payment in full of amounts owing under the WorldCom Note.
The September Agreement extended the expiration date of the MFSCC Option.
In the event that MFSCC exercises the MFSCC Option in whole or in part, it
shall be entitled to designate Frederick W. Weidinger, Vice President of
WorldCom, or if he shall be unable to serve, another individual reasonably
acceptable to the Company, to serve on the Company's Board of Directors for so
long as the number of shares beneficially owned by MFSCC pursuant to the
exercise of the MFSCC Option is greater than or equal to 5% of the then
outstanding shares of Common Stock.
LIMITED LIABILITY AND INDEMNIFICATION
Under the Florida Business Corporation Act (the "FBCA"), a director is not
personally liable for monetary damages to the corporation or any other person
for any statement, vote, decision, or failure to act unless (i) the director
breached or failed to perform his duties as a director and (ii) the director's
breach of, or failure to perform, those duties constitutes: (1) a violation of
the criminal law, unless the director had reasonable cause to believe his
conduct was lawful or had no reasonable cause to believe his conduct was
unlawful, (2) a transaction from which the director derived an improper
personal benefit, either directly or indirectly, (3) a circumstance under which
an unlawful distribution is made, (4) in a proceeding by or in the right of the
corporation to procure a judgment in its favor or by or in the right of a
shareholder, conscious disregard for the best interest of the corporation or
willful misconduct, or (5) in a proceeding by or in the right of someone other
than the corporation or shareholder, recklessness or an act or omission which
was committed in bad faith or with malicious purpose or in a manner exhibiting
wanton and willful disregard of human rights, safety, or property. A
corporation may purchase and maintain insurance on behalf of any director or
officer against any liability asserted against him or her and incurred by him
or her in his or her capacity or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the FBCA. Our Bylaws provide that the Company
shall indemnify our officers and directors against liability resulting from
their service as an officer or director of the Company and the Company has
executed indemnification agreements so providing.
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, we have been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
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CERTAIN PROVISIONS OF THE FBCA AND THE ARTICLES
The Company is subject to (i) Section 607.0901 of the FBCA, which
generally requires supermajority approval by disinterested directors or
shareholders of certain specified transactions between a corporation and
holders of more than 10% of the outstanding shares of the corporation (or their
affiliates), and (ii) Section 607.0902 of the FBCA, which generally provides
that shares acquired in excess of certain specified thresholds will not possess
any voting rights unless such voting rights are approved by a majority vote of
the corporation's disinterested shareholders.
The authorized but unissued shares of Common Stock and Preferred Stock are
available for future issuance without shareholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans. The existence of authorized but unissued and unreserved
Common Stock and Preferred Stock may enable the Board of Directors to issue
shares to persons friendly to current management which could render more
difficult or discourage an attempt to obtain control of the Company by means of
a proxy contest, tender, offer, merger or otherwise, and thereby protect the
continuity of the Company's management.
SHARES ELIGIBLE FOR FUTURE SALE
As of October 13, 1998, the Company had approximately 11.1 million shares
of Common Stock issued and outstanding. Assuming that as of October 13, 1998,
the holders of the Series B Preferred Stock, the Series B Preferred Stock
Warrants, the John Hancock Warrants, and the MFSCC Option (subject to the
"cashless" exercise limitations) had converted or exercised all of their
securities into shares of Common Stock, the Company would have had
approximately 19.0 million shares of Common Stock issued and outstanding on
that date, substantially all of which would have been freely tradeable.
On May 22, 1996, we filed a registration statement on Form S-8 with the
SEC to register 550,000 shares of Common Stock issuable under the Plan and
510,000 shares of Common Stock issuable under other agreements entered into
with certain of our current and former directors, officers and employees. On
June 18, 1997, we filed a post-effective amendment to this Form S-8 with the
SEC to register the resale of 459,800 of such shares by affiliates of the
Company. On April 24, 1998, the Company's shareholders amended the Plan to
increase the aggregate number of shares of Common Stock issuable under the Plan
from 550,000 to 1,300,000. We intend to file a registration statement under the
Securities Act to register these 750,000 additional shares of Common Stock
reserved for issuance under the Plan. As of October 13, 1998, options to
purchase 875,085 shares of Common Stock were outstanding under the Plan and
options with respect to 283,575 shares of Common Stock had been exercised. See
"Management--1995 Stock Option Plan."
Sales of substantial amounts of the Company's securities in the public
market could have a significant adverse effect on prevailing market prices and
could impair our future ability to raise capital through the sale of our equity
securities. See "Risk Factors--Shares Eligible for Future Sale."
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PLAN OF DISTRIBUTION
The Selling Shareholders may, from time to time, sell all or a portion of
the shares on Nasdaq (or such other exchange on which the Common Stock may from
time to time be trading), in privately negotiated transactions or otherwise, at
fixed prices that may be changed, at market prices prevailing at the time of
sale, at prices related to such market prices or at negotiated prices. The
shares may be sold by the Selling Shareholders by one or more of the following
methods, without limitation: (i) block trades in which the broker or dealer so
engaged will attempt to sell the Shares as agent but may position and resell a
portion of the block as principal to facilitate the transaction, (ii) purchases
by a broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus, (iii) an exchange distribution in
accordance with the rules of such exchange, (iv) ordinary brokerage
transactions and transactions in which the broker solicits purchasers, (v)
privately negotiated transactions, (vi) short sales and (vii) a combination of
any such methods of sale. In effecting sales, brokers and dealers engaged by
the Selling Shareholders may arrange for other brokers or dealers to
participate. Brokers or dealers may receive discounts from the Selling
Shareholders (or, if any such broker-dealer acts as agent for the purchaser of
such Shares, from such purchaser) in amounts to be negotiated which are not
expected to exceed those customary in the types of transactions involved.
Broker-dealers may agree with the Selling Shareholders to sell a specified
number of such shares at a stipulated price per share and, to the extent such
broker-dealer is unable to do so acting as agent for a Selling Shareholder, to
purchase as principal any unsold shares at the price required to fulfill the
broker-dealer commitment to the Selling Shareholders. Broker-dealers who
acquire shares as principal may thereafter resell such shares from time to time
in transactions (which may involve block transactions of the nature described
above) in the over-the-counter market or otherwise at prices and on terms then
prevailing at the time of sale, at prices then related to the then-current
market price or in negotiated transactions and, in connection with such
resales, may pay to or receive from the purchasers of such shares discounts as
described above. The Selling Shareholders may also sell the shares in
accordance with Rule 144 under the Securities Act, rather than pursuant to this
Prospectus.
The Selling Shareholders and any broker-dealers or agents that participate
with the Selling Shareholders in sales of the shares may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales. In such event, any discounts received by such broker-dealers or agents
and any profit on the resale of the Shares purchased by them may be deemed to
be underwriting or discounts under the Securities Act.
From time to time, the Selling Shareholders may engage in short sales,
short sales against the box, puts and calls and other transactions in
securities of the Company or derivatives thereof, and may sell and deliver the
shares in connection therewith or in settlement of securities loans. From time
to time, the Selling Shareholders may pledge their shares pursuant to the
margin provisions of its customer agreements with its brokers. Upon a default
by the Selling Shareholders, the broker may offer and sell the pledged shares
from time to time.
The Selling Shareholders and any other persons participating in the sale
or distribution of the shares will be subject to applicable provisions of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder, which provisions may limit the timing of purchases and sales of any
of the shares by the Selling Shareholders or any other such person. The
foregoing may affect the marketability of the shares.
The Company has agreed to indemnify in certain circumstances the Selling
Shareholders against certain liabilities, including liabilities under the
Securities Act. The Selling Shareholders have agreed to indemnify in certain
circumstances the Company against certain liabilities, including liabilities
under the Securities Act.
To the extent required, this Prospectus will be updated to reflect any
change in the Selling Shareholders for whose account shares are to be offered,
the number of shares so offered for such
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Selling Shareholder's account and, if such offering is to be made by or through
underwriters or dealers, the names of such underwriters or dealers and the
principal terms of the arrangements between the underwriters or dealers and the
Selling Shareholders for whose account such offering is made.
The Company has agreed to use its best efforts to keep the Registration
Statement, of which this Prospectus constitutes a part, effective until the
shares of Common Stock underlying such stock and warrants may be or have been
sold pursuant to Rule 144(k) of the Securities Act. The Company has agreed with
MFSCC to file and maintain an effective registration statement with respect to
the shares of Common Stock underlying the MFSCC Option until such time, if any,
as the holder of the MFSCC Option would be able to sell the shares on an
unrestricted basis without being required to comply with the volume limitations
contained in Rule 144(e) promulgated under the Securities Act. The Company has
agreed with the holders of the John Hancock Warrants to file and maintain an
effective Registration Statement until the earlier of (i) January 1, 2000, or
(ii) such time as all of the shares of Common Stock underlying the John Hancock
Warrants have been sold.
The Company will not receive any proceeds from the sale of the shares by
any Selling Shareholder pursuant to this Prospectus. There can be no assurance
that any Selling Shareholder will sell any of the shares offered pursuant to
this Prospectus. We have agreed to pay all expenses of registration of the
shares, which expenses are expected to be approximately $ .
LEGAL MATTERS
The validity of the shares of Common Stock being offered hereby will be
passed upon for the Company by Greenberg Traurig, P.A., Miami, Florida.
EXPERTS
The consolidated financial statements of Able Telcom Holding Corp. and its
subsidiaries at October 31, 1997 and 1996, and for each of the years
in the period ended October 31, 1997 appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
certified public accountants, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing. The consent of
Ernst & Young LLP to the inclusion of their report on the financial statements
referenced in the foregoing sentence will be filed by amendment to this
Registration Statement.
The consolidated financial statements of MFS Network Technologies, Inc.
and subsidiaries as of December 31, 1997, and for each of the three years in
the period ended December 31, 1997, presented separately in this Prospectus,
have been audited by Arthur Andersen, LLP, independent auditors, as set forth
in their report. Such consolidated financial statements have been included in
reliance upon the report of Arthur Andersen, LLP. The consent of Arthur
Andersen, LLP to the inclusion of their report on the financial statements
referenced in the foregoing sentence will be filed by amendment to this
Registration Statement.
The independent financial statements of CRSI Acquisition, Inc. as of
December 31, 1997, and for each of the three years in the period ended December
31, 1997, have been audited by Agee Fisher, LLC, independent certified public
accountants. Such financial statements have been included in this Prospectus in
reliance upon the report of Agee Fisher, LLC pertaining to such financial
statements, given upon the authority of such firm as experts in accounting and
auditing. The consent of Agee Fischer, LLC to the inclusion of their report
on the financial statements referenced in the foregoing sentence will be filed
by amendment to this Registration Statement.
On September 7, 1998, Ernst & Young LLP, the Company's former accountants,
resigned and, on October 12, 1998, Arthur Andersen LLP was appointed the
Company's accountants. On September 2, 1998, prior to the resignation by Ernst
& Young LLP, we sent out a request for proposals for the audit of our
consolidated financial statements for the fiscal year ending October 31, 1998
to several national accounting firms, including Ernst & Young LLP. The reports
of Ernst & Young LLP on our financial
66
<PAGE>
statements for the past two fiscal years ended October 31, 1997 and 1996 did
not contain an adverse opinion or disclaimer of opinion and were not qualified
or modified as to uncertainty, audit scope or accounting principles. In
connection with the audits of our financial statements for each of the two
fiscal years ended October 31, 1997 and 1996, and in the subsequent interim
periods, there were no disagreements with Ernst & Young LLP on any matters of
accounting principles or practices, financial statement disclosure, or auditing
scope and procedures which, if not resolved to the satisfaction of Ernst &
Young LLP, would have caused Ernst & Young LLP to make reference to the matter
in their reports.
Ernst & Young LLP informed us of the following "reportable event" (as
defined in Item 304(a)(i)(v) of Regulation S-K promulgated under the Securities
Act of 1933, as amended):
/bullet/ In their report to the Audit Committee for the year ended October
31, 1997, Ernst & Young LLP advised us as to the existence of reportable
conditions in our system of internal controls. These reportable conditions
related to (i) the lack of segregation of duties over the cash
disbursements function, (ii) the failure to provide adequate documentation
to support the business purpose of certain significant transactions with
related parties, and (iii) the lack of monitoring controls over operations
of its foreign subsidiaries.
67
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
Consolidated Financial Statements (unaudited):
Consolidated Balance Sheet--July 31, 1998 ............................................. F-2
Consolidated Statement of Operations--Nine Months ended July 31, 1998 and 1997 ........ F-3
Consolidated Statement of Stockholders' Equity--Nine Months ended July 31, 1998 ....... F-4
Consolidated Statement of Cash Flows--Nine Months ended July 31, 1998 and 1997 ........ F-5
Notes to Condensed Consolidated Financial Statements .................................. F-6
Consolidated Financial Statements:
Independent Auditors' Report .......................................................... F-17
Consolidated Balance Sheets--October 31, 1997 and 1996 ................................ F-18
Consolidated Statements of Operations--Years ended October 31, 1997, 1996 and 1995 .... F-19
Consolidated Statements of Stockholders' Equity--Years ended October 31, 1997, 1996
and 1995 ............................................................................ F-20
Consolidated Statements of Cash Flows--Years ended October 31, 1997, 1996 and 1995 .... F-21
Notes to the Consolidated Financial Statements ........................................ F-23
MFSNT
Independent Auditors' Report ........................................................... F-43
Consolidated Financial Statements:
Consolidated Balance Sheets--July 2, 1998 (unaudited) and for the years ended
December 31, 1997 and 1996 .......................................................... F-44
Consolidated Statements of Operations--Six months ended July 2, 1998 and June 30, 1997
(unaudited) and for the years ended December 31, 1997, 1996 and 1995 ................ F-45
Consolidated Statements of Cash Flows--Six months ended July 2, 1998 and June 30, 1997
(unaudited) and for the years ended December 31, 1997, 1996 and 1995 ................ F-46
Notes to the Consolidated Financial Statements ........................................ F-47
COMSAT
Independent Auditors' Report ........................................................... F-51
Financial Statements:
Balance Sheets--February 24, 1998 (unaudited) and for the years ended December 31, 1997
and 1996 ............................................................................ F-52
Statements of Operations--Period from January 1, 1998 to February 24, 1998 and for the
period for January 1, 1997 to February 24, 1997 (unaudited) and for the years ended
December 31, 1997, 1996 and 1995 .................................................... F-53
Statements of Changes in Shareholders' Deficit --Years ended December 31, 1997, 1996
and 1995 ............................................................................ F-54
Statements of Cash Flows--Period from January 1, 1998 to February 24, 1998 and for the
period for January 1, 1997 to February 24, 1997 (unaudited) and for the years ended
December 31, 1997, 1996 and 1995 .................................................... F-55
Notes to the Financial Statements ..................................................... F-56
</TABLE>
F-1
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
JULY 31,
1998
----------------
<S> <C>
ASSETS
Currents Assets:
Cash and cash equivalents .............................................................. $ 5,078,750
Accounts receivable, net ............................................................... 59,696,806
Inventories ............................................................................ 22,016,046
Costs and profits in excess of billings on uncompleted contracts ....................... 100,216,707
Prepaid expenses and other current assets .............................................. 2,281,426
------------
Total current assets ................................................................. 189,289,735
Property and equipment, net ............................................................. 27,885,038
Other assets: ...........................................................................
Goodwill, net .......................................................................... 14,156,511
Other non-current assets ............................................................... 3,265,463
------------
Total other assets ................................................................... 17,421,974
------------
Total assets ......................................................................... $234,596,747
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term-debt ...................................................... $ 6,340,229
Accounts payable ....................................................................... 29,197,037
Billings in excess of costs and profits on uncompleted contracts ....................... 42,084,937
Accrued and other current liabilities .................................................. 22,693,872
------------
Total current liabilities ............................................................ 100,316,075
Long-term debt, non-current portion .................................................... 55,932,136
Other non-current liabilities .......................................................... 28,582,100
------------
Total liabilities .................................................................... 184,830,311
Contingencies ........................................................................... --
Convertible redeemable Series B preferred stock, $.10 par value, authorized 1,000,000
shares, 4,000 shares issued and outstanding ........................................... 14,690,000
Shareholders' Equity:
Common stock, $.001 par value, authorized 25,000,000 shares; 10,057,743 and
8,580,422 shares issued and outstanding .............................................. 10,058
Additional paid-in capital ............................................................. 33,686,277
Dividends on preferred stock ........................................................... (203,846)
Retained earnings ...................................................................... 1,583,947
------------
Total shareholders' equity ........................................................... 35,076,436
------------
Total liabilities and shareholders' equity ........................................... $234,596,747
============
</TABLE>
See notes to condensed consolidated financial statements.
F-2
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
JULY 31,
--------------------------------
1998 1997
--------------- --------------
<S> <C> <C>
Revenues .................................................. $114,524,482 $61,181,275
Costs and expenses:
Costs of revenues ........................................ 89,640,694 47,652,773
General and administrative ............................... 12,703,229 6,366,327
Depreciation and amortization ............................ 4,468,311 3,237,199
------------ -----------
Total costs and expenses ............................... 106,812,234 57,256,299
------------ -----------
Income from operations .................................... 7,712,248 3,924,976
Other expense, net ........................................ 2,656,780 654,602
------------ -----------
Income before income taxes and minority interest .......... 5,055,468 3,270,374
Provision (benefit) for income taxes ...................... 1,669,721 850,432
------------ -----------
Income before minority interest ........................... 3,385,747 2,419,942
Minority Interest ......................................... 756,495 130,148
------------ -----------
Net income ................................................ 2,629,252 2,289,794
Preferred stock dividends ................................. 203,846 185,000
Discount attributable to beneficial conversion privilege of
preferred stock ......................................... 723,330 938,831
------------ -----------
Income applicable to common stock ......................... $ 1,702,076 $ 1,165,963
============ ===========
Income per common share (See Note 6):
Basic .................................................... $ 0.18 $ 0.14
============ ===========
Diluted .................................................. $ 0.18 $ 0.14
============ ===========
</TABLE>
See notes to condensed consolidated financial statements.
F-3
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
----------------------- ADDITIONAL RETAINED EARNINGS
SHARES AMOUNT PAID-IN CAPITAL (DEFICIT) TOTAL
------------ ---------- ----------------- ------------------ --------------
<S> <C> <C> <C> <C> <C>
Balance at October 31, 1997 .......... 8,580,422 $ 8,579 $15,095,863 $ 142,168 $15,246,610
Issuance of options in connection
with acquisition .................. -- -- 1,897,602 -- 1,897,602
Issuance of common stock for
exercise of options ............... 528,000 528 2,164,427 -- 2,164,955
Valuation of warrants in connection
with Series B Preferred Stock ..... -- -- 5,400,000 -- --
Valuation of warrants in connection
with Series A Preferred Stock ..... -- -- 1,244,284 -- --
Issuance of common stock for
conversion of convertible
preferred shares .................. 949,321 951 7,265,544 -- 7,266,495
Dividends paid on
preferred stock ................... (203,846) (203,846)
Convertible preferred dividends
paid .............................. -- -- -- (568,916) (568,916)
Embedded dividend recognized
on convertible
preferred shares .................. -- -- 618,557 (618,557) --
Net income .......................... -- -- -- 2,629,252 2,629,252
--------- ------- ----------- ---------- -----------
Balance at July 31, 1998 ............. 10,057,743 $10,058 $33,686,277 $1,380,101 $35,076,436
========== ======= =========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
JULY 31,
---------------------------------
1998 1997
---------------- --------------
<S> <C> <C>
Cash provided by operating activities ..................................... $ 5,882,784 $ 3,761,221
Investing Activities:
Capital expenditures, net ................................................ (8,743,600) (2,375,226)
Acquisitions of businesses (net of cash acquired of $4,704,829 in 1998
and $403,617 in 1997) .................................................. (1,209,462) (2,596,383)
Sale of investments, net .................................................. -- 625,000
------------- ------------
Net cash used in investing activities ..................................... (9,953,062) (4,346,609)
------------- ------------
Financing Activities:
Repayments of long-term debt and other borrowings ........................ (91,074,992) (7,526,293)
Proceeds from the issuance of long-term debt and other borrowings ........ 71,413,238 6,131,459
Net proceeds from preferred stock offering ............................... 20,000,000 5,664,148
Proceeds from the exercise of stock options .............................. 2,784,367 21,312
Dividends paid on preferred stock ........................................ (203,846) (150,000)
Other .................................................................... 659 (440,731)
------------- ------------
Net cash provided by financing activities .............................. 2,919,426 3,699,895
------------- ------------
(Decrease) increase in cash and cash equivalents .......................... $ (1,150,852) $ 3,114,507
Cash and cash equivalents, beginning of period ............................ $ 6,229,602 $ 3,267,161
------------- ------------
Cash and cash equivalents, end of period .................................. $ 5,078,750 $ 6,381,668
============= ============
Supplemental Disclosure:
Valuation of detachable warrants ......................................... $ 6,644,284 $ --
============= ============
</TABLE>
See notes to condensed consolidated financial statements.
F-5
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. OPERATION AND BASIS OF PRESENTATION
Able Telcom Holding Corp. and subsidiaries ("Able" or the "Company")
specializes in the design, installation, maintenance and system integration of
advanced communication networks for voice, data and video systems. These
services are provided for an array of complimentary applications, including
telecommunications infrastructure, traffic management systems, automated
manufacturing systems and utility networks.
In the opinion of management, the unaudited condensed consolidated
financial statements furnished herein include all adjustments, consisting of
only recurring adjustments necessary for a fair presentation of the results of
operations for the interim periods presented. These interim results of
operations are not necessarily indicative of results for the entire year. The
condensed consolidated financial statements contained herein should be read in
conjunction with the consolidated financial statements and related notes
contained in the Company's 1997 Annual Report on Form 10-K ("Form 10-K").
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions on Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required for complete financial statements.
Certain items in the condensed consolidated financial statements as of
July 31, 1997 and October 31, 1997 have been reclassified to conform with the
current presentation.
2. ACQUISITIONS
On December 2, 1996, the Company, through a wholly owned subsidiary,
acquired all of the outstanding common stock of Dial Communications, Inc.
("Dial"). As consideration, the Company paid $3.0 million in cash, issued
108,489 shares of common stock and issued an $0.9 million promissory note. The
acquisition was accounted for using the purchase method of accounting in
accordance with Accounting Principles Board Opinion No. 16, BUSINESS
COMBINATIONS ("APB No. 16"), and approximately $1.5 million of goodwill was
recorded which is being amortized on a straight line basis over 20 years. The
results of operations of Dial have been included since the date of acquisition.
The cash component of the purchase was funded in part from the Company's line
of credit and the remainder through a $1.9 million term loan from a bank. On
July 15, 1997, this initial debt was repaid with an approximately $3.0 million
term note.
On February 25, 1998, the Company, through its wholly owned subsidiary,
Georgia Electric Company ("GEC") acquired substantially all of the assets and
assumed certain liabilities of CRSI Acquisition, Inc. (d/b/a/ COMSAT RSI JEFA
Wireless Systems) ("COMSAT"), a subsidiary of COMSAT Corporation. As part of
the transaction, GEC assumed certain construction contracts with the Texas
Department of Transportation and various other telecommunications customers.
GEC acquired the accounts receivable and fixed assets of the seller, assumed
its trade payables, and received a cash payment from the seller at closing of
approximately $4.7 million. In addition, the Company recorded significant
accruals related to the contracts assumed of approximately $12.5 million, of
which approximately $4.9 million remains outstanding at July 31, 1998 and is
reflected as accrued and other current liabilities in the consolidated balance
sheet. The acquisition was accounted for using the purchase method of
accounting in accordance with APB No. 16.
F-6
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
2. ACQUISITIONS--(CONTINUED)
On April 1, 1998, the Company purchased all of the outstanding common
stock of Patton Management Corporation ("Patton") for a total purchase price of
approximately $4.0 million, of which approximately $1.7 million was funded by
the Company's revolving credit facility (See Note 3). The acquisition was
accounted for using the purchase method of accounting in accordance with APB
No. 16. Approximately $2.8 million in goodwill was recorded, which is being
amortized on a straight line basis over 20 years. The results of operations of
Patton have been included since the date of acquisition. In connection with the
acquisition, approximately $3.6 million in long-term debt outstanding at
Patton, excluding that related to capital lease obligations, was repaid in
April 1998 from the Company's revolving credit facility.
On July 2, 1998, Able acquired all of the outstanding common stock of MFS
Network Technologies, Inc. ("MFSNT") from MFS Communications Company, Inc.
("MFSCC"), a subsidiary of Worldcom, Inc. ("WorldCom") pursuant to a merger
agreement dated April 26, 1998 ("Plan of Merger"). The purchase price was
originally equal to the shareholders' equity of MFSNT as of March 31, 1998,
subject to certain adjustments, including adding back the cumulative advance by
MFSCC or its affiliates to MFSNT, plus $10.0 million. The purchase price at
that time was projected to be $101.4 million, as well as additional
consideration in the form of options as described below. On September 9, 1998,
the Company and WorldCom Network Services, Inc. ("WorldCom Network"), a wholly
owned subsidiary of WorldCom, as assignee from MFSCC, entered into an agreement
amending various terms of the transaction (the "September Agreement").
The September Agreement, among other things, finalizes the cash portion of
the purchase price of MFSNT at approximately $58.8 million (which was
determined by negotiation without reference to the original purchase formula).
The cash portion of the purchase price is subject to additional amounts payable
as contingent consideration on December 29, 2000 which relate to the resolution
of certain pre-acquisition contingencies for pending litigation, claims,
assessments and losses on certain projects. Additionally, the general terms and
conditions of the grant of stock options (as previously granted pursuant to the
Plan of Merger) and a phantom stock award or other equity participation award
to be granted were also addressed.
As of July 31, 1998 the Company paid $33.6 million of the consideration in
cash, and temporarily financed the then estimated remaining amount with a
seller note originally issued for $86.4 million, with a 12% note ("MFSNT Note")
delivered to MFSCC. As security for the MFSNT Note and an indemnity agreement,
the Company has pledged to Worldcom and MFSCC all of the shares of MFSNT.
Pursuant to the September Agreement, the MFSNT Note will be replaced by a new
promissory note between the Company and WorldCom Network in the principal
amount of $30.0 million at an interest rate of 11.5% (the "New Note"). The New
Note represents $20.0 million associated with the remaining cash portion of the
purchase price of MFSNT and $10.0 million relates to an estimated advance for
receivables of MFSNT, subject to certain adjustments. The New Note matures
December 15, 2000 and may be prepaid without penalty. The principal amount of
the New Note is to be prepaid by applying a portion of certain fees (i) due to
the Company by WorldCom and (ii) received by the Company in connection with the
lease and installation of certain conduit projects.
The cash portion of the purchase price was obtained in part from the
Company's operations and its line of credit. Additionally, a portion was paid
with certain of the proceeds from a private offering, which closed on June 30,
1998 of (i) 4,000 shares of the Company's Series B Convertible Preferred
F-7
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
2. ACQUISITIONS--(CONTINUED)
Stock, par value $.10, which bear annual dividends of 4%, and (ii) warrants to
purchase up to an aggregate of 1,000,000 shares of the Company's common stock
at $19.80 per share for a period of five years from the date of grant. See
Note 4.
The Company's senior lender and the holder of the Company's $10.0 million
12% Senior Subordinated Notes (the "12% Notes") consented to the original MFSNT
Note and the stock pledge agreement. In connection with the consent of the 12%
Notes holders, the Company agreed to prepay the 12% Notes, together with a
prepayment penalty, on August 31, 1998, which was extended until October 16,
1998. See Note 3.
Pursuant to the merger agreement, the Company agreed with WorldCom, MFSCC
and its affiliates to assume (a) their obligations under a certain Guaranty
Agreement in favor of Credit Lyonnais' New York branch, as Administrative Agent
for lenders, under a Credit Agreement dated November 1, 1996 between the
lenders and Kanas Telcom, Inc., a partially-owned affiliate of MFSNT, and (b)
their obligations under surety indemnity agreements relating to various surety
bonds issued in favor of MFSNT.
In addition, MFSNT entered into a five-year Master Services Agreement with
WorldCom Network to provide telecommunications infrastructure services to
WorldCom affiliates for a minimum of $40.0 million per year, provided that the
aggregate sum payable to MFSNT shall be not less than $325.0 million, including
a fee of 12% of reimbursable costs under the agreement ("Aggregate Sum"). To
achieve these established minimums, WorldCom Network has agreed to award MFSNT
at least 75% of all of WorldCom Network's outside plant work related to its
local network projects. If MFSNT declines any of the first $130.0 million of
contract work in any year of the agreement, the value of the declined work
reduces the Aggregate Sum. MFSNT has agreed that WorldCom Network will have met
all of its obligations to MFSNT to the extent that payments to MFSNT reach an
aggregate of $500.0 million at any time during the five-year term.
As was the case for the MFSNT Note, it is anticipated that if the New Note
is in default, WorldCom Network's obligations under the Master Services
Agreement would be reduced in certain respects, and it would not be obligated
to order further work under the Master Services Agreement during the period the
New Note remained in full. In addition, upon a default under the New Note,
WorldCom and MFSCC would have the right to retain the shares of MFSNT as well
as all payments made by the Company under the New Note, and in certain
circumstances WorldCom could have a claim against the Company for any balance
due under the New Note in excess of the deemed value of MFSNT as calculated
under the stock pledge agreement.
Under the merger agreement, the Company is entitled to use the name
"MFSNT" during the 18-month transition period commencing July 2, 1998, and will
not be entitled to use it after such 18-month period.
Pursuant to the Plan of Merger, as amended, the Company also granted to
MFSCC an option to purchase up to 2,000,000 shares of the Company's common
stock, during the period commencing July 2, 1998 ending six months after
payment of the MFSNT Note, as amended by the September Agreement to extend the
exercise period. The exercise price is $7.00 per share, except that MFSCC may
elect to exercise the option, in whole or in part, on a "cashless" basis under
which it will receive
F-8
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
2. ACQUISITIONS--(CONTINUED)
shares of common stock with a market value equal to the difference between the
common stock's then market price and $7.00, subject to a 1,817,941 share
limitation. Should the options be exercised, MFSCC will be entitled to
designate a representative to serve on the Company's Board of Directors as long
as MFSCC retains these shares aggregating at least 5.0% of the then outstanding
shares. In addition, pursuant to the September Agreement, the Company agreed to
issue a phantom stock award or other equity participation award which covers an
amount equivalent to 600,000 shares of the Company's common stock, payable in
cash, stock or a combination thereof at the Company's option, and which is
exercisable with respect to the following three days: July 2, 1999, July 2,
2000, or July 2, 2001. When issued, WorldCom will be entitled to receive any
appreciation of the common stock over a base price of $5 3/32 per share, but
not more than $30 3/32 per share.
The September Agreement also modified certain other provisions including,
among other things, (i) extending the term of the stock pledge agreement
(whereby the stock of MFSNT was pledged as security for certain of the
Registrant's obligations to WorldCom), (ii) indemnifying WorldCom Network and
its affiliates for liabilities arising out of MFSNT's operations, exclusive of
certain matters, and (iii) executing mutual releases between the parties. The
final terms and conditions of the September Agreement, including the provisions
thereof relating to a grant of a phantom stock award or other equity
participation award, are expected to be more fully set forth in certain
additional agreements in the future and may be modified to conform with other
agreements of the Company and various third parties or may require certain
consents or waivers from such third parties (including the New Credit Facility
lenders as described below). There can be no assurance, however, that the
Company will be able to so modify or conform the terms of the September
Agreement or obtain appropriate waivers or consents. The failure to do so could
have a material adverse effect on the financial condition of the Company.
The acquisition of MFSNT was accounted for using the purchase method of
accounting, in accordance with APB No. 16, whereby all assets acquired and
liabilities assumed were fair-valued, which resulted in negative goodwill
totaling approximately $50.7 million which was first allocated to fixed assets,
reducing them to zero, with the remainder reducing the value of certain ongoing
projects. The results of operations of MFSNT have been included since the date
of acquisition.
F-9
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
2. ACQUISITIONS--(CONTINUED)
The following summarizes the fair value of the assets acquired and the
liabilities assumed in connection with the acquisition of MFSNT on July 2, 1998
(in millions):
<TABLE>
<CAPTION>
ALLOCATION OF FAIR VALUE
FAIR VALUE NEGATIVE GOODWILL RECORDED
------------ ------------------- -----------
<S> <C> <C> <C>
Cash and cash equivalents ............................ $ 0.5 $ 0.5
Accounts receivable .................................. 46.3 46.3
Costs and profits in excess of billings on uncompleted
contracts ............................................ 82.6 82.6
Resalable conduit inventory .......................... 65.7 ($ 45.0) 20.7
Prepaid expenses and other current assets ............ 0.5 0.5
Property, plant and equipment ........................ 5.7 (5.7) --
Accounts payable ..................................... (13.7) (13.7)
Billings in excess of costs and profits on uncompleted
contracts ............................................ (42.3) (42.3)
Accrued liabilities .................................. (35.8) (35.8)
Note payable ......................................... (58.8) (58.8)
Negative Goodwill .................................. (50.7) 50.7 --
</TABLE>
The pro forma unaudited results of operations for the nine months ended
July 31, 1998 and 1997, assuming consummation of the purchases for Dial,
COMSAT, Patton, and MFSNT at the beginning of the respective periods are as
follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
JULY 31,
---------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
Revenues .................................. $ 297,350,870 $325,662,942
Basic loss per share:
Loss applicable to common stock ......... (15,752,820) (9,026,577)
Loss per common share ................... (1.63) (1.09)
Diluted loss per share:
Loss applicable to common stock ......... (15,548,974) (8,841,577)
Loss per common share ................... (1.50) (1.00)
</TABLE>
The unaudited pro forma information does not purport to be indicative of
the results of operations which would have resulted had the acquisitions been
consummated at the date assumed.
3. BORROWINGS
On June 1, 1997, the Company entered into a $6.0 million Line of Credit
Facility (the "Line of Credit"). The Line of Credit was due March 1, 1998 with
interest payable monthly and contained covenants which required among other
conditions, that the Company maintain certain tangible net worth, working
capital and debt service coverage. The Line of Credit was collateralized by all
real and personal property of the Company. The proceeds of the Line of Credit
were used to repay existing debt, purchase assets and for working capital
requirements. This amount was repaid with proceeds from the Company's new
revolving credit agreement described below.
Effective January 6, 1998, the Company issued $10.0 million of unsecured
12% Senior Subordinated Notes due January 6, 2005 (the "12% Notes") with
detachable warrants to purchase
F-10
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
3. BORROWINGS--(CONTINUED)
409,505 shares of common stock at a price of $8.25 per share. The warrants were
fair valued at approximately $1.2 million and are reflected as debt discount on
the consolidated balance sheet at July 31, 1998. Amortization of debt discount
for the nine months ended July 31, 1998 totaled $0.1 million. Interest under
the 12% Notes is payable semi-annually in arrears. Equal principal payments are
due in January 2004 and 2005 giving the 12% Notes an average life of six and
one-half years. The agreement, pursuant to which the 12% Notes were issued,
contains covenants which require, among other conditions, that the Company
maintain certain tangible net worth, minimum fixed charge coverage and
limitations on total debt and which limit the Company's ability to pay
dividends and make certain other payments, make investments and sell assets or
subsidiaries. The proceeds from the issuance of the 12% Notes were used for
current working capital needs, to pay off existing debts and to provide
liquidity to finance growth and certain expenditures, including acquisitions,
associated with the Company's overall strategic plan. Between May 29, 1998 and
September 17, 1998, the Company received either waivers and/or consents, or
letters of forbearance relating to the acquisition of MFSNT and the related
financing of the acquisition. These letters also accelerated the expiration
date of the 12% Notes to August 31, 1998, which was extended through October
16, 1998 and further extended through November 30, 1998 by the last letter
dated October 16, 1998. At July 31, 1998, this amount has been reflected as
long-term debt as it is expected to be refinanced with long term debt. The
Company believes that it will be able to refinance or further extend the time
for payment of the 12% Notes due October 16, 1998. However, there can be no
assurance that the Company will be able to so satisfy the 12% Notes by such
date, or if satisfied, that the terms and conditions of such refinancing or
extension will not be adverse to the Company. Failure to timely satisfy the 12%
Notes would constitute a default under the New Credit Facility (described
below) and could have a material adverse effect on the Company.
On April 6, 1998, the Company obtained a $25.0 million three year senior
secured revolving credit facility (the "Credit Facility") with a $2.0 million
sub-limit for the issuance of standby letter(s) of credit. The Credit Facility
allowed the Company to select an interest rate based upon the prime rate or on
a short-term LIBOR, in each case, plus an applicable margin, with respect to
each draw the Company made thereunder. Interest was payable monthly in arrears
on base rate advances and at the expiration of each interest period for LIBOR
advances. The Credit Facility contained certain covenants which required, among
other conditions, that the Company maintain certain net worth, minimum fixed
charge coverage and limitations on total debt, and was secured by a perfected
first priority security interest on all tangible assets of the Company. The
proceeds of the Credit Facility were used to finance working capital
requirements and for other general corporate purposes, including acquisitions
and capital expenditures, not to exceed $15.0 million, associated with the
Company's overall strategic plan. On June 11, 1998, this amount was repaid with
proceeds from the Company's New Credit Facility defined below.
On June 11, 1998, the Company replaced the Credit Facility with a new
$35.0 million three year senior secured revolving credit facility ("New Credit
Facility") with a $5.0 million sub-limit for the issuance of standby letter(s)
of credit. The New Credit Facility allows the Company to select an interest
rate based upon the prime rate or on a short-term LIBOR, in each case plus an
applicable margin, with respect to each draw the Company makes thereunder.
Interest is payable monthly in arrears on base rate advances and at the
expiration of each interest period for LIBOR advances. The New Credit Facility
contains certain financial covenants which require, among other conditions,
that the Company maintain certain minimum ratios, including current and debt
leverage, minimum fixed
F-11
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
3. BORROWINGS--(CONTINUED)
charge coverage, interest coverage, as well as limitations on total debt. The
New Credit Facility is secured by a perfected first priority security interest
on all tangible assets of the Company and a pledge of the shares of stock of
each of the Company's subsidiaries operating in the United States. On June 30,
1998, the New Credit Facility was amended to include (i) the Company's
acquisition of MFSNT and the related financing of such transaction, (ii)
changes in financial covenants related thereto, and (iii) other amendments
relating to investments, pledging and intercompany matters. The Company is
currently engaged in discussions with its senior lenders under the New Credit
Facility with respect to the waiver or consent of various provisions of such
Facility (of which it may be in violation) arising out of the MFSNT
transaction, including the September Agreement. In connection with the
Company's quarterly reporting obligations to such senior lenders, and again in
connection with a recent draw request by the Company for the balance of funds
available under the New Credit Facility, the senior lenders granted the Company
a limited waiver with regard to compliance with one of the minimum financial
ratios required under the New Credit Facility. The Company anticipates that it
will need additional waivers with respect to such minimum financial ratio in
the future, including in connection with its future quarterly reporting
obligations to the senior lenders. The Company also anticipates that, and is
analyzing the extent to which, additional waivers or consents with respect to
other provisions of the New Credit Facility may be necessary arising out of the
MFSNT transaction, including the September Agreement. The Company also intends
to seek additional financing. There can be no assurance, however, that the
Company will be able to obtain additional appropriate waivers or consents, or
additional financing on commercially reasonable terms. The failure to obtain
appropriate waivers or consents could have a material adverse effect on the
Company. The New Credit Facility matures in June 2001.
On July 2, 1998 the Company entered into the MFSNT Note with MFSCC for
$86.4 million, at an interest rate of 12%, due on August 31, 1998. As security
for the MFSNT Note and an indemnity agreement, the Company has pledged to
WorldCom and MFSCC all of the shares of MFSNT. As a result of the September
Agreement, the MFSNT Note will be replaced with a New Note in the principal
amount of $30.0 million bearing interest at 11.5%. The New Note represents
$20.0 million associated with the purchase price of MFSNT and $10.0 million
related to an estimated advance for receivables at MFSNT, subject to certain
adjustments. The New Note matures on December 15, 2000, may be prepaid without
penalty, and will be reduced by the proceeds from the sale of certain assets
which were acquired in the transaction.
4. PREFERRED STOCK
SERIES A PREFERRED STOCK
Effective December 20, 1996, the Company completed a private placement
transaction of 1,000 shares of $.10 par value, Series A Convertible Preferred
Stock (the "Series A Preferred Stock") and warrants to purchase 200,000 shares
of the Company's common stock at $9.82 per share. Proceeds from the offering
totaled $6.0 million. Each share of Series A Preferred Stock was convertible
into shares of the Company's common stock after April 30, 1997 at the lesser of
$9.82 per share or at a discount (increased to a maximum of 20% for conversions
after December 20, 1997) of the average closing bid price of a share of common
stock for three days preceding the date of conversion. This accretion
adjustment, which also represents the amount needed to accrete to the
redemption value of the Series A Preferred Stock for the nine months ended July
31, 1998, was recorded as a charge to
F-12
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
4. PREFERRED STOCK--(CONTINUED)
equity and accompanying credit to the Series A Preferred Stock. The Series A
Preferred Stock accrued dividends at an annual rate of 5% and was payable
quarterly in arrears in cash or through a dividend of additional shares of
Series A Preferred Stock. The warrants are exercisable during the four year
period commencing on the first anniversary of the private placement, provided
that for each share of Series A Preferred Stock which is converted prior to the
one year anniversary of the placement, warrants to purchase 200 shares of
common stock were forfeited.
During the nine months ended July 31, 1998, 995 shares of Series A
Preferred Stock were converted into an aggregate of 920,946 shares of common
stock. As of July 31, 1998, all of the shares of Series A Preferred Stock have
been converted to common stock.
During the nine months ended July 31, 1998, 106,800 warrants were
forfeited and 62,200 warrants remain outstanding.
SERIES B PREFERRED STOCK
Effective June 30, 1998 (the "Closing"), the Company completed a private
offering (the "Offering") of 4,000 shares of $0.10 par value, non-voting Series
B Convertible Preferred Stock (the "Series B Preferred Stock"), which bear
annual dividends of 4%, and warrants to purchase 1,000,000 shares of the
Company's common stock at $19.80 per share for a period of five years from the
date of grant (the "Warrants"). Proceeds from the Offering totaled $20.0
million which were used to pay part of the cash payment towards the cash
portion of the MFSNT purchase price, as well as other costs associated with the
acquisition. In general, the conversion amount of each share of Series B
Preferred Stock is convertible into shares of the Company's common stock
commencing on June 30, 1998 at 97% of the lesser of the (i) average of the low
trading prices for any three days during the twenty-two (22) trading days
immediately preceding the conversion date, or (ii) the low trading price on the
day immediately preceding the conversion date, subject to a minimum equal to
95% of such conversion price. The conversion amount of each share of Series B
Preferred Stock is equal to $5,000 plus any unpaid dividends thereon. Unless
waived by a holder on not less than 61 days prior written notice, no holder may
convert an amount which would result in such holders and its affiliates'
beneficial ownership exceeding 4.99% of the then outstanding common stock of
the Company.
The holders of the Series B Preferred Stock and the Warrants (the "Series
B Securities") are entitled to certain registration rights to register the
common stock underlying the Series B Securities pursuant to the Securities Act
of 1933, as amended. In the event that such underlying common stock is not
registered with the Securities and Exchange Commission by late October 1998, is
not listed with the securities exchange and/or markets on which the common
stock is then listed, within a definitive period of time, or various other
covenants are not complied with, then certain penalties may be incurred to
certain or all of the holders of the Series B Securities, including, among
other things, a reduction in the conversion and/or exercise price of the
applicable securities and/or additional monetary payments. Unless waived, the
Company expects to have difficulty in timely complying with certain of its
obligations relating to the Series B Securities, including the filing of a
registration statement related to the Series B Securities by late October.
Additionally, under certain circumstances, including without limitation,
if the registration statement that includes the shares of common stock
underlying the Series B Securities is not declared
F-13
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
4. PREFERRED STOCK--(CONTINUED)
effective within 180 days of the Closing, the Company is delisted under certain
circumstances from any securities exchange, or any representation or warranty
by the Company to the holders is not true and correct, then the holders of the
Series B Securities, in whole or in part, also have the option to require the
Company to redeem their securities at premium prices. Furthermore, so long as
any Series B Security is outstanding, the Company is prohibited from declaring
or paying any dividends (other than to holders of Series B Preferred Stock) or
purchasing any equity security of the Company.
The accretion adjustment attributable to the beneficial conversion feature
of $0.6 million has been recorded as a charge to equity and an accompanying
credit to the Series B Preferred Stock. The Series B Preferred Stock accrues
dividends at an annual rate of 4% and is payable quarterly in arrears, in cash,
or through a dividend of shares of the Company's common stock. The warrants are
exercisable over a five year period commencing June 30, 1998 and are fair
valued at $5.4 million in accordance with Statement of Financial Accounting
Standards No. 123 ("SFAS No. 123"), "ACCOUNTING FOR STOCK BASED COMPENSATION,"
and will be amortized as a dividend over five years.
During the nine months ended July 31, 1998, dividends of $0.2 million were
recorded consisting of $0.1 million as the cumulative dividend and $0.1 million
for the amortization of the valuation of the warrants. None of the Series B
Preferred Stock had been converted nor had any warrants been exercised as of
July 31, 1998. Costs incurred in connection with the offering of approximately
$1.0 million will be expensed over the five year conversion period commencing
June 30, 1998.
As of October 2, 1998, 436 shares of the Series B Preferred Stock were
converted into 1,007,927 shares of common stock at a price of $2.18 per share.
F-14
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
5. STOCK OPTION PLAN
In October 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123, which requires expanded disclosures of stock based compensation
arrangements with employees and encourages compensation cost to be measured
based on the fair value of the equity instrument. Under SFAS No. 123, companies
are permitted to continue to apply Accounting Principles Board ("APB") Opinion
No. 25 "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES," which recognizes
compensation cost based on the intrinsic value of the equity instrument
awarded. The Company has elected to continue to apply APB Opinion No. 25, and
related Interpretations in accounting for its employee stock options because
the alternative fair value accounting provided for under SFAS No. 123 requires
use of option valuation models that were not developed for use in valuing
employee stock options. Under APB 25, to the extent the exercise price of the
Company's employee stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized. The
following is the pro forma effect on net income an earnings per share as if the
Company had adopted the expense recognition requirement of SFAS No. 123:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
JULY 31,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
Pro forma income (loss) available to common stockholders:
Basic ................................................. $238,876 $788,836
Diluted ............................................... $442,722 $973,836
Pro forma income (loss):
Per share: .............................................
Basic ................................................. $ 0.02 $ 0.09
Diluted ............................................... $ 0.04 $ 0.11
</TABLE>
Under the Company's 1995 Stock Option Plan, as amended, up to 1.3 million
shares of the Company's common stock are available for issuance pursuant to the
grant of stock options.
F-15
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
6. EARNINGS PER SHARE
In February 1997, the FASB issued SFAS No. 128, "EARNINGS PER SHARE",
which changes the method of calculating earnings per share and was effective
for the Company beginning with the quarter ended January 31, 1998. All periods
presented have been restated in accordance with the provisions of SFAS No. 128.
The following is a reconciliation of the numerators and denominators of
the basic and diluted per share computation as required by SFAS No. 128:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
JULY 31,
------------------------------
1998 1997
-------------- -------------
<S> <C> <C>
Basic:
Net income available to common stockholders (numerator) ......... $ 1,702,076 $1,165,963
Weighted-average number of common shares (denominator) .......... 9,660,921 8,304,036
Earnings per common share-basic ................................. $ 0.18 $ 0.14
Diluted:
Net income available to common stockholders (numerator) ......... $ 1,905,922 $1,241,457
Weighted-average number of common shares (denominator) .......... 9,642,253 8,304,036
Common stock equivalents arising from
stock options, warrants and convertible
preferred stock ............................................... 706,234 517,412
Total shares (denominator) ...................................... 10,367,155 8,821,448
Earnings per common share-diluted ............................... $ 0.18 $ 0.14
</TABLE>
7. LITIGATION
On May 21, 1998, SIRIT Technologies, Inc. ("SIRIT") filed a lawsuit in the
United States District Court for the Southern District of Florida, against the
company and Thomas M. Davidson, who has since become a member of the Company's
Board of Directors. SIRIT asserts claims against the Company for tortious
interference, fraudulent inducement, negligent misrepresentation and breach of
contract in connection with the Company's agreement to purchase the shares of
MFSNT (See Note 7) and seeks injunctive relief and compensatory damages in
excess of $100.0 million. In the opinion of management, the lawsuit will not
have a material adverse effect upon the consolidated financial position or
results of operations of the Company. The Company intends to vigorously defend
this matter.
On September 10, 1998, Shipping Financial Services Corp. ("SFSC") filed a
lawsuit in the United States District Court for the Southern District of
Florida against the Company, Chairman of the Board Gideon Taylor, Chief
Executive Officer Frazier L. Gaines, Chief Accounting Officer Jesus Dominguez,
and Chief Financial Officer Mark A. Shain. SFSC asserts claims under the
federal securities laws against the Company and four of its officers that the
defendants allegedly caused the Company to falsely represent and mislead the
public with respect to two acquisitions, COMSAT and MFSNT, and the ongoing
financial condition of the Company as a result of the acquisitions and the
related financing of those acquisitions. SFSC seeks certification as a class
action on behalf of itself and all others similarly situated and seeks
unspecified damages and attorneys' fees. Management is currently assessing the
allegations set forth in the lawsuit and the Company intends to vigorously
defend this matter.
F-16
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
7. LITIGATION--(CONTINUED)
Although the Company has not yet been served, it is aware of the filing of
additional shareholder lawsuits. The allegations of these lawsuits appear to be
based on allegations similar to those set forth in the SFSC lawsuit. The
Company intends to vigorously defend these similar lawsuits as well.
F-17
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders and Board of Directors
Able Telcom Holding Corp.
We have audited the accompanying consolidated balance sheets of Able
Telcom Holding Corp. and subsidiaries (the "Company") as of October 31, 1997
and 1996, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended October
31, 1997. Our audits also included the financial statement schedule listed in
the Index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express
and opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Able Telcom Holding Corp. and subsidiaries at October 31, 1997 and 1996, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended October 31, 1997, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
Ernst & Young LLP
West Palm Beach, Florida
January 19, 1998
F-18
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 31,
-------------------------------
1997 1996
------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................... $ 6,229,602 $ 3,267,161
Investments ............................................................. -- 571,010
Accounts receivable, net ................................................ 13,399,327 13,617,792
Inventories ............................................................. 1,257,218 1,374,698
Costs and profits in excess of billings on uncompleted contracts ........ 5,614,813 954,269
Prepaid expenses and other .............................................. 508,591 757,883
Deferred income taxes ................................................... -- 905,898
----------- ------------
Total current assets .................................................. 27,009,551 21,448,711
Property and equipment, net .............................................. 13,113,638 10,667,357
Other assets:
Deferred income taxes ................................................... 981,976 269,942
Goodwill, net ........................................................... 8,341,064 5,919,880
Other ................................................................... 899,765 612,941
----------- ------------
Total other assets .................................................... 10,222,805 6,802,763
----------- ------------
Total assets .......................................................... $50,345,994 $ 38,918,831
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ....................................... $ 3,154,428 $ 1,965,611
Notes payable shareholders/directors .................................... 875,000 1,307,976
Lines of credit ......................................................... -- 4,626,178
Accounts payable and accrued liabilities ................................ 8,418,323 8,036,142
Billings in excess of costs and profits on uncompleted contracts ........ 291,165 1,218,724
Customer deposit ........................................................ 229,721 ---
----------- ------------
Total current liabilities .............................................. 12,968,637 17,154,631
Long-term debt, excluding current portion ................................ 14,139,567 8,149,807
Other liabilities ........................................................ 1,277,866 2,015,895
----------- ------------
Total liabilities ........................................................ 28,386,070 27,320,333
Commitments and contingencies
Convertible redeemable Series A preferred Stock, $.10 par value,
authorized 1,000,000 shares: 995 shares issued and outstanding
in 1997 ................................................................ 6,713,314 --
Shareholders' equity:
Common stock, $.001 par value, authorized 25,000,000 shares;
8,580,422 and 8,203,212 shares issued and outstanding at
October 31, 1997 and October 31, 1996, respectively ................... 8,579 8,203
Additional paid-in capital .............................................. 15,095,863 12,833,286
Unrealized loss on investments, net of tax .............................. -- (53,990)
Retained earnings (deficit) ............................................. 142,168 (1,189,001)
----------- ------------
Total shareholders' equity ............................................. 15,246,610 11,598,498
----------- ------------
Total liabilities and shareholders' equity ............................. $50,345,994 $ 38,918,831
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-19
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED OCTOBER 31,
--------------------------------------------------
1997 1996 1995
-------------- ---------------- --------------
<S> <C> <C> <C>
Revenues ........................................................ $ 86,334,449 $ 48,906,170 $35,407,581
Costs and expenses:
Costs of revenues ............................................... 68,164,404 40,486,018 27,719,750
General and administrative ...................................... 8,780,430 8,403,491 5,464,338
Depreciation and amortization ................................... 4,532,248 2,749,804 1,914,064
Charges and transaction/translation losses related to Latin
American operations ............................................ 16,987 3,553,373 95,798
------------ ------------ -----------
Total costs and expenses ....................................... 81,494,069 55,192,686 35,193,950
------------ ------------ -----------
Income (loss) from operations ................................. 4,840,380 (6,286,516) 213,631
------------ ------------ -----------
Other expense (income):
Loss on sale of investments .................................... -- -- 100,379
Interest expense ............................................... 1,565,265 1,350,440 1,117,932
Interest and dividend income ................................... (449,479) (270,163) (672,598)
Other (income) expense ......................................... (152,694) 32,033 --
------------ ------------ -----------
Total other expense, net ....................................... 963,092 1,112,310 545,713
------------ ------------ -----------
Income (loss) before income taxes and minority Interest ......... 3,877,288 (7,398,826) (332,082)
Income tax expense (benefit) .................................... 727,223 (890,695) (368,105)
------------ ------------ -----------
Income (loss) before minority interest .......................... 3,150,065 (6,508,131) 36,023
Minority interest ............................................... 292,532 (597,883) 317,189
------------ ------------ -----------
Net income (loss) ............................................... 2,857,533 (5,910,248) (281,166)
Preferred stock dividends ....................................... (260,000) --- ---
Discount attributable to beneficial conversion privilege of
preferred stock ................................................ (1,266,364) --- ----
------------ ------------ -----------
Net income (loss) applicable to common stock .................... $ 1,331,169 $ (5,910,248) $ (281,166)
============ ============ ===========
Income (loss) per common share:
Basic ......................................................... $ .16 $ (.71) $ (.03)
============ ============ ===========
Diluted ....................................................... 8,504,972 8,361,458 8,283,668
============ ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-20
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
LOSS ON
COMMON STOCK ADDITIONAL INVESTMENTS RETAINED
------------------------ PAID-IN NET OF EARNINGS
SHARES AMOUNT CAPITAL TAXES (DEFICIT) TOTAL
------------- ---------- -------------- ------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1994 ..... 7,871,771 $7,872 $10,969,121 $ (146,950) $ 5,002,413 $ 15,832,456
Issuance of common stock to
liquidate notes payable to
shareholders / directors ..... 259,434 259 1,499,741 -- -- 1,500,000
Issuance of common stock for
exercise of warrants ......... 67,007 67 334,829 -- -- 334,896
Cancellation of common stock
previously issued for
acquisition .................. (5,000) (5) (13,495) -- -- (13,500)
Change in unrealized loss
on investments ............... -- -- -- 93,825 -- 93,825
Net loss ....................... -- -- -- -- (281,166) (281,166)
--------- ------ ----------- ---------- ------------ ------------
Balance at October 31, 1995 ..... 8,193,212 8,193 12,790,196 (53,125) 4,721,247 17,466,511
Issuance of common stock to
directors in connection
with acquisition ............. 10,000 10 43,090 -- -- 43,100
Change in unrealized loss on
investments .................. -- -- -- (865) -- (865)
Net loss ....................... -- -- -- -- (5,910,248) (5,910,248)
--------- ------ ----------- ---------- ------------ ------------
Balance at October 31, 1996 ..... 8,203,212 8,203 12,833,286 (53,990) (1,189,001) 11,598,498
Issuance of common stock
in connection with
acquisition .................. 108,489 108 620,313 -- -- 620,421
Issuance of common stock
for services ................. 2,000 2 11,436 -- -- 11,438
Issuance of common stock
for exercise of options ...... 262,240 262 732,177 -- -- 732,439
Compensation recognized on
stock options ................ -- -- 337,500 -- -- 337,500
Issuance of common stock for
conversion of convertible
preferred shares ............. 4,481 4 33,727 -- -- 33,731
Changes in unrealized loss
on investments ............... -- -- -- 53,990 -- 53,990
Convertible preferred
dividends paid ............... -- -- -- -- (260,000) (260,000)
Embedded dividend
recognized on convertible
preferred shares ............. -- -- -- -- (1,266,364) (1,266,364)
Tax benefit from exercise
of options ................... -- -- 527,424 -- -- 527,424
Net income ..................... -- -- -- -- 2,857,533 2,857,533
--------- ------ ----------- ---------- ------------ ------------
Balance at October 31, 1997 ..... 8,580,422 $8,579 $15,095,863 $ 0 $ 142,168 $ 15,246,610
========= ====== =========== ========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-21
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED OCTOBER 31,
---------------------------------------------------
1997 1996 1995
--------------- ---------------- --------------
<S> <C> <C> <C>
Operating Activities:
Net income (loss) ................................................ $ 2,857,533 $ (5,910,248) $ (281,166)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities, net of effects of Acquisitions:
Depreciation and amortization ................................... 4,532,248 2,749,804 1,914,064
Bad debt expense ................................................ 160,189 1,094,503 86,593
Provision for inventory losses .................................. -- 290,500 --
Write down of Latin American assets ............................. -- 1,593,480 --
Deferred income taxes ........................................... 727,223 (890,695) (439,341)
Loss on sale of equipment ....................................... (6,025) 21,805 --
Loss on sale of investments ..................................... 4,096 -- 100,379
Translation/transaction losses .................................. -- 1,179,769 95,798
Minority interest ............................................... 292,533 (597,883) 317,189
Common stock issued for services ................................ 11,438 -- --
Compensation recognized for conversion of stock options ......... 337,500 -- --
Reduction in revenue for litigation ............................. (432,979) -- --
Changes in assets and liabilities, net of effects
from Acquisitions: .............................................
Decrease in accounts receivable ................................. 842,066 1,854,735 796,530
Decrease (increase) in inventories .............................. 117,480 1,871,004 (353,318)
Increase in costs and profits in excess of billings on
Uncompleted contracts ......................................... (4,660,544) (828,553) --
Decrease (increase) in prepaid expenses
and other ..................................................... 313,265 339,711 (223,811)
Increase in other assets ........................................ (279,555) (286,996) (24,373)
Increase (decrease) in accounts payable and
accrued expenses ............................................. (198,987) 159,861 (1,514,749)
(Decrease) Increase in billings in excess of costs and
estimated profits on uncompleted contracts .................... (927,559) 681,446 --
Increase in customer deposits ................................... 229,721 -- --
------------ ------------ ------------
Net cash provided by operating activities ....................... 3,919,643 3,322,242 473,795
------------ ------------ ------------
Investing Activities:
Purchases of property and equipment ............................... (4,487,417) (2,557,258) (2,250,904)
Proceeds from the sale of equipment ............................... 95,967 128,823 --
Purchases of investments .......................................... -- -- (350,000)
Sales of investments .............................................. 566,914 -- 4,418,233
Cash acquired in acquisitions ..................................... 403,617 1,760,970 --
Cash paid in acquisitions ......................................... (3,000,000) (3,500,000) --
------------ ------------ ------------
Net cash (used in) provided by investing activities ............. $ (6,420,919) $ (4,167,465) $ 1,817,329
------------ ------------ ------------
</TABLE>
(CONTINUED ON NEXT PAGE)
F-22
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED FROM PREVIOUS PAGE)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED OCTOBER 31,
----------------------------------------------------
1997 1996 1995
---------------- --------------- ---------------
<S> <C> <C> <C>
Financing Activities:
Net borrowing under lines of credit ............................ $ (4,626,178) $ 1,254,178 $ 378,000
Payment of shareholders/directors loans ........................ (250,000) (500,000) --
Borrowings from shareholders/directors ......................... 500,000 57,976
Proceeds from long-term debt ................................... 11,014,094 4,547,148 737,758
Proceeds from debt to finance acquisition ...................... 3,000,000 3,000,000 --
Payments on long-term debt ..................................... (9,272,414) (6,251,340) (3,775,168)
Distributions to minority interests ............................ (292,532) (210,072) (500,795)
Foreign currency translation adjustment ........................ (778,509) --
Proceeds from exercise of stock options ........................ 732,439 -- --
Proceeds from issuance of preferred stock ...................... 5,418,308 -- --
Dividends paid ................................................. (260,000) -- --
Proceeds from exercise of warrants and options ................. -- -- 334,896
------------ ------------ ------------
Net cash provided by (used in) financing activities ............. 5,463,717 1,561,405 (2,767,333)
Effect of exchange rate changes on cash and equivalents ......... -- (401,260) (3,901)
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents ................ 2,962,441 314,922 (480,110)
Cash and cash equivalents at beginning of year .................. 3,267,161 2,952,239 3,432,349
------------ ------------ ------------
Cash and cash equivalents at end of year ........................ $ 6,229,602 $ 3,267,161 $ 2,952,239
============ ============ ============
Supplemental disclosures of cash flow information:
Non-cash transactions affecting operating, investing and
financing activities:
Operating activities: ..........................................
Issuance of common stock for services ......................... $ 11,438 $ -- $ --
============ ============ ============
Financing activities:
Issuance of common stock for acquisition ...................... $ 620,313 $ -- $ --
Common stock issued to repay ..................................
Shareholders/directors loans ................................... -- -- (1,500,000)
Issuance of notes payable for acquisition ..................... 892,000 -- --
------------ ------------ ------------
Total financing activities ...................................... $ 1,512,313 $ -- $ (1,500,000)
============ ============ ============
See Note 3 for information on non-cash investing and
financing activities associated with acquisitions
Interest paid ................................................... $ 1,684,529 $ 1,120,465 $ 933,302
============ ============ ============
Income taxes paid, net of refunds ............................... $ -- $ -- $ 168,460
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997
(1) THE COMPANY
Able Telcom Holding Corp. ("Able Telcom" or the "Company") specializes in
the design, installation, maintenance and system integration of advanced
communication networks for voice, data, and video systems. These services are
provided for an array of complimentary applications, including
telecommunications infrastructure, traffic management systems, automated
manufacturing systems and utility networks. The Company is currently organized
into four operating groups: telecommunication services, cable television
services, traffic management services and communications development. Each
group, excluding cable television services, is comprised of subsidiaries of the
Company with each having local executive management functioning under a
decentralized operating environment. The Company formed the cable televisions
services group to facilitate planned expansion during 1997. Able is
headquartered in West Palm Beach, Florida, and operates its subsidiaries
throughout the Southeastern United States, as well as in areas of South
America.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the Company and its
subsidiaries. All material intercompany accounts and transactions have been
eliminated. Operations for subsidiaries acquired in purchase business
combinations are included in the consolidated results of operations since the
date of acquisition.
(B) REVENUE RECOGNITION
Revenues from "per unit basis" contracts are recognized at the time
services are rendered and accepted by the customer. Revenues from installation
contracts are recognized as contract costs are incurred under the
percentage-of-completion method measured on the cost to cost basis. Contract
costs include all direct material and labor costs as well as those indirect
costs relating to the contract such as indirect labor, supplies and equipment
costs.
Changes in job performance, condition and the estimated profitability may
result in changes in the estimates for project costs and profits. Revised
estimates are recognized in the period in which the changes are determined.
(C) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method.
(D) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided for
using the straight-line method over the estimated useful lives of the assets.
(E) INCOME TAXES
Income taxes have been provided using the asset and liability method in
accordance with Statement of Financial Accounting Standards No. 109,
"ACCOUNTING FOR INCOME TAXES" (FASB 109).
F-24
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OCTOBER 31, 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
(F) GOODWILL
Goodwill represents the amount by which the purchase price of businesses
acquired exceeds the fair market value of the net assets acquired under the
purchase method of accounting. Goodwill is being amortized on a straight-line
basis over 10 - 20 years.
The Company, at each balance sheet date, evaluates the recoverability of
the carrying amount of goodwill if circumstances suggest it has been impaired.
If this review indicates that goodwill is not recoverable, as principally
determined based on the estimated undiscounted cash flows of the entity which
gave rise to the goodwill, over the remaining amortization period, then the
Company's carrying value of the goodwill is reduced by the estimated shortfall
in cash flows.
The recoverability of goodwill associated long lived with assets acquired
in a purchase business combination is evaluated together with the related
assets if circumstances indicate the carrying amount of the asset may not be
recoverable. As required under Statement of Financial Accounting Standards No.
121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF" (FASB No. 121), if the assets and goodwill are not
recoverable their carrying value is reduced to estimated fair value based,
generally, on a discounted cash flow analysis. The initial adoption of FASB No.
121 in 1996 did not have a material impact on the Company's consolidated
financial condition or results of operations.
See Note 15 regarding certain impairment write-downs that were recorded
during 1996.
Goodwill is net of accumulated amortization of $1,200,046 and $791,329 at
October 31, 1997 and 1996, respectively. Amortization expense for the years
ended October 31, 1997, 1996 and 1995 was $408,717, $338,859 and $468,684,
respectively.
(G) CASH AND CASH EQUIVALENTS
The Company considers all unrestricted highly liquid securities
(consisting principally of short-term money market investments and treasury
notes) with a maturity or redemption option of three months or less at the date
of purchase to be cash equivalents.
(H) FOREIGN CURRENCY TRANSLATION
In accordance with FASB No. 52, "FOREIGN CURRENCY TRANSLATION", the
financial statements of the Company's Latin American subsidiaries are
remeasured using the U.S. dollar as the functional currency. Monetary assets
and liabilities denominated in a foreign currency are remeasured into U.S.
dollars at the year end exchange rate. Non-monetary assets and liabilities, and
related income statement amounts are remeasured at historical exchange rates.
(I) INVESTMENTS
The Company adopted FASB No. 115, "ACCOUNTING FOR CERTAIN INVESTMENTS IN
DEBT AND EQUITY SECURITIES", effective November 1, 1994. Under this statement,
the Company's investments are
F-25
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OCTOBER 31, 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
classified as "available for sale" and, accordingly, are recorded at the quoted
market value as of the fiscal year end with an offsetting adjustment to
shareholders' equity, net of tax.
(J) STOCK COMPENSATION
In October 1995, the FASB issued SFAS No. 123 "ACCOUNTING FOR STOCK BASED
COMPENSATION", which was effective for the Company beginning November 1, 1996.
SFAS No. 123 requires expanded disclosures of stock based compensation
arrangements with employees and encourages compensation cost to be measured
based on the fair value of the equity instrument. Under SFAS No. 123, companies
are permitted to continue to apply Accounting Principal Board ("APB") Opinion
No. 25, which recognizes compensation cost based on the intrinsic value of the
equity instrument awarded. The Company will continue to apply APB Opinion No.
25 to its stock based compensation awards to employees. See note 9 for the
required pro forma effect on net income and earnings per share as if the
Company had adopted the expense recognition requirement of SFAS No. 123.
(K) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable
(generally unsecured), accounts payable and notes payable approximate fair
value due to the short maturity of the instruments and the provision for what
management believes to be adequate reserves for potential losses. The fair
values of lines-of-credit and long-term debt approximate their carrying amount
since the currently effective rates reflect market rates.
(L) RECLASSIFICATION
Certain items in the 1996 and 1995 consolidated financial statements have
been reclassified to conform to the 1997 presentation.
(M) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities,
revenues and costs. Actual results could differ from those estimates.
(N) PER SHARE DATA
Primary earnings per common share are computed by dividing net income
(less preferred dividends) by the weighted average number of common shares and
common shares equivalents outstanding during the period. On a fully diluted
basis, both net earnings and shares outstanding are adjusted to assume the
conversion of the convertible preferred stock, if dilutive.
(O) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128 "EARNINGS PER SHARE," which
will require companies to present
F-26
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OCTOBER 31, 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
basic earnings per share, instead of the primary and fully diluted EPS that is
currently required. The new standard requires additional informational
disclosures and also makes certain modifications to the currently applicable
EPS calculations defined in Accounting Principles Board No. 15. The new
standard is required to be adopted by all public companies for reporting
periods ending after December 15, 1997 (the Company's first quarter of fiscal
1998), and will require restatement of EPS for all prior periods reported.
In June 1997, the FASB issued SFAS No. 130 "REPORTING COMPREHENSIVE
INCOME" which establishes standards for reporting and display of comprehensive
income and its components (revenue, expenses, gains, and losses) in a full set
of general-purpose financial statements. This statement requires that an
enterprise classify items other comprehensive income by their nature in a
financial statement and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital in the
equity section of a statement of financial position. This statement is
effective for the Company's fiscal year 1998.
In June 1997, the FASB issued SFAS No. 131 "DISCLOSURE ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION" which establishes standards for public
business enterprises to report information about operating segments in annual
financial statements and requires those enterprises to report information about
operating segments in interim financial reports issued to shareholders. It also
establishes the standard for related disclosures about products and services,
geographic areas, and major customer. This statement requires that a public
business enterprise report financial and descriptive information about its
reportable operating segments. The financial information is required to be
reported on the basis that it is used internally for evaluating segment
performance and deciding how to allocate resources to segments. Operating
segments are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. This statement is effective for the Company's fiscal year 1998.
Management is currently evaluating the requirements of SFAS No. 130 and
No. 131, respectively.
(3) ACQUISITIONS
On December 2, 1996, Able acquired all the outstanding common stock of
Dial Communications, Inc. ("Dial"). As consideration, the Company paid
$3,000,000 in cash, issued 108,489 shares of common stock (fair value of
$620,421) and issued an $892,000 promissory note with a three year term bearing
interest at Prime plus 1/2%. The acquisition was accounted for using the
purchase method of accounting. The results of operations are included in the
consolidated statements of operations since the date of acquisition. Goodwill
of $1,500,000 was recorded in this transactions which is being amortized over
20 years using the straightline method.
F-27
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OCTOBER 31, 1997
(3) ACQUISITIONS--(CONTINUED)
The following summarizes the fair value of the assets of Dial acquired and
the liabilities of Dial assumed:
<TABLE>
<S> <C>
Cash and cash equivalents ............ $ 403,617
Accounts receivable .................. 783,790
Notes receivable ..................... 63,973
Receivable from shareholders ......... 231,609
Property and equipment ............... 3,005,941
Deposits ............................. 7,269
Accounts payable ..................... (299,761)
Income tax payable ................... (129,294)
Accrued expenses ..................... (383,721)
Notes payable ........................ (671,002)
----------
Net assets ........................... $3,012,421
==========
</TABLE>
On October 12, 1996, the Company, through a wholly owned subsidiary,
acquired all of the outstanding common stock of Georgia Electric Company (GEC).
As initial consideration, the Company paid $3,000,000 in cash. Under the terms
of the earn out provision of the acquisition agreement, the Company will issue
shares of common stock over a five year period beginning in fiscal 1997,
contingent upon the operating performance of GEC and the market value of the
Company's stock. Such amounts will be accounted for as purchase price
adjustments. The acquisition was accounted for using the purchase method of
accounting. The results of operations are included in the consolidated
statements of operations since the date of acquisition.
The following summarizes the fair values of the assets of GEC acquired and
the liabilities of GEC assumed:
<TABLE>
<S> <C>
Cash and cash equivalents ....................................... $ 1,366,619
Accounts receivable ............................................. 4,422,983
Costs and profits in excess of billings on uncompleted contracts 27,645
Prepaid expenses ................................................ 221,105
Property and equipment .......................................... 2,258,672
Other assets .................................................... 44,258
Accounts payable and accrued liabilities ........................ (2,095,942)
Billings in excess of costs and profits on uncompleted contracts (529,445)
Undistributed S Corp earnings due to former owners .............. (2,715,895)
------------
Net assets ...................................................... $ 3,000,000
============
</TABLE>
The Company recorded goodwill of $1,277,866 at October 31, 1997 as a
result of additional purchase price due to the former owner of GEC under the
terms of the earn out provisions of the acquistion agreement. The goodwill will
be amortized over 20 years using the straightline method. A corresponding
amount was recorded as Other liabilities in the consolidated balance sheets for
the earn out contingency.
F-28
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OCTOBER 31, 1997
(3) ACQUISITIONS--(CONTINUED)
On December 8, 1995, the Company, through a wholly owned subsidiary,
acquired all of the outstanding common stock of H.C. Connell, Inc. ("Connell").
As consideration, the Company paid $500,000 in cash and issued a $1,869,049
promissory note. The acquisition was accounted for using the purchase method of
accounting. The results of operations of Connell are included in the
consolidated statements of operations since the date of the acquisition.
The following summarized the fair values of the assets of Connell acquired
and the liabilities of Connell assumed:
<TABLE>
<S> <C>
Cash and cash equivalents ....................................... $ 394,351
Accounts receivable ............................................. 1,614,923
Costs and profits in excess of billings on uncompleted contracts 98,071
Prepaid expenses ................................................ 109,661
Property and equipment .......................................... 1,957,195
Other assets .................................................... 27,226
Accounts payable and accrued liabilities ........................ (847,928)
Billings in excess of costs and profits on uncompleted contracts (7,833)
Borrowings ...................................................... (663,017)
Other liabilities ............................................... (313,600)
----------
Net assets ...................................................... $2,369,049
==========
</TABLE>
On June 22, 1994, the Company acquired all of the outstanding common stock
of Transportation Safety Contractors, Inc. and its affiliates ("TSCI"). As
consideration, the Company paid $6,000,000 in cash, issued $3,000,000 in
promissory notes and issued 272,300 shares of restricted common stock of the
Company. In November 1994, the $3,000,000 in promissory notes were renegotiated
resulting in $1,500,000 of the promissory notes being converted to 259,434
shares of restricted common stock of the Company with no gain or loss
recognized on the conversion. The acquisition was accounted for using the
purchase method of accounting and $6,777,017 in goodwill was recorded which is
being amortized over 20 years under the straight-line method. Amortization
expense amounted to approximately $339,000 in 1996 and 1995 and $102,408 in
1994. The results of operations are included in the consolidated statements of
operations since the date of the acquisition.
In June 1994, the Company acquired a 75% interest in a Brazilian
telecommunications company for $144,000 plus $356,000 in working capital
contributions. The acquisition was accounted for using the purchase method of
accounting. Approximately $497,000 in goodwill was recorded and was being
amortized over 10 years using the straight-line method. The results of
operations are included in the consolidated statements of operations since the
date of acquisition.
During the second quarter of fiscal 1996, the Company identified
circumstances which suggested the carrying value of goodwill related to its
Brazilian telecommunications company had been impaired. These included
continuing losses from operations, consistent failure to meet budgeted
operating results despite the Company's attempts to improve performance and the
Company's resulting decision during the second quarter of 1996 to substantially
curtail its telecommunications maintenance and construction operations. As a
result, the Company estimated the expected income to
F-29
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OCTOBER 31, 1997
(3) ACQUISITIONS--(CONTINUED)
be derived in future periods and the expected undiscounted future cash flows of
the Brazilian telecommunications company. The results indicated that goodwill
would not be recovered. Accordingly, during the second quarter, the carrying
value of goodwill related to this acquisition was reduced from $447,010 to
zero. This charge is included in "Charges and transaction/translation losses
related to Latin American operations" in the Consolidated Statement of
Operations for fiscal year 1996.
Unaudited pro forma financial information for the Company is presented as
if the Company's acquisitions of Dial, GEC, and Connell had taken place as of
November 1, for each of the respective years.
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
------------------------------------------------
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Revenues ............................ $86,334,449 $ 85,095,239 $78,293,663
Net income (loss) ................... 1,369,142 (1,345,659) 2,363,064
Net income (loss) per share ......... .16 (.17) .28
</TABLE>
This unaudited pro forma information does not purport to be indicative of
the results of operations which would have resulted had the acquisitions been
consummated at the dates assumed.
(4) INVESTMENTS
At October 31, 1996, investments consisted of preferred stock. These
securities are classified as available-for-sale and have a cost basis of
$625,000. The fair market value as determined by the quoted market prices, at
October 31, 1996 was $571,010. The unrealized losses on these investments of
$53,990 net of tax, is included as a separate component of shareholders'
equity. There were no investments at October 31, 1997.
Investment income consisted of dividends and interest income which
amounted to $449,479, $180,015 and $263,502 for the years ended October 31,
1997, 1996 and 1995, respectively. During the years ended October 31, 1997 and
1995, the Company sold investment securities; the proceeds on the sale totaled
620,904 and $4,418,233 and the realized loss totalled $4,096 and $100,379, in
1997 and 1995, respectively.
(5) ACCOUNTS RECEIVABLE
Accounts receivable are recorded net of an allowance for doubtful accounts
of $686,602 and $828,186 at October 31, 1997 and 1996, respectively. Accounts
receivable includes retainage which has been billed but is not due until
approximately 90 days after the services are rendered and accepted by the
customer. Retainage totaled $935,858 and $1,675,698 at October 31, 1997 and
1996, respectively. A significant portion of accounts receivable is derived
from several major customers. (See note 11)
F-30
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OCTOBER 31, 1997
(6) UNCOMPLETED CONTRACTS
Uncompleted contracts consist of the following at October 31, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Costs incurred on uncompleted contracts ............... $43,237,315 $15,989,067
Earnings recognized on uncompleted contracts .......... 7,360,962 2,706,996
----------- -----------
Total ............................................... 50,598,277 18,696,063
Billings to date ...................................... 45,274,629 18,960,518
----------- -----------
Net ................................................. $ 5,323,648 $ (264,455)
=========== ===========
</TABLE>
Included in the accompanying balance sheets under the following headings:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Costs and profits in excess of billings on uncompleted
contracts ........................................... $ 5,614,813 $ 954,269
Billings in excess of costs and profits on uncompleted
contracts ........................................... 291,165 1,218,724
----------- -----------
Net ................................................ $ 5,323,648 $ (264,455)
=========== ===========
</TABLE>
(7) PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consists of the following at October 31, 1997
and 1996:
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
<S> <C> <C>
Land and buildings ...................................... $ 1,414,725 $ 1,398,884
Equipment, furniture and fixtures ....................... 19,235,073 13,493,828
Equipment under capital lease ........................... 747,025 637,407
------------ ------------
21,396,823 15,530,119
Less accumulated depreciation and amortization .......... (8,283,185) (4,862,762)
------------ ------------
Property and equipment, net ............................. $ 13,113,638 $ 10,667,357
============ ============
</TABLE>
Depreciation and amortization expense relating to property and equipment
amounted to $4,532,248, $2,410,945 and $1,445,380 for the years ended October
31, 1997, 1996 and 1995, respectively.
F-31
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OCTOBER 31, 1997
(8) BORROWINGS
The Company's borrowings consist of the following at October 31, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
-------------- ---------------
<S> <C> <C>
LINES OF CREDIT--SHORT TERM:
Bank lines of credit ($6,000,000 aggregate maximum limit
at October 31, 1997) $6,000,000 maturing on March 1,
1998 interest payable monthly at prime (8.75% at
October 31, 1997) secured by substantially all the assets
of the Company ................................................. $ 6,000,000 $ 6,126,178
Less effect of refinancing transaction .......................... (6,000,000) (1,500,000)
------------ ------------
$ -- $ 4,626,178
============ ============
NOTES PAYABLE TO SHAREHOLDERS/
DIRECTORS--SHORT TERM:
Notes payable to shareholders, principal and interest due on
demand at 18%, unsecured, personally guaranteed by a
shareholder/director of the Company ............................ $ 875,000 $ 1,307,976
Note payable to a director, principal due on demand,
interest due quarterly at Prime (8.75% at October 31,
1996), unsecured ............................................... -- 250,000
------------ ------------
875,000 1,557,976
Less effect of refinancing transactions ......................... -- (250,000)
------------ ------------
$ 875,000 $ 1,307,976
============ ============
Long-Term Debt:
Notes payable to a bank, payable in monthly installments
aggregating approximately $158,000, interest payable
monthly ranging from prime (8.75% at October 31, 1997)
to prime plus 1/2%, secured by substantially all the assets
of the Company ................................................. $ 3,560,157 $ 4,061,987
Note payable to a bank, principal and interest due
December 2, 1996 at prime (8.75% at October 31, 1997),
secured by substantially all the assets of the Company ......... -- 1,500,000
Note payable to the sellers of Connell, principle and
accrued interest due January 2, 1997, interest at 9%,
secured by certain accounts receivable and all property
and equipment of Connell not otherwise pledged
to a bank ...................................................... -- 1,869,049
Mortgage note payable to a bank, payable in monthly
installments of $1,604 plus interest at prime (8.75% at
October 31, 1996) plus 1/2% secured by land and building
with a carrying value of approximately $425,000 as of
October 31, 1997 ............................................... 269,430 288,750
</TABLE>
F-32
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OCTOBER 31, 1997
(8) BORROWINGS--(CONTINUED)
<TABLE>
<CAPTION>
1997 1996
--------------- --------------
<S> <C> <C>
Notes payable to banks, payable in monthly installments of
principal and interest ranging from 8.75% to 14.9% at
October 31, 1997, secured by related equipment .............. -- 91,477
Notes payable to banks, payable in monthly installments of
principal and interest of 8.50 at October 31, 1997, secured
by real and personal property of GEC ......................... 2,500,000 --
Notes payable to former owner of Dial payable in monthly
installments of principal and interest of 8.50% at
October 31, 1997, secured by promissory note ................. 669,000 --
Notes payable to banks, payable in monthly installments of
principal and interest at prime (8.75% at October 31,
1997), secured by real and personal property of Dial ......... 2,875,500 --
Notes payable to banks, payable in monthly installments of
principal and Interest at prime 8.75% at October 31, 1997
secured by related equipment ................................. 385,122 --
Notes payable to bank, payable in monthly installments of
principal and interest at prime (8.75% at October 31,
1997), secured by related equipment .......................... 510,530 --
--------- ------
10,769,739 7,811,263
Plus effect of refinancing transactions ....................... 6,000,000 1,750,000
Capital leases (see note 14) .................................. 524,256 554,155
---------- ---------
Total long-term debt .......................................... 17,293,995 $ 10,115,418
Less current portion, giving effect to the
refinancing transaction ...................................... (3,154,428) (1,965,611)
---------- ------------
Long-term debt, excluding current portion ..................... $ 14,139,567 $ 8,149,807
============ ============
</TABLE>
Subsequent to the fiscal year end October 31, 1997, the Company completed
an issuance of unsecured Subordinated Debt totaling $10,000,000 with detachable
warrants to purchase 409,505 shares of common stock at a price of $8.25. The
subordinated debt accrues interest at 12% payable semi-annually in arrears.
Principal payments are due in January 2004 and 2005 giving the notes an average
life of 6.5 years. The Subordinated Debt agreement contains convenants which
require among other conditions, that the Company maintain certain tangible net
worth, minimum fixed coverage charges and limitations on total debt. The
proceeds were used for current working capital needs and to pay off existing
debt and to provide liquidity to finance growth and certain expenditures,
including acquisitions, associated with the Company's overall strategic plan.
In conjunction with the subordinated debt issue, Able Telcom has also
obtained a signed a commitment letter with a financial institution for a
$30,000,000 three year senior secured revolving credit facility (the "Credit
Facility") with a $2,000,000 sub-limit for the issuance of Standby Letter(s) of
credit. The Credit Facility allows the Company to select between the following
interest rate options: (i) a Base Rate plus an Applicable Margin or (ii) LIBOR
(1, 2, 3, or 6 months) plus an Applicable Margin. The Applicable Margin ranges
from 0.00% to 2.50%. Interest is payable monthly in arrears on
F-33
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OCTOBER 31, 1997
(8) BORROWINGS--(CONTINUED)
base rate advances and at the expiration of each interest period for LIBOR
advances. The Credit Facility contains covenants which require among other
things that the Company maintain certain tangible net worth, minimum fixed
coverage charges, and limitations on total debt. The Credit Facility is secured
by a perfected first priority security interest on all tangible assets of the
Company. The proceeds of the Credit Facility will be used to finance working
capital requirements as well as other general corporate purposes, including
acquisitions and equipment capital expenditures with the Company's overall
strategic plan.
Effective December 2, 1996 the Company entered into a $3,000,000 term loan
credit Facility (the Term Loan) with a bank. The Term Loan is payable in sixty
monthly installments of $50,000 plus interest at prime. Additionally, excess
cash flow of GEC, as defined, is to be paid to the bank. The Term Loan contains
covenants, which require among other conditions, that the Company maintain
certain tangible net worth, working capital and debt service amounts. The Term
Loan is collateralized by all real and personal property of GEC which was
acquired on October 12, 1996. Proceeds from the term loan were used to repay
$1,500,000 of a bank line of credit outstanding at October 31, 1996 and to
repay the $1,500,000 note payable to a bank due on December 2, 1996.
Effective December 20, 1996 the Company completed a private placement
transaction of 1,000 shares of $.10 par value, Series A Convertible Preferred
Stock (the Preferred Stock) and warrants to purchase 200,000 shares of the
Company's common stock at $9.82 per share. Proceeds from the offering totaled
$6,000,000. Each share of Preferred Stock is convertible to shares of the
Company's common stock after April 30, 1997 at the lesser of $9.82 per share or
at a discount (ranging from 10% to 20% depending upon the date of conversion)
of the average closing bid price of a share of common stock for three days
proceeding the date of conversion. The Company recognized the discount
attributable to the beneficial conversion privilege of approximately $1,300,000
by accreting the amount from the date of issuance, December 20, 1996, through
the last date the discount rate increase can occur, December 20, 1997, as an
adjustment of net income attributable to common shareholders. This accretion
adjustment, which also represents the adjustment needed to accrete to the
redemption value of the Preferred Stock, resulted in a charge to retained
earnings and accompanying credit to the Preferred Stock. The Preferred Stock
accrues dividends at an annual rate of 5% and is payable quarterly in arrears
in cash or through a dividend of additional shares of Preferred Stock. Upon the
occurrence of certain events, including failure to effect a timely registration
statement related to the conversion features and warrants associated with the
preferred stock, the Company may be required to redeem the Preferred Stock at a
price equal to the liquidation preference, plus any accrued and unpaid
dividends plus an amount determined by formula. Proceeds from the private
placement were used to repay a $1,869,050 note payable to the sellers of
Connell, a $250,000 note payable to a director, and $2,015,895 due the former
principals of GEC. The amount due to the former principals of GEC represented
undistributed S corporation profits existing at the date of acquisition, and is
presented as "Other liabilities" in the accompanying Consolidated Balance Sheet
at October 31, 1996.
The classification of debt in the consolidated balance sheets reflects the
effects of the above mentioned financing transactions.
During the fiscal year ended October 31, 1997 five shares of the
convertible preferred were converted into 4,481 shares of the Company's common
stock and 1,000 warrants were forfeited.
F-34
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OCTOBER 31, 1997
(8) BORROWINGS--(CONTINUED)
The aggregate maturates of long-term debt and capital leases for years
subsequent to October 31, 1997, giving effect to the December 1997 refinancing
and private placement, are as follows:
<TABLE>
<S> <C>
1998 ...................... $ 3,154,428
1999 ...................... 2,776,343
2000 ...................... 2,387,657
2001 ...................... 1,408,039
2002 ...................... 656,850
Thereafter ................ 6,910,678
-----------
$17,293,995
===========
</TABLE>
(9) STOCK OPTIONS
During 1996, the Company's shareholders adopted a stock option plan
comprised of incentive stock options for employees and non-qualified stock
options for non-affiliated directors (the "Plan"). The Plan provides for the
issuance of up to 550,000 options to employees and non-affiliated directors.
The exercise price for incentive options under the Plan will approximate the
fair value of the Company's common stock on the date of the grant. The purchase
price for grants of non-qualified stock options will be determined by the
Company's Board of Directors. At October 31, 1997, a total of 250,180 options,
net of canceled shares, have been granted under the Plan. Incentive options
granted to employees generally become exercisable over a three year period in
equal installments beginning the year after the date of the grant.
Non-qualified options granted to non-affiliated directors become exercisable
one year after the date of the grant.
In addition, specific stock options have been granted to certain officers
prior to or outside the Plan, a portion of which remain unexercised at October
31, 1997. During the fiscal year ended October 31, 1992, an option to purchase
260,000 shares of Common Stock at $.05 per share was granted to a director of
the Company. In addition, in fiscal 1993 an officer was granted an option to
purchase 100,000 shares of common stock at $.50 per share. For the years ended
October 31, 1996 and 1995 160,500 of these options remained outstanding and
available for exercise. On October 31, 1997, 25,000 shares remained outstanding
and available for exercise of these options.
During 1995, options to purchase 100,000 shares at $4.83 per share were
granted to an officer, pursuant to employment agreement. All such options were
granted at the fair market value on the date of grant and were outstanding as
of October 31, 1996.
During fiscal year 1997 additional options were granted to officers and
non affiliated directors. These included 120,000 at $6.00 granted to former
officers and directors and 75,000, ranging from $6.00 to $7.00, granted to
current officers and directors. Certain of these options were granted at below
market price which resulted in the recognition of compensation expense of
approximately $337,500 in fiscal 1997.
The Company's 1996 Incentive Stock Option Plan has authorized the grant of
options to employees and non-affiliated directors for up to 550,000 shares of
the companies common stock (See note 9).
Pro forma information regarding net income and earnings per share is
required by FASB 123 and has been determined as if the Company had accounted
for its employee stock options under the fair
F-35
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OCTOBER 31, 1997
(9) STOCK OPTIONS--(CONTINUED)
value method of that statement. The fair value for these options was estimated
at the date of grant using a Black-Scholes option pricing model with the
following weighted average assumptions for 1997 and 1996 respectively:
risk-free interest rate of 5.65%; dividend yields of 0 and volatility factors
of the expected market price of the Company's common stock of .463 and .463;
and a weighted-average expected life of the option of 2 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value estimate
in management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options.
For purposes of pro forma disclosing the estimated fair value of the
options is amortized over the options vesting period. The Company's pro forma
information follows (in thousands except for earnings per share information):
<TABLE>
<CAPTION>
1997 1996
------------- ----------------
<S> <C> <C>
Pro forma net income (loss) .......... $2,647,457 $ (5,760,098)
Pro forma net income (loss) per share:
Primary ............................ .313 (.689)
Fully diluted ...................... .313 (.689)
</TABLE>
The Company has elected to follow Accounting Principles Board Opinion No.
25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES" (APB 25) and related
Interpretations in Accounting for its employee stock Options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123 "ACCOUNTING FOR STOCK-BASED COMPENSATION," requires use of
option valuation Models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
F-36
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OCTOBER 31, 1997
(9) STOCK OPTIONS--(CONTINUED)
A summary of the Company's stock activity, and related information for the
years ended October 31 follows:
<TABLE>
<CAPTION>
OPTION PRICE
NUMBER PER SHARE
OF SHARES AVERAGE TOTAL PRICE
------------- ------------- --------------
<S> <C> <C> <C>
Shares under option at October 31, 1995 ......... 444,500 $1.67 $ 742,315
Granted ......................................... 248,500 6.66 1,655,010
Forfeited ....................................... (44,520) 6.56 (291,606)
------- ----- ----------
Shares under option at October 31, 1996 ......... 648,480 3.25 2,105,719
Granted ......................................... 292,000 6.50 1,898,000
Exercised ....................................... (412,240) 1.80 (742,032)
Forfeited ....................................... (44,800) 6.28 (281,344)
-------- ----- ----------
Shares under option at October 31, 1997 ......... 483,440 $6.16 $2,980,343
======== ===== ==========
Shares under option at October 31, 1996 ......... 561,166 $6.55 $3,675,637
======== ===== ==========
Shares under opton at October 31, 1997 .......... 272,400 $6.66 $1,814,184
======== ===== ==========
</TABLE>
Exercise prices for options outstanding as of October 31, 1997 ranged from
$.50 to $7.813. The weighted-average remaining contractual life of those
options is 6 years.
(10) INCOME TAXES
An analysis of the components of (loss) income before income taxes and
minority interest and the related income tax (benefit) expense is presented
below:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ---------------- --------------
<S> <C> <C> <C>
Domestic ............................................ $3,304,300 $ (3,770,323) $ (817,790)
Foreign ............................................. 572,988 (3,628,503) 485,708
---------- ------------ ----------
$3,877,288 $ (7,398,826) $ (332,082)
========== ============ ==========
Provision for income taxes:
Federal
Current ........................................... $ -- $ -- $ --
Deferred .......................................... 657,071 (969,353) (202,074)
State
Current ........................................... -- -- --
Deferred .......................................... 70,152 (165,934) --
Foreign
Current ........................................... -- -- 71,236
Deferred .......................................... -- 244,592 (237,267)
---------- ------------ ----------
Provision for income tax (benefit) expense .......... $ 727,223 $ (890,695) $ (368,105)
========== ============ ==========
</TABLE>
F-37
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OCTOBER 31, 1997
(10) INCOME TAXES--(CONTINUED)
Reconciliation of the federal statutory income tax rate to the Company's
effective income tax rate is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ---------- -----------
<S> <C> <C> <C>
(Benefit) tax at federal statutory rate ............................ 34 % (34)% (34)%
State income tax, net .............................................. .2 4 --
Non-deductible goodwill ............................................ 4 2 35
Reduction in valuation allowance ................................... -- (1) (7)
Reduction in (benefit) tax provided on foreign operations .......... (20) 22 (92)
Other .............................................................. 3.8 3 (13)
---- --- ----
Effective income tax rate .......................................... 22 % (12)% (111)%
==== === ====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
1997 1996
------------ --------------
<S> <C> <C>
Deferred tax assets:
Unrealized loss on investments ............. $ -- $ 18,388
Reserve for bad debts ...................... 135,108 295,804
Net operating loss carry forward ........... 1,142,847 1,452,313
Foreign tax credit carry forwards .......... 423,914 --
Other ...................................... 69,554 55,281
--------- ----------
1,771,423 1,821,786
Deferred tax liabilities:
Plant, property and equipment .............. (659,866) (645,946)
Investment in foreign subsidiaries ......... (129,581) --
Other ...................................... -- --
--------- ----------
(789,447) (645,946)
--------- ----------
Net deferred tax asset ...................... $981,976 $1,175,840
========= ==========
</TABLE>
At October 31, 1997, the Company has Federal net operating loss
carryforwards of approximately $3,307,064. These net operating loss
carryforwards begin to expire at the end of the fiscal year ending October 31,
2009.
(11) MAJOR CUSTOMERS/CONCENTRATION OF CREDIT RISK
A significant portion of the Company's business is derived from four major
customers including a governmental agency, two telephone companies and an
industrial manufacturer. At October 31, 1997 and 1996, the Company had accounts
receivable from these customers of $3,109,025 and $5,453,885 or 48% and 42% of
total accounts receivable, respectively. Revenues from these customers totaled
approximately $30,880,000, $22,786,000 and $9,498,000 or 36%, 50% and 27% of
consolidated revenues in fiscal years 1997, 1996 and 1995, respectively.
Approximately 50% of the Company's Latin American revenues are derived
from one customer in Venezuela. Revenues from this customer were approximately
2% of consolidated revenues in 1997 (4% in 1996; and 6% in 1995). Accounts
receivable outstanding for this customer were $776,000 and $257,994 at October
31, 1997 and 1996, respectively.
F-38
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OCTOBER 31, 1997
(12) INDUSTRY AND GEOGRAPHIC AREA SEGMENT INFORMATION
The Company currently operates primarily in two industry segments:
telecommunication network services and traffic management systems and devices.
Traffic management operations are conducted in the United States while
telecommunication network services are conducted both in the United States and
Latin America (mainly in Venezuela and Brazil). Revenues, (loss) income from
operations, identifiable assets, capital expenditures and depreciation and
amortization pertaining to the industries and geographic areas in which the
Company operates are presented below.
<TABLE>
<CAPTION>
1997 1996 1995
-------------- ---------------- --------------
<S> <C> <C> <C>
INDUSTRY SEGMENTS
Revenues:
Traffic management operations .............. $46,795,604 $ 22,661,644 $22,872,331
Telecommunication network services ......... 39,538,845 26,244,526 12,535,250
----------- ------------ -----------
Total ..................................... $86,334,449 $ 48,906,170 $35,407,581
=========== ============ ===========
Income (loss) from operations:
Traffic management operations .............. $ 3,771,385 $ (3,454,076) $ 286,149
Telecommunication network services ......... 1,068,995 (2,832,440) (72,518)
----------- ------------ -----------
Total ..................................... $ 4,840,380 $ (6,286,516) $ 213,631
=========== ============ ===========
Identifiable Assets:
Traffic management operations .............. $28,884,967 $ 25,099,066 $21,701,922
Telecommunication network services ......... 21,461,027 13,819,765 10,780,294
----------- ------------ -----------
Total ..................................... $50,345,994 $ 38,918,831 $32,482,216
=========== ============ ===========
Capital Expenditures:
Traffic management operations .............. $ 1,635,970 $ 1,275,451 $ 353,148
Telecommunication network services ......... 2,851,447 2,216,097 1,897,756
----------- ------------ -----------
Total ..................................... $ 4,487,417 $ 3,491,548 $ 2,250,904
=========== ============ ===========
Depreciation and amortization:
Traffic management operations .............. $ 1,710,831 $ 1,228,647 $ 996,249
Telecommunication network services ......... 2,821,417 1,521,157 917,815
----------- ------------ -----------
Total ..................................... $ 4,532,248 $ 2,749,804 $ 1,914,064
=========== ============ ===========
GEOGRAPHIC AREAS
Revenues:
United States .............................. $82,171,132 $ 45,160,312 $32,179,831
Latin America .............................. 4,163,317 3,745,858 3,227,750
----------- ------------ -----------
Total ..................................... $86,334,449 $ 48,906,170 $35,407,581
=========== ============ ===========
Income (Loss) from Operations:
United States .............................. $ 4,823,824 $ (2,072,678) $ 364,264
Latin America .............................. 16,556 (4,213,838) (150,633)
----------- ------------ -----------
Total ..................................... $ 4,840,380 $ (6,286,516) $ 213,631
=========== ============ ===========
Identifiable Assets:
United States .............................. $47,781,370 $ 36,409,993 $26,955,667
Latin America .............................. 2,564,623 2,508,838 5,526,549
----------- ------------ -----------
Total ..................................... $50,345,993 $ 38,918,831 $32,482,216
=========== ============ ===========
</TABLE>
F-39
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OCTOBER 31, 1997
(13) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- --------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1997
Revenues ........................ $ 18,326 $ 20,871 $21,984 $ 25,153
Operating Income ................ 1,142 1,785 1,024 888
Net Income ...................... 505 851 932 567
Income per share ................ .04 .04 .06 .02
1996
Revenues ........................ $ 11,578 $ 12,592 $11,860 $ 12,876
Operating Income (Loss) ......... (1,036) (2,095) 199 (3,355)
Net Income (Loss) ............... (533) (2,562) 137 (2,952)
Income (Loss) per share ......... (.06) (.31) .02 (.35)
</TABLE>
Certain adjustments were made in the fourth quarter of 1997 which included
a reduction in reserves associated with litigation between the Company and
former owners of TSCI of $225,000. See Note 14(b).
Certain adjustments were recorded in the fourth quarter of 1996 which
included adjustments to provide allowances for uncollectible accounts
receivable and obsolete inventory. These adjustments resulted in charges
against operations aggregating approximately $1,351,000.
(14) COMMITMENTS AND CONTINGENCIES
(A) LEASED PROPERTIES
As of October 31, 1997, the Company leased office space and equipment
under various non-cancelable long-term operating lease arrangements.
During fiscal year 1997, the Company leased certain equipment under an
agreements which are classified as capital leases. Cost and accumulated
amortization of such assets as of October 31, 1997 totaled $747,025 and
$127,482.
F-40
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OCTOBER 31, 1997
(14) COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Future minimum lease payments required under operating and capital leases
with initial terms in excess of one year are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEARS ENDING OCTOBER 31, LEASES LEASES
- -------------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
1998 .................................................................. $177,489 $ 441,602
1999 .................................................................. 179,492 231,031
2000 .................................................................. 177,907 183,802
2001 .................................................................. 61,612 65,672
2002 .................................................................. -- 67,692
Thereafter ............................................................ -- 94,140
-------- ----------
Total minimum lease payments .......................................... 596,500 $1,083,939
Present value of net minimum lease payments ........................... 524,256
Less current installments of obligations under capital leases ......... 139,001
--------
Obligations under capital leases, excluding current installments ...... $385,255
========
</TABLE>
Rental expense for operating leases amounted to $833,710, $631,706 and
$323,180 for the years ended October 31, 1997, 1996 and 1995, respectively. The
Company paid rent to former directors of the Company totaling $89,460 for
fiscal years 1997, 1996 and 1995. In addition, the Company has entered into an
agreement with the former principals of GEC to purchase, by June 1997, a
facility for $350,000 subject to the Company obtaining favorable financing and
other terms. The Company has paid 60,000 in rent to these former principals of
GEC on this facility in fiscal year 1997.
(B) LITIGATION
In July 1997, the Company terminated the employment of William J.
Mercurio, the Company's former Chief Executive Officer and Chief Financial
Officer. On July 31, 1997, Mr. Mercurio filed a lawsuit in the (15th Judicial
Circuit Court in and for Palm Beach County, Florida) naming the Company as
defendant and alleging that the Company breached an employment agreement (and a
stock option agreement) to which he and the Company were parties. As a result
of the alleged breach, Mr. Mercurio seeks damages and specific performance
under the employment agreement (and the stock option agreement). In the
lawsuit, the Company intends to vigorously to defend itself and to prove that
its actions in terminating Mr. Mercurio's employment were proper and justified
under the terms of his employment agreement.
Additionally, the Company is party from time to time to various legal
proceedings. In the opinion of management, none of these proceedings are
expected to have a material impact on its financial position or results of
operations.
F-41
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OCTOBER 31, 1997
(15) LATIN AMERICAN OPERATIONS
Revenues, costs and expenses and net (loss) income from Latin American
operations for the years ended October 31, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
-----------------------------------------------
1997 1996 1995
------------- --------------- -------------
<S> <C> <C> <C>
Revenues ................... $4,163,317 $ 3,745,858 $3,227,750
Costs and expenses ......... 4,146,761 7,374,361 3,282,585
Net Income (loss) .......... 16,556 (3,628,503) (54,835)
</TABLE>
The Company has continued to monitor closely its Latin American operations
due to the poor operating results in fiscal year 1996 Able's International
operations have shown improvement in fiscal 1997 as a result of the
stabilization of the exchange rate and increase in revenue producing contracts.
During the year ended October 31, 1997 the Company's Latin American operations
incurred approximately $200,000 of marketing expense related to a proprietary
product.
The net loss for fiscal year 1996 includes charges relating to the
write-off of certain goodwill related to Latin American operations, foreign
currency losses as a result of the devaluation of the Venezuelan Bolivar and
provisions for the write-down of certain investments, accounts receivable and
deferred tax assets. Such amounts approximate $921,000, $1,180,000 and
$353,000, respectively. Additionally, during the year ended October 31, 1996,
the Company's Latin American operations incurred approximately $1.1 million of
marketing expenses related to a proprietary product.
During the second quarter of fiscal 1996 the Company identified
circumstances which suggested the carrying value of goodwill related to its
Brazilian subsidiary and master contacts of its Venezuelan subsidiaries had
been impaired. These included continuing losses from operations, consistent
failure to meet budgeted operating results despite the Company's attempts to
improve performance, the determination that certain revenue producing contracts
would not be renewed in the forseeable future and the Company's resulting
decision during the second quarter of 1996 to substantially curtail its
telecommunications maintenance and construction operations in Latin America. As
a result, the Company estimated the expected income to be derived in future
periods and the expected undiscounted future cash flows of its Latin American
operations. The results indicated that the goodwill and master contracts would
not be recovered. Accordingly, during the second quarter of 1996, the carrying
value of these assets was reduced from approximately $921,000 to zero. This
charge is included in "Charges and transaction/translation losses related to
Latin American operations" in the Consolidated Statements of Operations for
fiscal year 1996.
Effective August 1, 1995, the Company reached an agreement with the
minority shareholders of its Venezuelan subsidiaries to compensate them for
assuming executive management and day-to-day responsibilities for the Company's
Venezuelan operations by increasing their proportionate share of earnings and
losses from 20% to 50%. The Company made this change as a result of a demand by
the minority partners for such an agreement. Management believes such a change
is necessary in that the minority partners are Venezuelan nationals who reside
in Venezuela and maintain relationships with the customer and the workforce and
are essential to the future viability of the Company's Venezuelan operations.
The agreement did not change the Company's share of ownership and voting
control in its Venezuelan subsidiaries which remains at 80%.
F-42
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OCTOBER 31, 1997
(15) LATIN AMERICAN OPERATIONS--(CONTINUED)
During fiscal year ending 1995, the Company recovered approximately
$350,000 in accounts receivable that were written off in 1994.
The Company's investment in Latin American entities, whose primary assets
consist of accounts receivable and property and equipment, totaled $2,588,623,
and, $2,080,053 at October 31, 1997 and 1996, respectively.
(16) OTHER SUBSEQUENT EVENTS
In December 1997, the Company signed a definitive agreement with COMSAT
RSI, JEFA's Wireless ("JEFA") to acquire (the "JEFA Acquisition") certain
assets and assume certain liabilities of JEFA's intelligent traffic systems and
wireless infrastructure and services business. Finalization of JEFA Acquisition
is subject to a number of conditions, among them the approval of the Texas
Department of Transportation. Accordingly, there can be no assurance that the
JEFA Acquisition will ultimately be consummated.
F-43
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholder and Board of Directors of MFS Network Technologies, Inc.:
We have audited the accompanying balance sheets of the Network
Technologies Division of MFS Network Technologies, Inc. as of December 31, 1997
and 1996, respectively, and the related statements of operations and cash flows
for the years ended December 31, 1997, 1996 and 1995. These financial
statements are the responsibility of the Division'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 Network Technologies
Division of MFS Network Technologies, Inc. as of December 31, 1997 and 1996,
respectively, and the results of its operations and its cash flows for the
years ended December 31, 1997, 1996 and 1995, respectively, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Omaha, Nebraska,
June 16, 1998
F-44
<PAGE>
NETWORK TECHNOLOGIES DIVISION OF
MFS NETWORK TECHNOLOGIES, INC.
BALANCE SHEETS--JULY 2, 1998, DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
JULY 2, DECEMBER 31, DECEMBER 31,
1998 1997 1996
--------------- ---------------- ---------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................. $ 5,902 $ -- $ 300,000
Accounts receivable--
Affiliated entities .................................. 19,829,355 40,649,818 10,698,656
Third party .......................................... 38,948,038 20,194,721 23,159,965
Costs and earnings in excess of billings on
uncompleted contracts--
Affiliated entities .................................. 11,893,461 19,068,875 9,535,530
Third party .......................................... 82,736,486 124,435,440 85,008,166
Other current assets .................................. 523,736 2,898,233 395,394
------------- ------------- -------------
Total current assets ................................ 153,936,978 207,247,087 129,097,711
PROPERTY AND EQUIPMENT, net ............................ 5,727,302 6,133,214 4,654,412
RESTRICTED ASSETS ...................................... 347,481 746,245 984,869
OTHER NONCURRENT ASSETS, net ........................... 128,850 380,257 341,244
------------- ------------- -------------
Total assets ........................................ $ 160,140,611 $ 214,506,803 $ 135,078,236
============= ============= =============
LIABILITIES, CONTRIBUTIONS
AND ACCUMULATED DEFICIT
CURRENT LIABILITIES:
Accounts payable ...................................... $ 13,732,569 $ 25,259,641 $ 15,304,269
Accrued costs and billings in excess of revenue
on uncompleted contracts--
Affiliated entities .................................. 8,041,172 12,360,457 4,426,092
Third party .......................................... 48,537,638 42,545,113 39,825,275
Accrued compensation .................................. 1,464,551 836,131 598,405
Other current liabilities ............................. 600,118 647,146 68,530
------------- ------------- -------------
Total current liabilities ........................... 72,376,048 81,648,488 60,222,571
ADVANCES FROM MFS NETWORK
TECHNOLOGIES, INC. ................................... 119,388,930 142,967,895 76,648,131
COMMITMENTS AND CONTINGENCIES
(Note 7) .............................................
CONTRIBUTIONS AND ACCUMULATED
DEFICIT:
Contributions from MFS Network
Technologies, Inc. .................................. 11,755,694 11,755,694 11,755,694
Accumulated deficit ................................... (43,380,061) (21,865,274) (13,548,160)
------------- ------------- -------------
Total contributions and accumulated deficit ......... (31,624,367) (10,109,580) (1,792,466)
------------- ------------- -------------
Total liabilities, contributions and
accumulated deficit .............................. $ 160,140,611 $ 214,506,803 $ 135,078,236
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these balance
sheets.
F-45
<PAGE>
NETWORK TECHNOLOGIES DIVISION OF
MFS NETWORK TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED JULY 2, 1998, JUNE 30, 1997,
DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
DECEMBER 31,
JULY 2, JUNE 30, ----------------------------------------------------
1998 1997 1997 1996 1995
---------------- ---------------- --------------- ---------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Affiliated entities ......... $ 36,703,005 $ 34,077,636 $100,901,819 $ 56,237,902 $112,692,674
Third party ................. 64,386,308 108,011,172 268,432,450 165,867,327 61,145,581
------------- ------------ ------------ ------------ ------------
Total revenue ............. 101,089,313 142,088,808 369,334,269 222,105,229 173,838,255
COST OF REVENUES ............. 111,206,030 136,294,198 353,562,515 206,225,389 155,826,296
------------- ------------ ------------ ------------ ------------
GROSS MARGIN
(LOSS) ..................... (10,116,717) 5,794,610 15,771,754 15,879,840 18,011,959
------------- ------------ ------------ ------------ ------------
OPERATING
EXPENSES ................... 11,413,772 14,830,436 24,066,129 23,754,195 22,806,053
------------- ------------ ------------ ------------ ------------
OPERATING LOSS ............... (21,530,489) (9,035,826) (8,294,375) (7,874,355) (4,794,094)
OTHER INCOME
(EXPENSE), net ............. 15,701 (10,706) (22,739) (101,630) 231,355
------------- ------------ ------------ ------------ ------------
NET LOSS ..................... $ (21,514,788) $ (9,046,532) $ (8,317,114) $ (7,975,985) $ (4,562,739)
============= ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-46
<PAGE>
NETWORK TECHNOLOGIES DIVISION OF
MFS NETWORK TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED JULY 2, 1998, JUNE 30, 1997,
DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
DECEMBER 31,
JULY 2, JUNE 30, --------------------------------------------------
1998 1997 1997 1996 1995
----------------- ---------------- ---------------- ---------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss ................................. $ (21,514,788) $ (9,046,532) $ (8,317,114) $ (7,975,985) $ (4,562,739)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities--
Depreciation and amortization ........... 1,358,000 1,342,345 2,684,691 1,869,993 1,628,908
Changes in assets and liabilities--
Accounts receivable and other
assets .............................. 4,693,050 (2,546,525) (29,488,757) (4,522,767) (10,046,771)
Accounts payable and other
liabilities ......................... (11,527,072) 798,920 10,771,714 4,939,109 5,246,045
Costs and earnings in excess of
billings on uncompleted
contracts ........................... 48,874,368 (16,712,465) (48,960,619) (35,611,529) (18,594,198)
Accrued costs and billings in
excess of revenue on
uncompleted contracts ............... 1,673,240 9,702,293 10,654,203 21,885,223 (3,201,681)
Restricted assets ...................... 398,764 238,624 238,624 (280,191) (207,332)
------------- ------------- ------------- ------------- -------------
Net cash from operating
activities .......................... 23,955,562 (16,223,340) (62,417,258) (19,696,147) (29,737,768)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of network and equipment........ (952,088) (2,492,812) (4,163,493) (2,068,478) (2,192,752)
Additions to deferred costs and other..... 581,392 100,162 (39,013) (11,764) 13,236
------------- ------------- ------------- ------------- -------------
Net cash from investing activities...... (370,696) (2,392,650) (4,202,506) (2,080,242) (2,179,516)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Advances (repayments) from MFS
Network Technologies, Inc. ............. (23,578,964) 18,494,835 66,319,764 22,076,389 31,894,895
------------- ------------- ------------- ------------- -------------
Net cash from financing activities...... (23,578,964) 18,494,835 66,319,764 22,076,389 31,894,895
------------- ------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS .............................. 5,902 (121,155) (300,000) 300,000 (22,389)
CASH AND CASH EQUIVALENTS,
beginning of period ...................... -- 300,000 300,000 -- 22,389
------------- ------------- ------------- ------------- -------------
CASH AND CASH EQUIVALENTS,
end of period ............................ $ 5,902 $ 178,845 $ -- $ 300,000 $ --
============= ============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-47
<PAGE>
NETWORK TECHNOLOGIES DIVISION OF
MFS NETWORK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 2, 1998 (UNAUDITED), JUNE 30, 1997 (UNAUDITED),
DECEMBER 31, 1997, 1996 AND 1995
1. ORGANIZATION:
The financial statements include the accounts of the following entities:
Network Technologies Division of MFS Network Technologies, Inc. (NT)
MFS Transportation Systems, Inc. (TSI)
MFS TransTech, Inc. (TT)
MFS Network Technologies of the District of Columbia, Inc. (DC)
Collectively, these entities are known as the Division. NT, TSI and DC are
wholly owned by MFS Network Technologies, Inc. (MFSNT). TSI owns 85 percent of
TT. The basis of the 15% minority interest has been reduced to zero due to TT's
significant losses for the periods ended July 2, 1998, June 30, 1997, December
31, 1997, 1996 and 1995. As of January 1, 1995, MFSNT was a wholly owned
subsidiary of MFS Communications Company, Inc. (MFSCC). During 1995, MFSCC
completed a restructuring in which it contributed its subsidiaries to MFSNT.
This transaction has been accounted for at historical cost in a manner similar
to the pooling of interest method. During 1996, MFSCC became a wholly owned
subsidiary of WorldCom, Inc. (WorldCom). All significant accounts and
transactions by and between the entities included in the Division have been
eliminated.
The Division operates as a systems integrator and project developer for
large-scale, facilities-based communications networks and Intelligent
Transportation Systems.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES
The preparation of the 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.
ACCOUNTING FOR CONSTRUCTION CONTRACTS
The Division uses the percentage of completion method of accounting to
account for revenues and costs, measured by the percentage of budget completed
to date to the total budget. Provision is made for the entire amount of future
estimated determinable losses on contracts in progress; claims for additional
contract compensation, however, are not reflected in the accounts until the
year in which such claims are allowed. Revisions in cost and profit estimates
during the course of the work are reflected in the accounting period in which
the facts which require the revision become known. It is possible that cost and
profit estimates will be revised in the near term.
In accordance with industry practice, amounts realizable and payable under
contracts which may extend beyond one year are included in current assets and
liabilities.
Substantially all of the Division's revenue from affiliates is from cost
reimbursable contracts. Revenues from those contracts are recognized on the
basis of costs incurred during the period, plus the overhead fee earned.
F-48
<PAGE>
NETWORK TECHNOLOGIES DIVISION OF
MFS NETWORK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JULY 2, 1998 (UNAUDITED), JUNE 30, 1997 (UNAUDITED),
DECEMBER 31, 1997, 1996 AND 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
The Division has entered into two related agreements with a significant
customer. One contract relates to construction services and the other contract
relates to materials purchasing whereby the Division purchases certain
materials for the customer and passes those through at cost. The materials
contract was entered into in conjunction with the construction contract,
therefore, the costs associated with materials are shown as contract costs and
revenue is recognized to the extent of those costs. The revenues and related
costs were $36.1 million, $40.0 million, $57.3 million, $0 for the periods
ended June 30, 1997, December 31, 1997, 1996 and 1995, respectively. These
amounts are included in the accompanying financial statements as construction
revenues and cost of revenues.
Credit risk is minimal with public (government) owners since the Division
ascertains that funds have been appropriated by the governmental project owner
prior to commencing work on public projects. Most public contracts are subject
to termination at the election of the government. However, in the event of
termination, the Division is entitled to receive the contract price on
completed work and reimbursement of costs, plus a reasonable profit, on
uncompleted work. Credit risk with private owners is minimized because of
statutory mechanics liens, which give the Division high priority in the event
of lien foreclosures following financial difficulties of private owners.
FIXED ASSETS
Fixed assets are stated at cost. Depreciation on leasehold improvements is
provided by the straight-line method over estimated useful lives ranging from
10 to 31.5 years, and depreciation on all other fixed assets is provided on
accelerated methods over the estimated useful lives of the respective assets
ranging from 3 to 8 years. Upon sale or retirement of property and equipment,
the related cost and accumulated depreciation are removed from the accounts,
and any gain or loss is recognized.
INCOME TAXES
The Division is included in the combined income tax returns of WorldCom
for the years ended December 31, 1997 and 1996, and in the combined income tax
return of MFSCC for the year ended December 31, 1995. There is no tax sharing
agreement between the Division and WorldCom or MFSCC, respectively; therefore,
the Division calculates its tax provision on a separate-entity basis. The
accompanying financial statements do not reflect a tax benefit since it is more
likely than not that the deferred tax asset will not be realized.
RESTRICTED ASSETS
Restricted assets consist of government securities held for owners in lieu
of retainage. These government securities are carried at cost which
approximates fair market value.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Division considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
F-49
<PAGE>
NETWORK TECHNOLOGIES DIVISION OF
MFS NETWORK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JULY 2, 1998 (UNAUDITED), JUNE 30, 1997 (UNAUDITED),
DECEMBER 31, 1997, 1996 AND 1995
3. ACCOUNTS RECEIVABLE:
Accounts receivable includes retainage which has been billed but is not
due until after the services are rendered and accepted by the customer.
Retainage totaled $4.5 million, $5.0 million and $2.8 million at July 2, 1998,
December 31, 1997 and 1996, respectively.
4. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
JULY 2, 1998 1997 1996
-------------- --------------- ---------------
<S> <C> <C> <C>
Furniture, fixtures and office equipment .......... $ 6,817,519 $ 6,059,631 $ 4,336,901
Vehicles .......................................... 4,556,658 4,436,769 2,821,138
Leasehold improvements ............................ 1,066,251 1,042,972 1,056,620
Testing and construction equipment ................ 865,062 754,992 829,013
Other ............................................. 517,768 723,068 423,261
------------ ------------ ------------
13,823,258 13,017,432 9,466,933
Less--Accumulated depreciation .................... (8,095,956) (6,884,218) (4,812,521)
------------ ------------ ------------
$ 5,727,302 $ 6,133,214 $ 4,654,412
============ ============ ============
</TABLE>
5. LEASES:
The Division is leasing premises under various noncancellable operating
leases which, in addition to rental payments, require payments for insurance,
maintenance, property taxes and other executory costs related to the leases.
Certain leases provide for adjustments in lease cost based upon adjustments in
the Consumer Price Index and increases in the landlord's management costs. The
lease agreements have various expiration dates and renewal options through
2003.
Future minimum payments by year and in the aggregate, under the
noncancellable operating leases with initial or remaining terms of one year or
more consisted of the following at July 2, 1998 and December 31, 1997:
<TABLE>
<CAPTION>
JULY 2, 1998 DECEMBER 31, 1997
-------------- ------------------
<S> <C> <C>
1998 ................ $ 793,822 $1,714,000
1999 ................ 1,259,651 1,176,000
2000 ................ 503,836 504,000
2001 ................ 436,000 436,000
2002 ................ 436,000 436,000
Thereafter .......... 109,000 109,000
</TABLE>
Rent expense related to noncancellable operating leases for the periods
ended July 2, 1998, June 30, 1997, December 31, 1997, 1996 and 1995,
respectively, was approximately $860,800, $896,700, $1,800,000, $1,429,700 and
$862,000.
F-50
<PAGE>
NETWORK TECHNOLOGIES DIVISION OF
MFS NETWORK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JULY 2, 1998 (UNAUDITED), JUNE 30, 1997 (UNAUDITED),
DECEMBER 31, 1997, 1996 AND 1995
6. RELATED-PARTY TRANSACTIONS:
Employees of the Division are eligible to participate in the WorldCom
employee benefit plans.
WorldCom manages and performs the treasury functions for the Division.
WorldCom's intention is to support the Division until such time that the
Division can generate sufficient cash flows to fund its operations.
7. COMMITMENT AND CONTINGENCIES:
The Division is subject to a number of lawsuits and claims for various
amounts which arise out of the normal course of its business. In the opinion of
management, the disposition of claims currently pending will not have a
material adverse effect on the Division's financial position or results of
operations.
The Division has an agreement with the minority stockholders of TT, under
which the Division obtains permanent exclusive and permanent nonexclusive
licenses for certain toll system patents for an aggregate license fee of
$6,000,000 to be paid in installments through February 1999. At July 2, 1998
and December 31, 1997, the remaining installment payments totalled $333,000 and
$1,083,000, respectively. The Division paid approximately $750,000, $1,417,000,
$1,000,000 and $1,000,000 under this agreement during the periods ended July 2,
1998, December 31, 1997, 1996 and 1995, respectively.
8. SIGNIFICANT CUSTOMERS:
A significant portion of the Company's business, excluding affiliated
entities, was derived from three major customers in 1997, two major customers
in 1996 and two major customers in 1995. Revenues from these customers totaled
approximately $224.6 million, $89.6 million and $39.4 million, or 61%, 40% and
23% of revenues in years ended December 31, 1997, 1996 and 1995, respectively.
9. SUBSEQUENT EVENTS:
Subsequent to December 31, 1997, the Division incurred approximately $25
million of losses on four contracts that were in process as of year-end. These
losses were not anticipated at December 31, 1997, and relate to matters and
events occurring subsequent thereto. As a result, the losses are not reflected
in the accompanying 1997 financial statements.
In July 1998, Able Telcom Holdings Corp. (Able) executed an agreement with
WorldCom to acquire the Division for the net book value of the Division at
March 31, 1998, as defined in the agreement, plus $10 million.
F-51
<PAGE>
AGEE FISHER, LLC.
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Able Telcom Holding Corp. and Subsidiaries
West Palm Beach, Florida
We have audited the accompanying balance sheets of CRSI Acquisition, Inc. (a
Delaware corporation and indirect wholly-owned subsidiary of COMSAT
Corporation) as of December 31, 1996 and 1997, and the related statements of
operations, changes in shareholder's equity (deficit), and cash flows for the
years then ended and the three months ended December 31, 1995. We have also
audited the accompanying statement of operations, changes in shareholder's
equity, and cash flows of JEFA International, Inc. (the predecessor company)
for the seven months ended September 30, 1995. 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 misstatements. An audit includes examining, on a test basis, evidence
supporting the amount 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 CRSI Acquisition, Inc. as of
December 31, 1996 and 1997, and the results of its operations and its cash
flows for the years then ended and the three months ended December 31, 1995,
and the results of operations and cash flows of the predecessor company for the
seven months ended September 30, 1995, in conformity with generally accepted
accounting principles.
/s/ AGEE FISHER, LLC.
Atlanta, Georgia
June 7, 1998
F-52
<PAGE>
CRSI ACQUISITION, INC.
(A WHOLLY-OWNED SUBSIDIARY OF COMSAT CORPORATION)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, FEBRUARY 24,
--------------------------------- ---------------------------------
1996 1997 1997 1998
--------------- --------------- --------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash ........................................ $ 255,908 $ 77,687 $ 106,273 $ 115,837
Accounts receivable (Note 5) ................ 5,374,748 3,704,407 6,227,228 3,723,495
Costs and estimated earnings in excess of
billings on uncompleted contracts
(Note 6) .................................. 9,342,810 11,355,705 9,200,945 13,849,085
Inventory ................................... 737,916 83,259 781,737 71,365
Other receivables ........................... 5,997 15,294 120,113 6,244
Prepaid expenses ............................ 190,765 32,921 32,921 32,921
Deferred tax asset (Note 10) ................ 1,217,008 723,294 1,108,686 674,224
------------ ------------- ------------ -------------
17,125,152 15,992,567 17,577,903 18,473,171
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and
amortization (Note 7) ...................... 2,546,372 3,213,953 2,737,832 3,100,205
GOODWILL, net of accumulated
amortization of $304,785 and $548,613 ...... 914,355 670,527 873,717 629,889
DEFERRED TAX ASSET, non-current
portion (Note 10) ............................ 69,085 124,353 86,894 133,564
OTHER ASSETS ................................. 45,009 44,416 43,967 44,416
------------ ------------- ------------ -------------
$ 20,699,973 $ 20,045,816 $ 21,320,313 $ 22,381,245
============ ============= ============ =============
LIABILITIES AND SHAREHOLDER'S
DEFICIT
CURRENT LIABILITIES:
Inter-company advances (Note 8) ............. $ 19,847,253 $ 24,403,780 $ 19,788,570 $ 27,011,373
Accounts payable ............................ 1,329,934 2,077,854 808,061 3,552,962
Accrued expenses ............................ 452,176 358,409 523,051 237,312
Accrued losses on uncompleted contracts ..... 4,261,140 2,880,155 4,046,279 2,932,508
Billings in excess of costs and estimated
earnings on uncompleted contracts
(Note 6) .................................. 181,825 135,910 26,293
------------ -------------- ------------ -------------
26,072,328 29,720,198 25,301,871 33,760,448
COMMITMENTS AND
CONTINGENCIES (NOTE 12)
SHAREHOLDER'S DEFICIT:
Common stock, $1 par value, 1,000 shares
authorized, 100 shares issued and
outstanding ............................... 100 100 100 100
Additional paid-in capital .................. 2,100,000 2,100,000 2,100,000
Accumulated deficit ......................... (5,372,455) (11,774,482) (6,081,658) (13,479,303)
------------ ------------- ------------ -------------
(5,372,355) (9,674,382) (3,981,558) (11,379,203)
------------ ------------- ------------ -------------
$ 20,699,973 $ 20,045,816 $ 21,320,313 $ 22,381,245
============ ============= ============ =============
</TABLE>
See notes to financial statements.
F-53
<PAGE>
CRSI ACQUISITION, INC.
(A WHOLLY-OWNED SUBSIDIARY OF COMSAT CORPORATION)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SEVEN MONTHS THREE MONTHS YEAR ENDED
ENDED ENDED DECEMBER 31,
SEPTEMBER 30, DECEMBER 31, -------------------------------
1995 1995 1996 1997
--------------- --------------- --------------- ---------------
(PREDECESSOR)
<S> <C> <C> <C> <C>
REVENUES:
Contract revenues earned ................. $ 3,802,254 $ 2,464,646 $ 23,624,881 $ 31,662,229
------------ ------------ ------------ ------------
COSTS:
Cost of contract revenues earned ......... 4,345,549 2,369,654 24,243,512 35,580,675
Provision for contract losses on
uncompleted contracts .................. 1,171,042 1,919,056 188,600
------------ ------------ ------------
4,345,549 3,540,696 26,162,568 35,769,275
------------ ------------ ------------ ------------
GROSS MARGIN .............................. (543,295) (1,076,050) (2,537,687) (4,107,046)
------------ ------------ ------------ ------------
OPERATING EXPENSES:
General and administrative ............... 880,775 289,640 3,554,046 5,054,738
Selling expenses ......................... 261,337 86,882 506,181 520,013
------------ ------------ ------------ ------------
1,142,112 376,522 4,060,227 5,574,751
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS ...................... (1,685,407) (1,452,572) (6,597,914) (9,681,797)
OTHER INCOME .............................. 421 62 66,953
------------ ------------ ------------ ------------
NET LOSS BEFORE
EXTRAORDINARY ITEM AND
INCOME TAX BENEFIT ....................... (1,684,986) (1,452,510) (6,597,914) (9,614,844)
EXTRAORDINARY ITEM:
Gain on sale of net assets, net of
income tax expense ..................... 1,271,021
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAX
BENEFIT .................................. (413,965) (1,452,510) (6,597,914) (9,614,844)
INCOME TAX (BENEFIT)
EXPENSE:
Current .................................. (131,304) (1,260,572) (3,651,262)
Deferred ................................. (19,580) (350,194) (935,899) 438,445
------------ ------------ ------------ ------------
(19,580) (481,498) (2,196,471) (3,212,817)
------------ ------------ ------------ ------------
NET LOSS .................................. $ (394,385) $ (971,012) $ (4,401,443) $ (6,402,027)
============ ============ ============ ============
<PAGE>
<CAPTION>
JANUARY 1-- FEBRUARY 24,
--------------------------------
1997 1998
--------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Contract revenues earned ................. $ 4,885,779 $ 5,564,983
------------ ------------
COSTS:
Cost of contract revenues earned ......... 5,337,713 7,164,308
Provision for contract losses on
uncompleted contracts ..................
5,337,713 7,164,308
------------ ------------
GROSS MARGIN .............................. (451,934) (1,599,325)
------------ ------------
OPERATING EXPENSES:
General and administrative ............... 489,566 891,945
Selling expenses ......................... 131,731 91,793
------------ ------------
621,297 983,738
------------ ------------
LOSS FROM OPERATIONS ...................... (1,073,231) (2,583,063)
OTHER INCOME .............................. 12,461
------------ ------------
NET LOSS BEFORE
EXTRAORDINARY ITEM AND
INCOME TAX BENEFIT ....................... (1,060,770) (2,583,063)
EXTRAORDINARY ITEM:
Gain on sale of net assets, net of
income tax expense .....................
LOSS BEFORE INCOME TAX
BENEFIT .................................. (1,060,770) (2,583,063)
INCOME TAX (BENEFIT)
EXPENSE:
Current .................................. (442,081) (918,101)
Deferred ................................. 90,513 39,859
------------ ------------
(351,568) (878,242)
------------ ------------
NET LOSS .................................. $ (709,202) $ (1,704,821)
============ ============
</TABLE>
See notes to financial statements.
F-54
<PAGE>
CRSI ACQUISITION, INC.
(A WHOLLY-OWNED SUBSIDIARY OF COMSAT CORPORATION)
STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON ADDITIONAL RETAINED EARNINGS TOTAL SHAREHOLDER'S
STOCK PAID-IN CAPITAL (ACCUMULATED DEFICIT) EQUITY(DEFICIT)
---------- ----------------- ----------------------- --------------------
<S> <C> <C> <C> <C>
(Predecessor company)
BALANCE, March 1, 1995 .......... $ 1,000 $ 2,870 $ 390,515 $ 394,385
NET LOSS ........................ (394,385) (394,385)
------- ----------- ------------- --------------
BALANCE, September 30, 1995 ..... $ 1,000 $ 2,870 $ (3,870) $ 0
======= =========== ============= ==============
(CRSI Acquisition, Inc.)
ISSUANCE OF COMMON STOCK ........ $ 100 $ 100
NET LOSS ........................ $ (971,012) (971,012)
------- ----------- ------------- --------------
BALANCE, December 31, 1995 ...... 100 (971,012) (970,912)
NET LOSS ........................ (4,401,443) (4,401,443)
------- ----------- ------------- --------------
BALANCE, December 31, 1996 ...... 100 (5,372,455) (5,372,355)
CAPITAL INVESTMENT FROM
PARENT ........................ $ 2,100,000 2,100,000
NET LOSS ........................ (6,402,027) (6,402,027)
------- ----------- ------------- --------------
BALANCE, December 31, 1997 ...... 100 2,100,000 (11,774,482) (9,674,382)
NET LOSS (Unaudited) ............ (1,704,821) (1,704,821)
------- ----------- ------------- --------------
BALANCE, February 24, 1998
(Unaudited) ................... $ 100 $ 2,100,000 $ (13,479,303) $ (11,379,203)
======= =========== ============= ==============
</TABLE>
See notes to financial statements.
F-55
<PAGE>
CRSI ACQUISITION, INC.
(A WHOLLY-OWNED SUBSIDIARY OF COMSAT CORPORATION)
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
SEVEN MONTHS THREE MONTHS YEAR ENDED
ENDED ENDED DECEMBER 31,
SEPTEMBER 30, DECEMBER 31, -----------------------------------
1995 1995 1996 1997
--------------- --------------- ----------------- -----------------
(PREDECESSOR)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss .................................... $ (394,385) $ (971,012) $ (4,401,443) $ (6,402,027)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization .............. 116,153 92,955 558,319 884,777
Deferred tax expense ....................... (19,579) (350,194) (935,899) 438,445
Gain on sale of property and equipment ..... (6,135)
Gain on sale of net assets in business
combination .............................. (1,271,021)
Changes in assets and liabilities: .........
Accounts receivable, net ................... 68,615 (453,310) (3,496,048) 1,670,342
Costs and estimated earnings in excess of
billings on uncompleted contracts ........ 576,590 (877,125) (8,465,685) (2,012,894)
Inventory .................................. (48,889) 429,626 (658,294) 654,657
Other receivables .......................... (555) (344) 6,627 37,293
Prepaid expenses ........................... (3,503) (25,734) (91,899) 111,254
Other assets ............................... 3,228 (18,228) (3,800)
Accounts payable ........................... (84,344) (614,831) 1,018,414 747,920
Accrued expenses ........................... 400,205 (179,299) (95,145) (93,771)
Accrued losses on uncompleted contracts 1,171,042 3,090,098 (1,380,985)
Billings in excess of costs and estimated
earnings on uncompleted contracts ........ 181,825 (181,825)
------------ ------------ ------------- -------------
NET CASH USED IN OPERATING
ACTIVITIES ............................... (657,485) (1,796,454) (13,292,930) (5,532,949)
------------ ------------ ------------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Cash (transferred) acquired in business
combination ................................ (46,687) 46,687
Proceeds from sale of property and
equipment .................................. 37,834
Purchase of property and equipment .......... (139,389) (318,510) (1,965,789) (1,339,635)
------------ ------------ ------------- -------------
NET CASH USED IN INVESTING
ACTIVITIES ............................... (186,076) (271,823) (1,965,789) (1,301,801)
------------ ------------ ------------- -------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net proceeds (payments) from inter-
company advances ........................... $ 2,483,043 $ 15,191,351 $ 4,556,529
Principal payment on debt acquired in
business combination ....................... (91,490)
Capital investment by parent ................ 2,100,000
Long-term debt:
Borrowings ................................. $ 2,202,000
Payments ................................... (130,243)
Net payments on line of credit .............. (793,000)
Net payments on advances from
shareholder ................................ (9,997)
------------ ------------ ------------- -------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES ..................... 1,268,760 2,391,553 15,191,351 6,656,529
------------ ------------ ------------- -------------
NET INCREASE (DECREASE)
IN CASH ..................................... 425,199 323,276 (67,368) (178,221)
CASH, Beginning of period .................... (425,199) 0 323,276 255,908
------------ ------------ ------------- -------------
CASH, END OF PERIOD .......................... $ 0 $ 323,276 $ 255,908 $ 77,687
============ ============ ============= =============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for:
Interest ................................... $ 136,075 $ 0 $ 0 $ 0
Income taxes ............................... $ 0 $ 0 $ 0 $ 0
<PAGE>
<CAPTION>
JANUARY 1-- FEBRUARY 24,
---------------------------------
1997 1998
--------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss .................................... $ (709,202) $ (1,704,821)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization .............. 82,151 159,142
Deferred tax expense ....................... 90,512 39,859
Gain on sale of property and equipment ..... (3,224)
Gain on sale of net assets in business
combination ..............................
Changes in assets and liabilities: .........
Accounts receivable, net ................... (852,480) (19,088)
Costs and estimated earnings in excess of
billings on uncompleted contracts ........ 141,865 (2,493,380)
Inventory .................................. (43,821) 11,894
Other receivables .......................... (114,116) 9,050
Prepaid expenses ........................... 157,844
Other assets ............................... 41,680
Accounts payable ........................... (521,873) 1,475,108
Accrued expenses ........................... 70,875 (121,096)
Accrued losses on uncompleted contracts (214,861) 52,353
Billings in excess of costs and estimated
earnings on uncompleted contracts ........ (45,915) 26,293
------------ -------------
NET CASH USED IN OPERATING
ACTIVITIES ............................... (1,917,341) (2,567,910)
------------ -------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Cash (transferred) acquired in business
combination ................................
Proceeds from sale of property and
equipment .................................. 3,000
Purchase of property and equipment .......... (273,610) (4,533)
------------ -------------
NET CASH USED IN INVESTING
ACTIVITIES ............................... (273,610) (1,533)
------------ -------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net proceeds (payments) from inter-
company advances ........................... $ (58,684) $ 2,607,593
Principal payment on debt acquired in
business combination .......................
Capital investment by parent ................ 2,100,000
Long-term debt:
Borrowings .................................
Payments ...................................
Net payments on line of credit ..............
Net payments on advances from
shareholder ................................
NET CASH PROVIDED BY
FINANCING ACTIVITIES ..................... 2,041,316 2,607,593
------------ -------------
NET INCREASE (DECREASE)
IN CASH ..................................... (149,635) 38,150
CASH, Beginning of period .................... 255,908 77,687
------------ -------------
CASH, END OF PERIOD .......................... $ 106,273 $ 115,837
============ =============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for:
Interest ................................... $ 0 $ 0
Income taxes ............................... $ 0 $ 0
</TABLE>
See notes to financial statements.
F-56
<PAGE>
CRSI ACQUISITION, INC.
(A WHOLLY-OWNED SUBSIDIARY OF COMSAT CORPORATION)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 INTERIM FINANCIAL STATEMENTS (UNAUDITED):
In the opinion of CRSI Acquisition, Inc. (the Company), the accompanying
unaudited financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial position
of the Company at February 24, 1997 and 1998 and the results of its operations
and its cash flows for the period from January 1 through February 24, 1997 and
1998.
NOTE 2 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS
CRSI Acquisition, Inc. (d/b/a COMSAT RSI JEFA Wireless Systems) is
incorporated in Delaware and commenced operations in September 1995. The
Company is an indirect wholly-owned subsidiary of COMSAT Corporation. The
Company engages in the installation of intelligent traffic management systems,
and the design and construction of wireless communication networks. The Company
operates in twenty-one states, primarily in Texas and Alabama. JEFA
International, Inc. was the predecessor company to CRSI Acquisitions, Inc.,
acquired by COMSAT Corporation in September 1995. JEFA International, Inc. was
also engaged in the installation and maintenance of wireless communication
networks.
REVENUE AND COST RECOGNITION
The Company's construction contracts are performed on a fixed-price basis.
Contract revenues are recognized on the percentage-of-completion method,
measured by the percentage of costs incurred to date to total estimated costs
at completion. This method is used because management considers costs incurred
to be the best available measure of progress on these contracts. Changes in job
performance, job conditions, and estimated profitability may result in
revisions to costs and revenues, and are recognized in the period in which the
revisions are determined. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined.
Contract costs include all direct material and labor costs, cost of work
subcontracted to others but under the supervision of the Company and those
indirect costs related to contract performance, such as indirect labor,
depreciation, supplies, tools, and repairs. Selling, general and administrative
costs are charged to expense as incurred.
The current asset "Costs and estimated earnings in excess of billings on
uncompleted contracts", represents revenues recognized in excess of amounts
billed. The current liability, "Billings in excess of costs and estimated
earnings on uncompleted contracts", represents amounts billed in excess of
revenues recognized.
INVENTORY
Inventory is stated at the lower of cost or market value. Costs are
determined by the first-in, first-out method.
GOODWILL
Goodwill, which represents the excess of the cost of the predecessor
company over the fair value of its net assets at the date of acquisition, is
being amortized on the straight-line method over five years.
F-57
<PAGE>
CRSI ACQUISITION, INC.
(A WHOLLY-OWNED SUBSIDIARY OF COMSAT CORPORATION)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:--(CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided by the
straight-line method over the estimated useful lives of the related assets. The
cost of leasehold improvements is amortized over the lesser of the length of
the related leases or the estimated useful lives of the assets.
ESTIMATES AND ASSUMPTIONS
Management uses estimates and assumptions in preparing these financial
statements in accordance with generally accepted accounting principles. Those
estimates and assumptions affect the reported amounts of assets and
liabilities, and the reported revenues and expenses. Actual results could vary
from the estimates that were used.
NOTE 3 CONCENTRATION OF CREDIT RISK:
The Company maintains cash balances with one financial institution. At
various times, cash balances exceeded the FDIC-insured limit.
NOTE 4 FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts of the Company's financial instruments, consisting of
cash, accounts receivable, accounts payable, and inter-company advances held
for non-trading purposes, approximates fair value due to the short maturity of
the instruments and the provision for reserves for potential non-performance.
NOTE 5 CONTRACT RECEIVABLES:
<TABLE>
<CAPTION>
DECEMBER 31, FEBRUARY 24,
------------------------------ ------------------------------
1996 1997 1997 1998
------------- -------------- ------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Contract receivables:
Completed contracts ......................... $ 3,507,482 $ 4,143,585 $ 3,738,449 $ 3,833,081
Uncompleted contracts ....................... 3,051,577 1,193,438 3,673,090 1,523,030
----------- ----------- ----------- -----------
6,559,059 5,337,023 7,411,539 5,356,111
Less allowance for doubtful accounts ......... 1,184,311 1,632,616 1,184,311 1,632,616
----------- ----------- ----------- -----------
$ 5,374,748 $ 3,704,407 $ 6,227,228 $ 3,723,495
=========== =========== =========== ===========
</TABLE>
F-58
<PAGE>
CRSI ACQUISITION, INC.
(A WHOLLY-OWNED SUBSIDIARY OF COMSAT CORPORATION)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5 CONTRACT RECEIVABLES:--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, FEBRUARY 24,
------------------------------- ------------------------------
1996 1997 1997 1998
-------------- -------------- ------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Significant customer receivables are as follows:
Due from U.S. Government agency ................ $ 1,232,656 $ 1,654,959 $ 1,654,959 $ 1,656,959
Due from State agency .......................... 371,676 812,657 498,680 894,336
----------- ----------- ----------- -----------
1,604,332 2,467,616 2,153,639 2,551,295
Less allowance for doubtful accounts ........... 421,201 1,167,616 421,201 1,167,616
----------- ----------- ----------- -----------
$ 1,183,131 $ 1,300,000 $ 1,732,438 $ 1,383,679
=========== =========== =========== ===========
</TABLE>
NOTE 6 UNCOMPLETED CONTRACTS:
<TABLE>
<CAPTION>
DECEMBER 31, FEBRUARY 24,
--------------------------------- ---------------------------------
1996 1997 1997 1998
--------------- --------------- --------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Costs incurred on uncompleted contracts ..... $ 19,684,258 $ 25,092,456 $ 20,699,917 $ 28,715,207
Estimated earnings .......................... 1,177,242 1,944,091 1,957,018 2,331,266
------------- ------------- ------------- -------------
Contract revenues recognized to date on
uncompleted contracts ..................... 20,861,500 27,036,547 22,656,935 31,046,473
Less billings to date ....................... (11,700,515) (15,680,842) (13,591,900) (17,223,681)
------------- ------------- ------------- -------------
Revenues recognized over billings, net ...... $ 9,160,985 $ 11,355,705 $ 9,065,035 $ 13,822,792
============= ============= ============= =============
Included in the accompanying balance
sheets under the following captions:
Costs and estimated earnings in excess
of billings on uncompleted contracts ..... $ 9,342,810 $ 11,355,705 $ 9,200,945 $ 13,849,085
Billings in excess of costs and estimated
earnings on uncompleted contracts ........ (181,825) (135,910) (26,293)
------------- ------------- ------------- -------------
$ 9,160,985 $ 11,355,705 $ 9,065,035 $ 13,822,792
============= ============= ============= =============
</TABLE>
F-59
<PAGE>
CRSI ACQUISITION, INC.
(A WHOLLY-OWNED SUBSIDIARY OF COMSAT CORPORATION)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7 PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
DECEMBER 31, FEBRUARY 24,
------------------------------- --------------------------------
1996 1997 1997 1998
-------------- -------------- --------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Machinery and equipment ............... $ 1,811,828 $ 2,127,944 $ 2,018,551 $ 2,130,940
Vehicles .............................. 877,860 1,793,031 941,106 1,793,031
Leasehold improvements ................ 62,831 79,487 64,931 81,020
Computer software ..................... 53,953 71,084 56,739 71,084
Furniture and fixtures ................ 30,969 61,023 30,969 61,023
Communications equipment .............. 55,420 55,420 55,420 55,420
----------- ----------- ----------- ------------
$ 2,892,861 $ 4,187,989 $ 3,167,716 $ 4,192,518
Less accumulated depreciation ......... (346,489) (974,036) (429,884) (1,092,313)
----------- ----------- ----------- ------------
$ 2,546,372 $ 3,213,953 $ 2,737,832 $ 3,100,205
=========== =========== =========== ============
</TABLE>
Depreciation expense is $116,153, $31,998, $314,491 and $640,356 for the
seven months ended September 30, 1995, the three months ended December 31,
1995, and the years ended December 31, 1996 and 1997. Depreciation expense is
$82,151 (unaudited) and $118,504 (unaudited) for the periods from January 1
through February 24, 1997 and 1998.
NOTE 8 INTER-COMPANY ADVANCES:
The Company's parent makes non-interest bearing cash advances to the
Company, as required, for working capital needs. These advances are reduced by
the Company's trade receivables collected by the parent.
NOTE 9 OTHER RELATED PARTY TRANSACTIONS:
The Company purchases inventory from its parent and a company related by
common ownership. The total inventory purchases from these companies is $0,
$1,493,796 and $691,927 for the three months ended December 31, 1995 and the
years ended December 31, 1996 and 1997. Inventory purchases total $222,234
(unaudited) and $0 (unaudited) for the periods from January 1 through February
24, 1997 and 1998. The Company pays its parent a monthly charge for management
services and other corporate overhead. These charges total $0, $504,000 and
$980,136 for the three months ended December 31, 1995 and the years ended
December 31, 1996 and 1997. Corporate charges are $146,300 (unaudited) and
$161,200 (unaudited) for the periods from January 1, through February 24, 1997
and 1998.
F-60
<PAGE>
CRSI ACQUISITION, INC.
(A WHOLLY-OWNED SUBSIDIARY OF COMSAT CORPORATION)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10 INCOME TAXES:
The income tax effects of Company operating results are determined and
included in the consolidated income tax returns of the parent. For presentation
of these financial statements, the Company provides for an estimated income tax
benefit from operating losses on a separate-basis return, and recognizes a
credit which would be received from the parent as a result of filing
consolidated returns. The parent would use any such income tax benefit to
off-set amounts previously advanced to the Company, therefore the estimated
income tax receivable is included in inter-company advances. A reconciliation
of the income tax provision at the federal statutory rate to the income tax
provision at the effective tax rate is as follows:
<TABLE>
<CAPTION>
SEVEN MONTHS THREE MONTHS YEAR ENDED
ENDED ENDED DECEMBER 31, JANUARY 1--FEBRUARY 24,
SEPTEMBER 30, DECEMBER 31, ----------------------------------- -------------------------------
1995 1995 1996 1997 1997 1998
--------------- --------------- ----------------- ----------------- --------------- ---------------
(PREDECESSOR) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Income tax computed
at the Federal
statutory rate ......... $ (19,580) $ (493,854) $ (2,243,291) $ (3,269,049) $ (360,662) $ (878,242)
Nondeductible
expenses ............... 12,356 46,820 56,232 9,094
---------- ----------- ------------- ------------- ----------- -----------
$ (19,580) $ (481,498) $ (2,196,471) $ (3,212,817) $ (351,568) $ (878,242)
========== =========== ============= ============= =========== ===========
</TABLE>
The components of deferred taxes consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, FEBRUARY 24,
------------------------------ ------------------------------
1996 1997 1997 1998
--------------- ------------ --------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
DEFERRED TAX ASSETS:
Accounts receivable allowance ................... $ 402,665 $ 555,090 $ 402,665 $ 555,090
Goodwill ........................................ 69,085 124,353 86,894 133,564
Accrued losses on uncompleted contracts ......... 1,448,787 979,252 1,375,735 997,053
----------- --------- ----------- ---------
1,920,537 1,658,695 1,865,294 1,685,707
DEFERRED TAX LIABILITIES:
Uncompleted contracts ........................... (634,444) (811,048) (669,714) (877,919)
----------- --------- ----------- ---------
$ 1,286,093 $ 847,647 $ 1,195,580 $ 807,788
=========== ========= =========== =========
</TABLE>
NOTE 11 EMPLOYEE BENEFIT PLAN:
The Company's parent sponsors a contributory defined contribution benefit
plan for all employees working at least 20 hours per week or having one year of
service. The sponsor matches employee contributions in stock of the parent,
based on a formula defined in the plan. No plan expense is recorded for the
seven months ended September 30, 1995, the three months ended December 31, 1995
and the year ended December 31, 1996. Plan expense is $82,482 for the year
ended December 31, 1997 and $10,335 (unaudited) and $27,650 (unaudited) for the
periods from January 1 through February 24, 1997 and 1998.
F-61
<PAGE>
CRSI ACQUISITION, INC.
(A WHOLLY-OWNED SUBSIDIARY OF COMSAT CORPORATION)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12 COMMITMENTS AND CONTINGENCIES:
The Company leases office and warehouse space, vehicles and other
equipment under non-cancelable operating lease agreements. Rental expense under
these operating leases is $238,216 for the year ended December 31, 1997 and
$32,845 (unaudited) and $29,389 (unaudited) for the periods from January 1
through February 24, 1997 and 1998.
Minimum future lease payments under these operating leases at December 31,
1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- --------------------------
<S> <C>
1998 ................... $ 123,636
1999 ................... 38,025
---------
$ 161,661
=========
</TABLE>
NOTE 13 SUBSEQUENT EVENT (UNAUDITED):
On February 25, 1998, Able Telcom Holding Corp. (Able), a publicly-held
corporation, purchased substantially all assets and certain liabilities of the
Company in exchange for cash from the Company's parent. The purchase was
effected through Able's wholly-owned subsidiary, Georgia Electric Company, Inc.
As a part of this transaction, Able assumed uncompleted installation contracts
with governmental agencies and telecommunications customers. As of the date of
the sale, the Company ceased operations.
F-62
<PAGE>
INDEX TO PRO FORMA FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
ABLE TELCOM HOLDING CORP.
<S> <C>
Summary Pro Forma Financial and Operating Data (unaudited) of the Company:
Introduction to Unaudited Pro Forma Financial Statements ................ P-1
Pro Forma Statements of Operations Data--Nine months ended July 31, 1998 P-3
Pro Forma Statements of Operations Data--Year ended October 31, 1997 .... P-5
Notes to Pro Forma Combined Financial Statements ........................ P-7
</TABLE>
P-1
<PAGE>
INTRODUCTION TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements give
effect to the MFSNT Acquisition and the acquisitions of CRSI Acquisition, Inc.
("COMSAT") and Patton Management Corporation ("Patton"). The consolidated
balance sheet of the Company as of July 31, 1998 includes the acquisitions
completed during the year, which are described in the notes to the Combined
Financial Statements, and, as such, no pro forma balance sheet is required or
included herein. The unaudited pro forma combined financial statements should
be read in conjunction with the historical financial statements, including the
notes thereto, of the Company, MFSNT, COMSAT and Patton, and other financial
information of the Company and MFSNT included elsewhere in or incorporated by
reference in this prospectus.
No effect has been given in the unaudited pro forma combined financial
statements for operating or synergistic benefits that may be realized through
the MFSNT Acquisition or the acquisitions of COMSAT and Patton. In addition,
the unaudited pro forma combined financial statements do not reflect any of the
initial, non-recurring costs associated with the MFSNT Acquisition and the
acquisitions of COMSAT and Patton, which costs cannot currently be estimated.
The following Pro Forma Combined Statements of Operations have been
prepared and include the following:
YEAR ENDED OCTOBER 31, 1997:
/bullet/ Consolidated Statement of Operations of the Company for the year
ended October 31, 1997
/bullet/ Statement of Operations of COMSAT for the year ended December 31,
1997
/bullet/ Consolidated Statements of Operations of Patton for the twelve
month period ended October 31, 1997
/bullet/ Consolidated Statements of Operations of MFSNT for the year ended
December 31, 1997
NINE MONTHS ENDED JULY 31, 1998
/bullet/ Consolidated Statement of Operations of the Company for the nine
month period ended July 31, 1998
/bullet/ Statement of Operations of COMSAT for the period from November 1,
1997 to February 24, 1998
/bullet/ Consolidated Statement of Operations of Patton for the five month
period ending March 31, 1998
/bullet/ Consolidated Statement of Operations of MFSNT for the eight month
period from November 1, 1997 to July 2, 1998
In management's opinion, all material adjustments necessary to reflect the
effects of these transactions have been made. The following unaudited Pro Forma
Combined Statements of Operations are not necessarily indicative of the
operating results that would have occurred had the transactions been
consummated at the dates indicated, nor is it necessarily indicative of future
operating results or financial position of the combined companies. Further, the
Unaudited Pro Forma Combined Statement of Operations for the interim period
ended July 31, 1998 are not necessarily indicative of the results of operations
for the full year.
P-2
<PAGE>
ABLE TELCOM HOLDING CORP.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JULY 31, 1998
<TABLE>
<CAPTION>
7/31/98 11/1/97-2/24/98 3/31/98-5 MOS.
ABLE COMSAT PATTON PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS
-------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
Revenues .................................................... $ 114,524 $ 10,842 $ 9,339
Costs of revenues ........................................... 89,641 12,819 8,825
General and administrative .................................. 12,703 1,913 889
Depreciation and amortization ............................... 4,468 307 501 12 (A)
----------- -------- -------- --
Total Costs and Expenses ................................. 106,812 15,039 10,215 12
----------- -------- -------- --
Income (loss) from operations ............................... 7,712 (4,197) (876) (12)
Other (income) expense, net:
Interest expense ........................................... 2,492 0 574 (57) (B)
Interest and dividend income ............................... (131) 0
Other (income) expense ..................................... 296 (11) (366) 78 (C)
----------- -------- -------- ---
Total other (income) expense, net ........................ 2,657 (11) 208 21
Minority interest ........................................... 756 0 0
----------- -------- --------
Income (loss) before income taxes ........................... 4,299 (4,186) (1,084) (33)
Income tax expense (benefit) ................................ 1,670 (1,414) (142) (13) (D)
----------- -------- -------- ---
Net income (loss) ........................................... 2,629 (2,772) (942) (20)
Preferred stock dividends and discount attributable to
beneficial conversion privilege of preferred stock ......... 927 0 0
----------- -------- --------
Net income (loss) applicable to common stock ................ $ 1,702 $ (2,772) $ (942) $ (20)
=========== ======== ======== =======
Earnings per common share--basic ............................ $ 0.18
Earnings per common share--diluted .......................... $ 0.18
Basic weighted average shares ............................... 9,660,921
Diluted weighted average shares ............................. 10,367,155
</TABLE>
<TABLE>
<CAPTION>
6/30/98
MFSNT PRO FORMA PRO FORMA
SUB TOTAL HISTORICAL ADJUSTMENTS COMPANY
----------- ------------ ------------------------ --------------
<S> <C> <C> <C> <C>
Revenues .................................................... $134,705 $ 162,645 $ 297,350
Costs of revenues ........................................... 111,285 168,141 279,426
General and administrative .................................. 15,505 11,539 27,044
Depreciation and amortization ............................... 5,288 2,146 $ (2,146)(I) 5,288
-------- --------- ---------- -----------
Total Costs and Exenses .................................. 132,078 181,826 (2,146) 311,758
-------- --------- ---------- -----------
Income (loss) from operations ............................... 2,627 (19,181) 2,146 (14,408)
Other (income) expense, net:
Interest expense ........................................... 3,009 0 3,491 (F,G,H) 6,500
Interest and dividend income ............................... (131) (15) (146)
Other (income) expense ..................................... (3) 6 3
--------- --------- -----------
Total other (income) expense, net ........................ 2,875 (9) 3,491 6,357
Minority interest ........................................... 756 756
-------- --------- ---------- -----------
Income (loss) before income taxes ........................... (1,004) (19,172) (1,345) (21,521)
Income tax expense (benefit) ................................ 101 (8,280) (J) (8,179)
-------- --------- ---------- -----------
Net income (loss) ........................................... (1,105) (19,172) 6,935 (13,342)
Preferred stock dividends and discount attributable to
beneficial conversion privilege of preferred stock ......... 927 1,410 (E) 2,337
-------- --------- ---------- -----------
Net income (loss) applicable to common stock ................ $ (2,032) $ (19,172) $ 5,525 $ (15,679)
======== ========= ========== ===========
Earnings per common share--basic ............................ $ (1.62)
Earnings per common share--diluted .......................... $ (1.49)
Basic weighted average shares ............................... 9,660,921
Diluted weighted average shares ............................. 10,367,155
</TABLE>
P-3
<PAGE>
NOTES:
(A) Incremental depreciation of $12,000 attributable to property, plant and
equipment acquired from Patton and recorded at fair value.
(B) Elimination of the amortization of debt discount of $57,000 for Patton
related to debt repaid by Able.
(C) Elimination of $78,000 in amortization of deferred financing costs related
to debt repaid by Able, offset by the amortization of goodwill related to
the acquisition of Patton.
(D) Income tax benefit of $12,000 resulting from pro forma adjustments A, B,
and C based on a rate of 38%.
(E) Accrual of the cumulative dividend of $600,000 on the Series B Preferred
Stock at a rate of 4% per year and amortization of $810,000 of the
valuation of the Series B Preferred Stock Warrants.
(F) Interest expense of $1,654,500 on the Secured Credit Facility based on a
rate of 9.5% per annum.
(G) Amortization of $111,000 in deferred financing costs incurred in connection
with the Secured Credit Facility.
(H) Interest expense of $1,725,000 on the note to WorldCom for the acquisition
of MFSNT based on a rate of 11.5% per annum.
(I) Reversal of depreciation expense of $2,146,000 on fixed assets acquired in
the Merger due to allocation of negative goodwill to fixed assets.
(J) Income tax benefit of $8,280,000 to adjust consolidated loss to reflect a
tax rate of 38%.
P-4
<PAGE>
ABLE TELCOM HOLDING CORP.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
10/31/97 12/31/97 10/31/97
ABLE COMSAT PATTON PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS
------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C>
Revenues ........................................................ $ 86,334 $ 31,662 $30,456
Costs of revenues ............................................... 68,181 34,884 26,375
General and administrative ...................................... 8,781 5,575 2,415
Depreciation and amortization ................................... 4,532 885 1,246 63 (K)
---------- -------- ------- --
Total Costs and Expenses ..................................... 81,494 41,344 30,036 63
---------- -------- ------- --
Income (loss) from operations ................................... 4,840 (9,682) 420 (63)
Other expenses (income):
Interest expense ............................................... 1,565 0 775 (129) (L)
Interest and dividend income ................................... (449) 0
Other (income) expense ......................................... (153) (67) (172) 187 (M)
---------- -------- ------- ----
Total other expense, net ..................................... 963 (67) 603 58
Minority interest ............................................... 292 0 6
---------- -------- -------
Income (loss) before income taxes ............................... 3,585 (9,615) (189) (121)
Income tax expense (benefit) .................................... 727 (3,213) 135 (46) (N)
---------- -------- ------- ----
Net income (loss) ............................................... 2,858 (6,402) (324) (75)
Preferred stock dividends and discount attributable to beneficial
conversion privilege of preferred stock ....................... 1,526 0 0
---------- -------- -------
Net income (loss) applicable to common stock .................... $ 1,332 $ (6,402) $ (324) $ (75)
========== ======== ======= ========
Earnings per common share--basic ................................ $ 0.16
Earnings per common share--diluted .............................. $ 0.16
Basic weighted average shares ................................... 8,429,733
Diluted weighted average shares ................................. 8,504,972
</TABLE>
<TABLE>
<CAPTION>
12/31/97
MFSNT PRO FORMA PRO FORMA
SUB TOTAL HISTORICAL ADJUSTMENTS COMPANY
----------- ------------ ------------------------ ------------
<S> <C> <C> <C> <C>
Revenues .................................................... $148,452 $369,334 $ 517,786
Costs of revenues ........................................... 129,440 353,563 483,003
General and administrative .................................. 16,771 21,381 38,152
Depreciation and amortization ............................... 6,726 2,685 (2,685) (S) 6,726
-------- -------- ------ ----------
Total Costs and Expenses .................................... 152,937 377,629 (2,685) 527,881
-------- -------- ------ ----------
Income (loss) from operations ............................... (4,485) (8,295) 2,685 (10,095)
Other expenses (income): ....................................
Interest expense ............................................ 2,211 0 4,654 (P,Q,R) 6,865
Interest and dividend income ................................ (449) 0 (449)
Other (income) expense ...................................... (205) 23 (182)
-------- -------- ----------
Total other expense, net ................................. 1,557 23 4,654 6,234
Minority interest ........................................... 298 0 298
-------- -------- ----------
Income (loss) before income taxes ........................... (6,340) (8,318) (1,969) (16,627)
Income tax expense (benefit) ................................ (2,397) 0 (3,921) (T) (6,318)
-------- -------- ------ ----------
Net income (loss) ........................................... (3,943) (8,318) 1,952 (10,309)
Preferred stock dividends and discount attributable to
beneficial conversion privilege of preferred stock ......... 1,526 0 2,499 (O) 4,025
-------- -------- ------ ----------
Net income (loss) applicable to common stock ................ $ (5,469) $ (8,318) $ (547) $ (14,334)
======== ======== ========== ==========
Earnings per common share--basic ............................ $ (1.70)
Earnings per common share--diluted .......................... $ (1.46)
Basic weighted average shares ............................... 8,429,733
Diluted weighted average shares ............................. 8,504,972
</TABLE>
P-5
<PAGE>
NOTES:
(K) Incremental depreciation of $63,000 attributable to recording property,
plant and equipment acquired from Patton and recorded at fair value.
(L) Elimination of the amortization of debt discount of $129,000 for Patton
that related to debt repaid by Able.
(M) Elimination of $187,000 in amortization of deferred financing costs
related to debt repaid by Able, offset by the amortization of goodwill
related to the acquisition of Patton.
(N) Income tax benefit of $46,000 resulting from proforma adjustments K, L,
and M based on a rate of 38%.
(O) Accrual of the cumulative dividend of $800,000 on the Series B Preferred
Stock at a rate of 4% per year, amortization of $1,080,000 of the
valuation of the Series B Preferred Stock Warrants and expensing the
embedded dividend of the $619,000 attributable to the beneficial
conversion privilege of the Series B Preferred Stock based on the
intrinsic value of the discount.
(P) Interest expense of $2,206,000 of the Secured Credit Facility based on a
rate of 9.5% per annum.
(Q) Amortization of $148,000 in deferred financing costs incurred in
connection with the Secured Credit Facility.
(R) Interest expense of $2,300,000 on the note to WorldCom for the acquisition
of MFST based on a rate of 11.5% per annum.
(S) Reversal of depreciation expense of $2,685,000 on fixed assets acquired in
the Merger due to allocation of negative goodwill to fixed assets.
(T) Income tax benefit of $3,921,000 to adjust consolidated loss to reflect a
tax rate of 38%.
P-6
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
On April 1, 1998, the Company purchased all of the outstanding common
stock of Patton Management Corporation ("Patton") for approximately $4.0
million. Patton provides advanced telecommunication network services to upgrade
existing networks and to provide connectivity to office buildings, local and
wide area networks.
On February 25, 1998, the Company acquired substantially all of the assets
and assumed certain liabilities of CRSI Acquisition, Inc. (doing business as
COMSAT RSI JEFA Wireless Systems) ("COMSAT"), a subsidiary of COMSAT
Corporation. The Company acquired the accounts receivable and the fixed assets
of the seller and assumed its trade payables, and received a cash payment from
the seller at closing of approximately $4.7 mlllion. The Company assumed
certain construction contracts with the Texas Department of Transportation and
various other telecommunications customers. COMSAT engaged in the installation
of intelligent traffic management systems and the design and construction of
wireless communication networks. COMSAT operated in twenty-one states,
primarily in Texas and Alabama.
On July 2, 1998, the Company acquired all of the outstanding common stock
of MFS Network Technologies, Inc. ("MFSNT") from MFS Communications Company,
Inc. ("MFSCC"), a subsidiary of WorldCom, Inc. ("WorldCom"). The transaction
was structured as a merger of a newly-organized, wholly-owned subsidiary of the
Registrant with MFSNT, in which the subsidiary was the surviving corporation
(the "Merger").
Under the terms of the Agreement and Plan of Merger dated April 26, 1998,
as amended (the "Plan of Merger"), the purchase price was equal to the
shareholders' equity of MFSNT as of March 31, 1998, subject to certain
adjustments, including adding back the cumulative advance by MFSCC (or its
affiliates) to MFSNT, plus $10.0 million. The purchase price at that time was
projected to be approximately $101.4 million, plus Company stock options, as
described more fully below.
On September 9, 1998, the Registrant and WorldCom Network Services, Inc.
("WorldCom Network"), a wholly owned subsidiary of WorldCom, as assignee from
MFSCC, entered into an agreement amending various terms of the Merger (the
"September Agreement"). The September Agreement, among other things, finalized
the cash portion of the purchase price of MFSNT at approximately $58.8 million
(which was determined by negotiation among the parties without reference to the
original purchase price formula). The cash portion of the purchase price is
subject to additional amounts payable as contingent consideration on December
29, 2000 which relate to the resolution of certain pre-acquisition
contingencies for pending litigation, claims, assessments and losses on certain
projects. Additionally, the general terms and conditions of the grant of stock
options (as previously granted pursuant to the Plan of Merger) and a phantom
stock award or other equity participation award to be granted was also
addressed, as described more fully below.
Of the cash portion of the purchase price, the Company has paid $38.8
million to date, which funds were obtained in part from operations and the
Company's line of credit. Additionally, a portion was paid with certain of the
proceeds from a private offering (the "Offering") which closed on June 30, 1998
(the "Closing Date") of (i) 4,000 shares of the Company's Series B Convertible
Preferred Stock, par value $0.10 ("Series B Preferred Stock"), which bear
annual dividends of 4%, and (ii) warrants to purchase up to an aggregate of
1,000,000 shares of the Company's common stock at $19.80 per share for a period
of five years from the date of grant.
Proceeds from the Offering totaled $20.0 million which were used to pay a
portion of the purchase price, as well as other costs associated with the
Merger. In general, the conversion amount of each share of Series B Preferred
Stock is convertible into shares of the Company's common stock, commencing on
June 30, 1998 at 97% at the less or of the (i) average of the low trading
prices for any three days during the twenty-two (22) trading days immediately
preceding the conversion date, or
P-7
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(ii) the low trading price on the day immediately preceding the conversion
date, subject to a minimum equal to 95% of such conversion price. The
conversion amount of each share of Series B Preferred Stock is equal to $5,000
plus any unpaid dividends thereon. Unless waived by a holder on not less than
61 days prior written notice, no holder may convert an amount which would
result in such holder's and its affiliates beneficial ownership exceeding 4.99%
of the then outstanding common stock of the Company.
The holders of the Series B Preferred Stock and the Warrants (the "Series
B Securities") are entitled to certain registration rights to register the
common stock underlying the Series B Securities pursuant to the Securities Act
of 1933, as amended. In the event that such underlying common stock is not
registered with the Securities and Exchange Commission by late October 1998, is
not listed with the securities exchange and/or markets on which the common
stock is then listed, within a definitive period of time, or various other
covenants are not complied with, then certain penalties may be incurred to
certain or all of the holders of the Series B Preferred Stock and/or Warrants,
including, among other things, a reduction in the conversion and/or exercise
price of the applicable securities and/or additional monetary payments. Unless
waived, the Company expects to have difficulty in timely complying with certain
of its obligations relating to the Series B Securities, including accomplishing
the filing of a registration statement of the Series B Securities by late
October.
Additionally, under certain circumstances, including if the registration
statement that includes the shares of common stock underlying the Series B
Securities is not declared effective within 180 days of the Closing Date, or
the Company is delisted under certain circumstances from any securities
exchange, or any representation or warranty by the Company to the holders was
not true and correct, then the holders of the Series B Securities, in whole or
in part, have the option to require the Company to redeem their securities at
premium prices. Although the Company intends to use its best efforts to comply
with all provisions of its documents with the holders of the Series B
Securities the failure of which would provide such redemption right exercise,
there can be no assurance that it will be able to do so, in part, because
certain of such matters are dependent upon the efforts or approval of others
(such as the Securities and Exchange Commission with respect to the
effectiveness of the aforementioned registration statement). To the extent the
holders of the Series B Securities become entitled to exercise a redemption
right and seek to require the redemption of their shares, such exercise could
materially increase the cash requirements of the Company, could result in a
default under the terms of its Senior credit facility and, to the extent
replacement financing is not available on commercially reasonable terms (if at
all), would likely have a material adverse impact on the Company. Furthermore,
so long as any Series B Security is outstanding, the Company is prohibited from
declaring or paying any dividends (other than to holders of Series B Preferred
Stock)or purchasing any equity security of the Company.
As part of the September Agreement, the promissory note previously issued
to MFSCC in connection with the Merger in the principal amount of $86.4 million
will be replaced by a new promissory note between the Registrant and WorldCom
Network in the principal amount of $30.0 million (the "New Note"). The
principal amount of the New Note represents $20.0 million associated with the
remaining cash portion of the purchase price of MFSNT by the Company and $10.0
million related to an estimated advance from receivables of MFSNT, subject to
certain adjustments. The New Note matures on December 15, 2000 (the "Maturity
Date") and bears interest at 11.5% annually, payable quarterly as of September
1, 1998. The principal amount of the New Note is to be prepaid by applying a
portion of certain fees (i) due to the Registrant by WorldCom and (ii) received
by the Registrant in connection with the lease and installation of certain
conduit projects. The New Note may be repaid in part or in full without
penalty.
P-8
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
Pursuant to the Merger, the Company granted options to WorldCom to
purchase up to 2,000,000 shares of common stock of the Company commencing July
2, 1998 and ending six months after the payment of the initial promissory note,
as amended by the September Agreement to extend the exercise period. The
exercise price per share is $7.00, except that the holder may elect to exercise
the option, in whole or in part, on a "cashless" basis under which the holder
will receive shares of common stock with a market value equal to the difference
between the common stock's then market value and $7.00, subject to a 1,817,941
share limitation. MFSCC will be entitled to designate a representative to serve
on the Company's Board of Directors as long as MFSCC retains shares of common
stock aggregating at least 5.0% of the then outstanding shares. Furthermore,
pursuant to the September Agreement, the Registrant agreed to issue to WorldCom
Network a phantom stock award or other equity participation award relating to
600,000 shares of the Company's common stock, payable in cash, stock or a
combination thereof at the Company's option and which is exercisable with
respect to the following three days: July 2, 1999, July 2, 2000, or July 2,
2001. WorldCom will be entitled to receive any appreciation of the common stock
over a base price of $5 3/32 per share, but not more than $30 3/32 per share.
The September Agreement also modified certain other provisions including,
among other things, (i) extending the term of the stock pledge agreement
(whereby the stock of MFSNT was pledged as security for certain of the
Registrant's obligations to WorldCom), (ii) indemnifying WorldCom Network and
its affiliates from litigation matters, exclusive of certain litigation matters
arising out of NFSNT's operations, and (iii) executing mutual releases between
the parties. The final terms and conditions of the September Agreement,
including the provisions thereof relating to a grant of a phantom stock award
or other equity participation award, are expected to be more fully set forth in
certain additional agreements in the near future and may be modified to conform
with other agreements of the Company and various third parties or require a
consent or waiver from such third parties (including its senior lender.) There
can be no assurance, however, that the Company will be able to so modify or
conform the terms of the September Agreement, or obtain appropriate waivers or
consents. The failure to do so could have a material adverse effect on the
financial condition of the Company.
The acquisition of MFSNT was accounted for using the purchase method of
accounting, in accordance with Accounting Principles Board Opinion No. 16,
BUSINESS COMBINATIONS, whereby all assets acquired and liabilities assumed were
fair-valued, which resulted in negative goodwill totaling approximately $50.7
million, which was first allocated to fixed assets, reducing them to zero, with
the remainder reducing the value of certain ongoing projects. The results of
operations of MFSNT have been included since the date of acquisition.
P-9
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
The following summarizes the fair value of the assets acquired and the
liabilities assumed in connection with the acquisition of MFSNT on July 2, 1998
(in millions):
<TABLE>
<CAPTION>
ALLOCATION OF
NEGATIVE FAIR VALUE
FAIR VALUE GOODWILL RECORDED
------------ -------------- -----------
<S> <C> <C> <C>
Cash and cash equivalents ............................ $ 0.5 $ 0.5
Accounts receivable .................................. 46.3 46.3
Costs and profits in excess of billings on uncompleted
contracts ........................................... 82.6 82.6
Resalable conduit inventory .......................... 65.7 ($ 45.0) 20.7
Prepaid expenses and other current assets ............ 0.5 0.5
Property, plant and equipment ........................ 5.7 (5.7) --
Accounts payable ..................................... (13.7) (13.7)
Billings in excess of costs and profits on uncompleted
contracts ........................................... (42.3) (42.3)
Accrued liabilities .................................. (35.8) (35.8)
Note payable ......................................... (58.8) (58.8)
Negative Goodwill ................................. (50.7) 50.7 --
</TABLE>
In the opinion of management, all adjustments have been made that are
necessary to present fairly the unaudited pro forma financial statements.
P-10
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are estimated expenses (other than any discounts that may be
incurred by the Selling Shareholders) to be incurred in connection with the
offering described in this Registration Statement:
<TABLE>
<S> <C>
SEC Registration Fee (actual) ......... $ 25,580.36
Accounting Fees and Expenses .......... 50,000.00 *
Legal Fees and Expenses ............... 75,000.00 *
Blue Sky Fees and Expenses ............ (1)*
Nasdaq Listing Fees ................... (1)
Printing .............................. (1)
Miscellaneous ......................... (1)*
-----------
Total ................................. $ (1)*
===========
</TABLE>
- ----------------
* Estimated
(1) To be filed by amendment.
The Company intends to pay all of the expenses of registration with
respect to the shares being offered hereby. The Selling Shareholders will pay
their respective expenses related to the sale of the shares offered hereby,
including any discounts, stock transfer taxes and independent legal fees.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 607.0850(1) of the Florida Business Corporation Act (the "FBCA")
permits a Florida corporation to indemnify any person who may be a party to any
third party proceeding by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation, against liability
incurred in connection with such proceeding (including any appeal thereof) if
he or she 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.
Section 607.0850(2) of the FBCA permits a Florida corporation to indemnify
any person who may be a party to a derivative action if such person acted in
any of the capacities set forth in the preceding paragraph, against expenses
and amounts paid in settlement not exceeding, in the judgment of the board of
directors, the estimated expenses of litigating the proceeding to conclusion,
actually and reasonably incurred in connection with the defense or settlement
of such proceeding including appeals, provided that the person acted under the
standards set forth in the preceding paragraph. However, no indemnification
shall be made for any claim, issue or matter for which such person is found to
be liable unless, and only to the extent that, the court determines that,
despite the adjudication of liability, but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnification for
such expenses which the court deems proper.
Section 607.0850(4) of the FBCA provides that any indemnification made
under the above provisions, unless pursuant to a court determination, may be
made only after a determination that the person to be indemnified has met the
standard of conduct described above. This determination is to be made by a
majority vote of a quorum consisting of the disinterested directors of the
board of directors, by independent legal counsel, or by a majority vote of the
disinterested shareholders. The board of directors also may designate a special
committee of disinterested directors to make this determination.
Section 607.0850(3), however, provides that a Florida corporation must
indemnify any director or officer of a corporation who has been successful in
the defense of any proceeding referred to in Section
II-1
<PAGE>
607.0850(1) or (2), or in the defense of any claim, issue or matter therein,
against expenses actually and reasonably incurred by him or her in connection
therewith.
Expenses incurred by a director or officer in defending a civil or
criminal proceeding may be paid by the corporation in advance of the final
disposition thereof upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if it is ultimately determined that
such director or officer is not entitled to indemnification under Section
607.0850.
Section 607.0850 of the FBCA further provides that the indemnification
provisions contained therein are not exclusive and it specifically empowers a
corporation to make any other further indemnification or advancement of
expenses under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, for actions in an official capacity and in other
capacities while holding an office. However, a corporation cannot indemnify or
advance expenses if a judgment or other final adjudication establishes that the
actions of the director or officer were material to the adjudicated cause of
action and the director or officer (a) violated criminal law, unless the
director or officer had reasonable cause to believe his conduct was not
unlawful, (b) derived an improper personal benefit from a transaction, (c) was
or is a director in a circumstance where the liability under Section 607.0834
(relating to unlawful distributions) applies, or (d) engages in willful
misconduct or conscious disregard for the best interests of the corporation in
a proceeding by or in right of the corporation to procure a judgment in its
favor or in a proceeding by or in right of a shareholder.
Pursuant to (i) the Registration Rights Agreement with respect to the
shares of Common Stock underlying the Series B Preferred Stock and the Series B
Warrants, (ii) the Warrant Agreement with respect to the John Hancock Warrants,
and (iii) the Merger Agreement, the Selling Shareholders have agreed to
indemnify the Company and its affiliates, officers, directors, and controlling
persons, against certain liabilities, including liabilities arising under the
Securities Act.
The Company's Bylaws provide that the Company shall indemnify the
Company's officers and directors against liability resulting from their service
as an officer or director of the Company, and the Company has entered into
indemnification with its officers and directors so providing.
Reference is also made to the undertaking made with respect to
indemnification matters involving the Company's directors, officers and
controlling persons, set forth in Item 17(c) below.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
SERIES B PREFERRED STOCK
On June 30, 1998, the Company issued 4,000 shares of its Series B
Convertible Preferred Stock, par value $.10 per share (the "Series B Preferred
Stock"), in a non-public offering exempt from registration pursuant to Section
4(2) of the Securities Act of 1933, as amended (the "Securities Act"), and Rule
506 of Regulation D thereunder. The Series B Preferred Stock was sold at a
price of $5,000 per share to accredited investors, as such term is defined in
Rule 501(a) under the Securities Act.
On June 30, 1998, as part of the Company's offering of its Series B
Preferred Stock, the Company issued to the holders thereof warrants to purchase
in the aggregate 1,000,000 shares of common stock, par value $.001 per share
("Common Stock"), to the purchasers of the Series B Preferred Stock. The
warrants are immediately exercisable for a five year period at a price of
$19.80 per share, subject to certain adjustment as provided in the warrant
agreement.
SENIOR NOTES
On January 6, 1998, the Company sold $10.0 million in principal amount of
its 12% Senior Subordinated Notes Due January 6, 2005 (the "Senior Notes") in a
non-public offering exempt from registration pursuant to Section 4(2) of the
Securities Act. The Senior Notes were sold to John Hancock Life Insurance
Company, John Hancock Variable Life Insurance Company and Signature 1A
(Cayman), Ltd.
II-2
<PAGE>
As part of the Company's offering of the Senior Notes, the Company issued
to the holders thereof warrants to purchase in the aggregate 409,505 shares of
Common Stock. The warrants are exercisable at an exercise price of $8.25 per
share, commencing on the earlier of (i) January 6, 1999, or (ii) the merger or
consolidation of the Company with or into another entity or the sale of all or
substantially all of the Company's assets to another entity.
SERIES A PREFERRED STOCK
On December 20, 1996, the Company sold 500 shares of its Series A
Preferred Stock, par value $.10 per share (the "Series A Preferred Stock") to
each of two purchasers in a non-public offering exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereunder. The
holders of Series A Preferred Stock had the right to convert their shares at
any time after April 30, 1997 into shares of Common Stock. As of the date of
this Registration Statement, all shares of the Series A Preferred Stock have
been converted into Common Stock, and no shares of Series A Preferred Stock
remain outstanding.
In connection with this offering, the Company also issued to each
Purchaser a warrant (the "Series A Preferred Warrant") to purchase 100,000
shares of Common Stock. The Purchasers each paid the Company $3 million for the
Series A Preferred Stock and the Series A Preferred Warrant. The Series A
Preferred Warrants became exercisable on December 20, 1997 at an exercise price
of $9.82 per share, and the holders thereof have exercised (or forfeited) such
Series A Preferred Warrants with respect to all such shares except for 62,200
shares of Common Stock. The number of shares of Common Stock issuable upon
exercise of the Series A Preferred Warrants will be reduced by 200 for each
share of Series A Preferred Stock that such holder was issued that is converted
into Common Stock prior to December 20, 1997. On February 20, 1997, the Company
registered the resale under the Securities Act of the Common Stock received
upon conversion of the holders of the Series A Preferred Stock and exercise of
the Series A Preferred Warrants.
STOCK OPTIONS
From time to time, the Company has issued and will continue to issue to
certain of the Company's employees, officers, directors, consultants and
advisors options to purchase Common Stock. These options are issued in
transactions exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereunder. As of October 13, 1998, options to
purchase 875,085 shares of Common Stock remain exercisable at various exercise
prices. The Company has registered on a Form S-8 registration statement 550,000
shares of Common Stock for sale pursuant to the exercise of options granted
under the Company's 1995 Stock Option Plan (the "Plan"). On April 24, 1998, the
Company's shareholders increased the aggregate number of shares to be issued
under the Plan to 1,300,000, and the Company intends to amend this registration
statement to include the additional 750,000 shares of Common Stock.
THE MFSCC OPTION
As part of the MFSNT Acquisition, we granted an option to MFSCC (the
"MFSCC Option") to purchase up to 2,000,000 shares of Common Stock, at an
exercise price of $7.00 per share. MFSCC may elect to exercise some or all of
the MFSCC Option on a "cashless" basis, up to the equivalent of 1,817,941
shares of Common Stock, which is the maximum number of shares that may be
issued upon exercise of the MFSCC Option. A "cashless" exercise means that
MFSCC will receive shares of Common Stock with a total "market value" equal to
the per share excess of the "market value" over the exercise price multiplied
by the number of shares of the MFSCC Option being exercised. The MFSCC Option
expires six months after the date we repay all of our obligations under the
WorldCom Note. We will not receive any cash for the part of the MFSCC Option
that MFSCC exercises on a "cashless" basis.
II-3
<PAGE>
For purposes of the MFSCC Option, the market price of the Common Stock
shall be deemed to equal the average of the closing "bid" and "asked" price for
the Common Stock as reported by Nasdaq for the ten trading days preceding the
date of exercise of the MFSCC Option.
The Option may be exercised by MFSCC, in whole or in part, by delivery of
an exercise notice to the Company during the period commencing July 6, 1998,
the consummation date of the MFSNT Acquisition, and continuing through the date
six months following the payment in full of amounts owing under the WorldCom
Note. The September Agreement extended the expiration date of the MFSCC Option.
In the event that MFSCC exercises the MFSCC Option in whole or in part, it
shall be entitled to designate Frederick W. Weidinger, Vice President of
WorldCom, or if he shall be unable to serve, another individual reasonably
acceptable to the Company, to serve on the Company's Board of Directors for so
long as the number of shares beneficially owned by MFSCC pursuant to the
exercise of the MFSCC Option is greater than or equal to 5% of the then
outstanding shares of Common Stock.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------------------------------------------------------------------------------------
<S> <C>
2.1 Asset Purchase Agreement, dated November 26, 1997, among Able Telcom Holding Corp.,
Georgia Electric Company, Transportation Safety Contractors, Inc., COMSAT RSI
Acquisitions, Inc. and COMSAT Corporation(1)
2.2 Indemnification Agreement, dated February 25, 1998, among Able Telcom Holding Corp.,
Georgia Electric Company, Transportation Safety Contractors, Inc., COMSAT RSI
Acquisitions, Inc. and COMSAT Corporation(1)
2.3 Stock Purchase Agreement, dated as of April 1, 1998, among Able Telcom Holding Corp.,
James P. Patton, Rick Boyle and Claiborne K. McLemore III(2)
2.4 Closing Memorandum and Schedule, dated April 1, 1998, among Able Telcom Holding Corp.,
James P. Patton, Rick Boyle and Claiborne K. McLemore III(2)
2.5 Agreement and Plan of Merger by and among MFS Acquisition Corp., Able Telcom Holding
Corp., MFS Network Technologies, Inc. and MFS Communications Company, Inc. dated as of
April 22, 1998(9)
2.5.1 Amendment to Agreement and Plan of Merger among MFS Acquisition Corp., Able Telcom
Holding Corp., MFS Network Technologies, Inc. and MFS Communications Company, Inc.
dated as of July 2, 1998(10)
2.5.1.1 Amendment No. 2 dated as of July 21, 1998 to Agreement and Plan of Merger among MFS
Acquisition Corp., Able Telcom Holding Corp., MFS Network Technologies, Inc. and MFS
Communications Company, Inc.(11)
2.5.1.2 Agreement between WorldCom Network Services, Inc. and Able Telcom Holding Corp.
dated as of September 9, 1998(13)
2.5.2 Promissory Note of Able Telcom Holding Corp. dated July 2, 1998 to MFS Communications
Company, Inc.(10)
2.5.3 Stock Pledge Agreement dated as of July 2, 1998 by Able Telcom Holding Corp. in favor of
WorldCom, Inc.(10)
2.5.4 Master Services Agreement between WorldCom Network Services, Inc. and MFS Network
Technologies, Inc. dated as of July 2, 1998 (exhibits omitted)(11)
2.5.5 Assumption and Indemnity Agreement dated as of July 2, 1998 among Able Telcom Holding
Corp., WorldCom, Inc., MFS Communications Company, Inc., MFS Intelenet, Inc., MFS
Datanet, Inc., MFS Telcom, Inc. and MFS Communications, Ltd. (schedule omitted)(10)
2.5.6 License Agreement between MFS Communications Company, Inc. and Able Telcom Holding
Corp. dated as of July 2, 1998(10)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- -------------------------------------------------------------------------------------------
<S> <C>
3.1 Articles of Incorporation of the Able Telcom Holding Corp., as amended(3)(4)
3.1.1 Articles of Amendment to the Articles of Incorporation of Able Telcom Holding Corp.(13)
3.2 Bylaws of the Able Telcom Holding Corp., as amended(3)
4.2 Specimen Common Stock Certificate(3)
4.3 Specimen Series A Preferred Stock Certificate(6)
4.4 Form of Warrant issued to Credit Suisse, First Boston and Silverton International Fund
Limited(4)
4.6 Able Telcom Holding Corp. 1995 Stock Option Plan(13)
4.7 Amendment to Able Telcom Holding Corp. 1995 Stock Option Plan, dated April 24, 1998(13)
4.8 Series B Convertible Preferred Stock Purchase Agreement(13)
4.9 Registration Rights Agreement for Series B Convertible Preferred Stock Purchase
Agreement and 350,000 Warrants(13)
4.10 Registration Rights Agreement for 650,000 Warrants associated with Series B Convertible
Preferred Stock Purchase Agreement(13)
4.11 Form of Common Stock Purchase Warrants for 350,000 Shares in connection with Series B
Convertible Preferred Stock Purchase Agreement(13)
4.12 Form of Common Stock Purchase Warrants for 650,000 Shares in connection with Series B
Convertible Preferred Stock Purchase Agreement(13)
5.1* Opinion regarding legality of Common Stock
10.8 Employment Agreement with Gerry W. Hall(5)
10.9 Master Agreement with AT&T(3)
10.10 Master Agreement with GTE(3)
10.15 Stock Purchase Agreement between Able Telcom Holding Corp., Traffic Management Group,
Inc., Georgia Electric Company, Gerry W. Hall and J. Barry Hall(5)
10.16 Stock Purchase Agreement between Able Telcom Holding Corp., Telecommunications
Services Group, Inc., Dial Communications, Inc., William E. Newton and Sybil C. Newton(8)
10.17 Promissory Note of Able Telcom Holding Corp. Payable to William E. Newton and Sybil C.
Newton(8)
10.23 Form of Stock Purchase Agreement among Able Telcom Holding Corp., Traffic Management
Group, Inc., Georgia Electric Company, Gerry W. Hall and Barry Hall(5)
10.25 Securities Purchase Agreements, dated as of January 6, 1998, between Able Telcom Holding
Corp. and each of the Purchasers named therein(6)
10.25.1 Letter Agreement dated July 2, 1998 related to Securities Purchase Agreements dated as of
January 6, 1998(13)
10.26 Senior Secured Revolving Credit Agreement dated as of April 6, 1998, between Able Telcom
Holding Corp. and Suntrust Bank, South Florida, N.A. and Bank of America, FSB(9)
10.27 Credit Agreement among Able Telcom Holding Corp., NationsBank, N.A. and The Several
Lenders from Time to Time Parties Hereto dated as of June 11, 1998 (exhibits and schedules
omitted)(13)
10.28 Employment Agreement with Mark A. Shain, dated April 27, 1998
10.29 Employment Agreement with Jesus G. Dominguez, dated April 27, 1998(13)
10.30 Employment Agreement with Stacy Jenkins, dated July 16, 1998(13)
10.32 Amendment to June 11, 1998 Credit Agreement among Able Telcom Holding Corp.,
NationsBank N.A., and the Several Lenders from Time to Time Parties thereto, dated as of
June 30, 1998(13)
10.33 Employment Agreement with Billy V. Ray, Jr., dated October 1, 1998
10.34 Employment Agreement with Curtis A. "Butch" Dale, dated August 17, 1998
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- --------------------------------------------------------------------------------
<S> <C>
10.35 Financial Advisor and Placement Engagement Letter, dated April 3, 1998, between
Washington Equity Partners and Able Telcom Holding Corp.
11 Computation of Per Share Earnings(7)
16.1 Letter regarding change in certifying accountant(12)
21 Subsidiaries of Able Telcom Holding Corp.(13)
23.1* Consent of Ernst & Young LLP
23.2* Consent of Arthur Andersen LLP
23.3* Consent of Agee Fisher, LLC
23.4 Consent of counsel (included with Exhibit 5.1)
27 Financial Data Schedule(13)
</TABLE>
- ----------------
* To be filed by amendment.
(1) Incorporated by reference from an exhibit to the Company's Current Report
on Form 8-K (File No. 0-21986), dated February 25, 1998, as filed with the
Commission on March 12, 1998, as amended by Form 8-K/A-1, dated May 11,
1998, as filed with the Commission on May 11, 1998.
(2) Incorporated by reference from an exhibit to the Company's Current Report
on Form 8-K (File No. 0-21986), dated April 1, 1998, as filed with the
Commission on April 14, 1998.
(3) Incorporated by reference from an exhibit to the Company's Registration
Statement on Form S-1 (File No. 33-65854), as declared effective by the
Commission on February 26, 1994.
(4) Incorporated by reference from an exhibit to the Company's Current Report
on Form 8-K (File No. 0-21986), dated December 20, 1996, as filed with the
Commission on December 31, 1996.
(5) Incorporated by reference from an exhibit to the Company's Current Report
on Form 8-K (File No. 0-21986), dated October 12, 1996, as filed with the
Commission on October 25, 1996.
(6) Incorporated by reference from an exhibit to the Company's Annual Report
on Form 10-K (File No. 0-21986) for the fiscal year ended October 31,
1997, as filed with the Commission on February 13, 1998, as amended by
Form 10-K/A, as filed with the Commission on March 20, 1998.
(7) Incorporated by reference from Note 6 to the Condensed Consolidated
Financial Statements (unaudited), filed with the Company's Quarterly
Report on Form 10-Q (File No. 0-21986), for the quarter ended July 31,
1998, as filed with the Commission on September 21, 1998, as amended by
Form 10-Q/A, as filed with the Commission on October 13, 1998.
(8) Incorporated by reference from an exhibit to the Company's Current Report
on Form 8-K (File No. 0-21986), dated December 2, 1996, as filed with the
Commission on December 13, 1996, as amended by Form 8-K/A-1, dated
February 11, 1997, as filed with the Commission on February 11, 1997.
(9) Incorporated by reference from an exhibit to the Company's Quarterly
Report on Form 10-Q (File No. 0-21986), for the quarter ended April 30,
1998, as filed with the Commission on June 14, 1998.
(10) Incorporated by reference from an exhibit to the Company's Current Report
on Form 8-K (File No. 0-21986), dated July 2, 1998, as filed with the
Commission on July 16, 1998.
(11) Incorporated by reference from an exhibit to the Company's Current Report
on Form 8-K/A (File No. 0-21986), dated July 2, 1998, as filed with the
Commission on August 3, 1998.
(12) Incorporated by reference to Exhibit 1 to the Company's Current Report on
Form 8-K (File No. 0-21986), dated September 7, 1998, as filed with the
Commission on September 14, 1998.
(13) Incorporated by reference to an exhibit to the Company's Quarterly Report
on Form 10-Q (File No. 0-21986), for the quarter ended July 31, 1998, as
filed with the Commission on September 21, 1998, as amended by Form
10-Q/A, as filed with the Commission on October 13, 1998.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most
recent post-effective amendment hereof) which,
II-6
<PAGE>
individually or in the aggregate, represent a fundamental change in
the information set forth in this Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the SEC pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in
this Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement
or any material change to such information in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(b) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of West Palm Beach, State
of Florida, on the 22nd day of October, 1998.
ABLE TELCOM HOLDING CORP.
By: /S/ FRAZIER L. GAINES
-------------------------------------
Frazier L. Gaines
President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Frazier L. Gaines and Gideon D. Taylor,
and each of them, his true and lawful attorney-in-fact, each with full powers
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign any and all amendments, including any
post-effective amendments, to this Registration Statement, and to file the
same, with exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all
that said attorneys-in-fact, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------- --------------------------------------- -----------------
<S> <C> <C>
/s/ Frazier L. Gaines President and Chief Executive Officer October 22, 1998
- -------------------------------- and Director
Frazier L. Gaines (Principal Executive Officer)
/s/ Gideon D. Taylor Chairman of the Board October 22, 1998
- --------------------------------
Gideon D. Taylor
/s/ Mark A. Shain Vice President and October 22, 1998
- -------------------------------- Chief Financial Officer
Mark A. Shain (Principal Financial Officer)
/s/ Jesus G. Dominguez Chief Accounting Officer October 22, 1998
- -------------------------------- (Principal Accounting Officer)
Jesus G. Dominguez
/s/ Jonathan A. Bratt Director October 22, 1998
- --------------------------------
Jonathan A. Bratt
/s/ Thomas M. Davidson Director October 22, 1998
- --------------------------------
Thomas M. Davidson
/s/ Carl Franklin Swartz Director October 22, 1998
- --------------------------------
Carl Franklin Swartz
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------------------------------------------------------------------------------------
<S> <C>
2.1 Asset Purchase Agreement, dated November 26, 1997, among Able Telcom Holding Corp.,
Georgia Electric Company, Transportation Safety Contractors, Inc., COMSAT RSI
Acquisitions, Inc. and COMSAT Corporation(1)
2.2 Indemnification Agreement, dated February 25, 1998, among Able Telcom Holding Corp.,
Georgia Electric Company, Transportation Safety Contractors, Inc., COMSAT RSI
Acquisitions, Inc. and COMSAT Corporation(1)
2.3 Stock Purchase Agreement, dated as of April 1, 1998, among Able Telcom Holding Corp.,
James P. Patton, Rick Boyle and Claiborne K. McLemore III(2)
2.4 Closing Memorandum and Schedule, dated April 1, 1998, among Able Telcom Holding Corp.,
James P. Patton, Rick Boyle and Claiborne K. McLemore III(2)
2.5 Agreement and Plan of Merger by and among MFS Acquisition Corp., Able Telcom Holding
Corp., MFS Network Technologies, Inc. and MFS Communications Company, Inc. dated as of
April 22, 1998(9)
2.5.1 Amendment to Agreement and Plan of Merger among MFS Acquisition Corp., Able Telcom
Holding Corp., MFS Network Technologies, Inc. and MFS Communications Company, Inc.
dated as of July 2, 1998(10)
2.5.1.1 Amendment No. 2 dated as of July 21, 1998 to Agreement and Plan of Merger among MFS
Acquisition Corp., Able Telcom Holding Corp., MFS Network Technologies, Inc. and MFS
Communications Company, Inc.(11)
2.5.1.2 Agreement between WorldCom Network Services, Inc. and Able Telcom Holding Corp.
dated as of September 9, 1998(13)
2.5.2 Promissory Note of Able Telcom Holding Corp. dated July 2, 1998 to MFS Communications
Company, Inc.(10)
2.5.3 Stock Pledge Agreement dated as of July 2, 1998 by Able Telcom Holding Corp. in favor of
WorldCom, Inc.(10)
2.5.4 Master Services Agreement between WorldCom Network Services, Inc. and MFS Network
Technologies, Inc. dated as of July 2, 1998 (exhibits omitted)(11)
2.5.5 Assumption and Indemnity Agreement dated as of July 2, 1998 among Able Telcom Holding
Corp., WorldCom, Inc., MFS Communications Company, Inc., MFS Intelenet, Inc., MFS
Datanet, Inc., MFS Telcom, Inc. and MFS Communications, Ltd. (schedule omitted)(10)
2.5.6 License Agreement between MFS Communications Company, Inc. and Able Telcom Holding
Corp. dated as of July 2, 1998(10)
3.1 Articles of Incorporation of the Able Telcom Holding Corp., as amended(3)(4)
3.1.1 Articles of Amendment to the Articles of Incorporation of Able Telcom Holding Corp.(13)
3.2 Bylaws of the Able Telcom Holding Corp., as amended(3)
4.2 Specimen Common Stock Certificate(3)
4.3 Specimen Series A Preferred Stock Certificate(6)
4.4 Form of Warrant issued to Credit Suisse, First Boston and Silverton International Fund
Limited(4)
4.6 Able Telcom Holding Corp. 1995 Stock Option Plan(13)
4.7 Amendment to Able Telcom Holding Corp. 1995 Stock Option Plan, dated April 24, 1998(13)
4.8 Series B Convertible Preferred Stock Purchase Agreement(13)
4.9 Registration Rights Agreement for Series B Convertible Preferred Stock Purchase
Agreement and 350,000 Warrants(13)
4.10 Registration Rights Agreement for 650,000 Warrants associated with Series B Convertible
Preferred Stock Purchase Agreement(13)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------
<S> <C>
4.11 Form of Common Stock Purchase Warrants for 350,000 Shares in connection with Series B
Convertible Preferred Stock Purchase Agreement(13)
4.12 Form of Common Stock Purchase Warrants for 650,000 Shares in connection with Series B
Convertible Preferred Stock Purchase Agreement(13)
5.1* Opinion regarding legality of Common Stock
10.8 Employment Agreement with Gerry W. Hall(5)
10.9 Master Agreement with AT&T(3)
10.10 Master Agreement with GTE(3)
10.15 Stock Purchase Agreement between Able Telcom Holding Corp., Traffic Management Group,
Inc., Georgia Electric Company, Gerry W. Hall and J. Barry Hall(5)
10.16 Stock Purchase Agreement between Able Telcom Holding Corp., Telecommunications
Services Group, Inc., Dial Communications, Inc., William E. Newton and Sybil C. Newton(8)
10.17 Promissory Note of Able Telcom Holding Corp. Payable to William E. Newton and Sybil C.
Newton(8)
10.23 Form of Stock Purchase Agreement among Able Telcom Holding Corp., Traffic Management
Group, Inc., Georgia Electric Company, Gerry W. Hall and Barry Hall(5)
10.25 Securities Purchase Agreements, dated as of January 6, 1998, between Able Telcom Holding
Corp. and each of the Purchasers named therein(6)
10.25.1 Letter Agreement dated July 2, 1998 related to Securities Purchase Agreements dated as of
January 6, 1998(13)
10.26 Senior Secured Revolving Credit Agreement dated as of April 6, 1998, between Able Telcom
Holding Corp. and Suntrust Bank, South Florida, N.A. and Bank of America, FSB(9)
10.27 Credit Agreement among Able Telcom Holding Corp., NationsBank, N.A. and The Several
Lenders from Time to Time Parties Hereto dated as of June 11, 1998 (exhibits and schedules
omitted)(13)
10.28 Employment Agreement with Mark A. Shain, dated April 27, 1998
10.29 Employment Agreement with Jesus G. Dominguez, dated April 27, 1998(13)
10.30 Employment Agreement with Stacy Jenkins, dated July 16, 1998(13)
10.32 Amendment to June 11, 1998 Credit Agreement among Able Telcom Holding Corp.,
NationsBank N.A., and the Several Lenders from Time to Time Parties thereto, dated as of
June 30, 1998(13)
10.33 Employment Agreement with Billy V. Ray, Jr., dated October 1, 1998
10.34 Employment Agreement with Curtis A. "Butch" Dale, dated August 17, 1998
10.35 Financial Advisor and Placement Engagement Letter, dated April 3, 1998, between
Washington Equity Partners and Able Telcom Holding Corp.
11 Computation of Per Share Earnings(7)
16.1 Letter regarding change in certifying accountant(12)
21 Subsidiaries of Able Telcom Holding Corp.(13)
23.1* Consent of Ernst & Young LLP
23.2* Consent of Arthur Andersen LLP
23.3* Consent of Agee Fisher, LLC
23.4 Consent of counsel (included with Exhibit 5.1)
27 Financial Data Schedule(13)
</TABLE>
- ----------------
* To be filed by amendment.
(1) Incorporated by reference from an exhibit to the Company's Current Report
on Form 8-K (File No. 0-21986), dated February 25, 1998, as filed with the
Commission on March 12, 1998, as amended by Form 8-K/A-1, dated May 11,
1998, as filed with the Commission on May 11, 1998.
<PAGE>
(2) Incorporated by reference from an exhibit to the Company's Current Report
on Form 8-K (File No. 0-21986), dated April 1, 1998, as filed with the
Commission on April 14, 1998.
(3) Incorporated by reference from an exhibit to the Company's Registration
Statement on Form S-1 (File No. 33-65854), as declared effective by the
Commission on February 26, 1994.
(4) Incorporated by reference from an exhibit to the Company's Current Report
on Form 8-K (File No. 0-21986), dated December 20, 1996, as filed with the
Commission on December 31, 1996.
(5) Incorporated by reference from an exhibit to the Company's Current Report
on Form 8-K (File No. 0-21986), dated October 12, 1996, as filed with the
Commission on October 25, 1996.
(6) Incorporated by reference from an exhibit to the Company's Annual Report
on Form 10-K (File No. 0-21986) for the fiscal year ended October 31,
1997, as filed with the Commission on February 13, 1998, as amended by
Form 10-K/A, as filed with the Commission on March 20, 1998.
(7) Incorporated by reference from Note 6 to the Condensed Consolidated
Financial Statements (unaudited), filed with the Company's Quarterly
Report on Form 10-Q (File No. 0-21986), for the quarter ended July 31,
1998, as filed with the Commission on September 21, 1998, as amended by
Form 10-Q/A, as filed with the Commission on October 13, 1998.
(8) Incorporated by reference from an exhibit to the Company's Current Report
on Form 8-K (File No. 0-21986), dated December 2, 1996, as filed with the
Commission on December 13, 1996, as amended by Form 8-K/A-1, dated
February 11, 1997, as filed with the Commission on February 11, 1997.
(9) Incorporated by reference from an exhibit to the Company's Quarterly
Report on Form 10-Q (File No. 0-21986), for the quarter ended April 30,
1998, as filed with the Commission on June 14, 1998.
(10) Incorporated by reference from an exhibit to the Company's Current Report
on Form 8-K (File No. 0-21986), dated July 2, 1998, as filed with the
Commission on July 16, 1998.
(11) Incorporated by reference from an exhibit to the Company's Current Report
on Form 8-K/A (File No. 0-21986), dated July 2, 1998, as filed with the
Commission on August 3, 1998.
(12) Incorporated by reference to Exhibit 1 to the Company's Current Report on
Form 8-K (File No. 0-21986), dated September 7, 1998, as filed with the
Commission on September 14, 1998.
(13) Incorporated by reference to an exhibit to the Company's Quarterly Report
on Form 10-Q (File No. 0-21986), for the quarter ended July 31, 1998, as
filed with the Commission on September 21, 1998, as amended by Form
10-Q/A, as filed with the Commission on October 13, 1998.
EXHIBIT 10.28
EMPLOYMENT AGREEMENT
Agreement dated this 27th day of April, 1998, by and between Able Telcom Holding
Corp., with its address at 1601 Forum Place, Suite 1110, West Palm Beach,
Florida, 33401, ("Employer"), and Mark A. Shain, 1830 Embassy Drive #T14, West
Palm Beach, Florida, 33401, ("Employee").
WITNESSETH:
WHEREAS, Employer is engaged in the telephone and telecommunication installation
and service, and manufacture sale and installation of highway signs and traffic
control products.
WHEREAS, Employer desires to employ Employee as the Vice President & Chief
Financial Officer of Employer.
WHEREAS, Employer desires to avail itself of the services of the Employee in
order that his knowledge and ability may be utilized in the conduct and
development of the business and affairs of Employer.
WHEREAS, Employee has evidenced his willingness to enter into an employment
agreement with respect to his employment by Employer, pursuant to the terms and
conditions hereinafter set forth.
NOW THEREFORE, is consideration of the foregoing and mutual promises and
covenants herein contained, it is agree as follows:
1. EMPLOYMENT: DUTIES
Employer hereby employs Employee as the Vice President & Chief Financial Officer
of Employer. Subject at all times to the direction of the Board of Directors and
C.E.O. of Employer, Employee shall be responsible for the performance of such
services and duties as the Board of Directors and President shall determine.
However, the duties and responsibilities assigned to the Employee during the
term of employment shall be substantially similar in type and character to those
ordinarily assigned to and performed by persons employed as Vice President &
Chief Financial Officer by corporations carrying on a business similar to
Employer.
2. FULL TIME EMPLOYMENT
Employee hereby accepts employment by Employer upon the terms and conditions
contained herein and agrees that during the term of this Agreement, Employee
shall devote all of his business time, attention and energies to the business of
Employer.
3. TERM
Employee's employment thereunder shall be for a term of one (1) year to commence
on the date hereof. This Agreement may be extended for an additional three (3)
one year terms after the initial term of one (1) year. The Employee/Employer
must give a minimum of ninety (90) days prior written notice to the
Employee/Employer that either party elects to have the Agreement terminate
effective at the end of any term. If Employer violates a major provision of this
Agreement, Employee may terminate this Agreement and receive an amount equal to
the provisions under item 5 of this agreement titled "Termination without
Cause".
<PAGE>
2
4. TERMINATION FOR CAUSE
Not withstanding any other provision of this Agreement, Employee may be
terminated on thirty (30) days notice without further benefits or compensation
for any of the following reasons: a) misappropriation or embezzlement of any
Employer property or funds; b) conviction of a felony, c) breach of any material
provision of this agreement.
5. TERMINATION WITHOUT CAUSE
Termination without cause can only be affected by an action by the Board of
Directors representing a majority of the members approving such termination. In
the event of the termination without cause, the Employee will be paid on years
severance pay of $150,000 and regular company fringe benefits. Severance will be
paid on the day of termination of $100,000 with the remainder of $50,000 to be
paid within 45 days from the date of termination. In the case of a change of
control/ownership (merger, acquisition, etc.) or a change to the current job
responsibilities as Vice President & Chief Financial Officer as defined in the
Mark A. Shain Employment Agreement dated April 27, 1998 severance pay of
$150,000 will be paid upon the day of that change.
6. COMPENSATION
As full compensation for the performance of his duties on behalf of Employer,
Employee shall be compensated as follows:
i) BASE SALARY. Employer during the term hereof shall pay Employee a base salary
at the rate of one hundred fifty thousand dollars ($150,000) per annum, payable
no less frequently than in monthly installments.
ii) REIMBURSEMENT OF EXPENSES. Employer shall reimburse Employee for the
expenses incurred by Employee in connection with his duties hereunder, including
travel and entertainment, such reimbursement to be made in accordance with
regular Employer policy and upon presentation by Employee of the details of, and
vouchers for, such expenses.
iii) SALARY ADJUSTMENTS. Prior to the expiration of each contract year, the
Board of Directors will review Employee's salary and benefits and if appropriate
in its sole and absolute discretion will increase such salary and benefits for
the next succeeding year.
iv) AUTOMOBILE ALLOWANCE. Employer shall provide Employee with an allowance of
Five Hundred Dollars ($500) per month.
7. OPTIONS
Employee will receive 50,000 share stock options (subject to) approval of the
Board of Directors. If there is a change of control, or sale of Able Telcom
Holding than the 50,000 share options will vest immediately. Otherwise the
50,000 share options will vest after one year of employment.
8. FRINGE BENEFITS
During the term of this Agreement, Employer shall provide at its sole expense to
the Employee, hospitalization, major medical, life insurance and other fringe
benefits on the same terms and conditions as it shall afford other management
employees.
<PAGE>
3
9. UPON TERMINATION OF EMPLOYMENT
Subsequent to the termination of the employment of Employee, Employee will not
interfere with or disrupt or attempt to disrupt Employer's business relationship
with its customers or suppliers. Further, Employee will not solicit any of the
employees of Employer to leave the Employer for a period of two (2) years
following such termination. In addition, Employee agrees that all information
received from principals and agents of Employer will be held in total confidence
for a period of two (2) years following termination of employment.
10. INCAPACITY
In the event that Employee shall become incapacitated or unable to perform the
duties of his employment hereunder for the balance of the current contractual
Contract Period (hereinafter referred to as the "Disability Period"), the
Employee nevertheless shall be entitled to full salary and other payments not
including bonus or stock options, provided for hereunder during the Disability
Period; provided, however, that any amount paid to the Employee under any
Employer provided disability insurance will be subtracted from payments to be
made to the Employee by the Employer. In the event that Employee is
incapacitated for a period which exceeds the Disability Period, Employee shall
not be entitled to receive the compensation and other payments provided for
hereunder for any time after the end of the Disability Period. In no event shall
the disability payment period exceed the period of this Contract. Employee shall
be considered to be incapacitated when he is unable to perform the normal duties
required of him hereunder. Incapacity shall be determined by two (2) medical
doctors assigned by Employer.
11. NOTICES
All notices hereunder shall be in writing and shall be sent to the parties at
the respective addresses above set forth. All notices shall be delivered in
person or given by registered or certified mail, postage prepaid, and shall be
deemed to have been given when delivered in person or deposited in the United
States mail. Either party may designate any other address to which notice shall
be given, by giving notice to the other such change of address in the manner
herein provided. Employer, or its management, directors, representatives,
employees or affiliates will not make any public announcements or any other
information related to Employer, directly or indirectly, without the expressed
written consent of Employee.
12. SEVERABILITY OF PROVISIONS
If any provision of this Agreement shall be declared by a court of competent
jurisdiction to be invalid, illegal or incapable of being enforce in whole or in
part, the remaining conditions and provisions or portions thereof shall
nevertheless remain in full force and effect and enforceable to the extent they
are valid, legal and enforceable, and no provision shall be deemed dependent
upon any other covenant or provision unless no expressed herein.
13. ENTIRE AGREEMENT: MODIFICATION
All prior agreements (prior to October 1, 1998) with respect to the subject
matter hereof between the parties are hereby canceled. This Agreement contains
the entire agreement of the parties relating to the subject matter hereof, and
the parties hereto have made no agreements, representations or warranties
relating to the subject matter of this Agreement which are not set forth herein.
No modification of this Agreement shall be valid unless made in writing and
signed by the parties hereto.
<PAGE>
4
14. BINDING EFFECT
The rights, benefits, duties and obligations under this Agreement shall inure
to, and be binding upon, the Employer, its successors and assigns, and upon the
Employee and his legal representatives, heirs and legatees. This Agreement
constitutes a personal service agreement, and the performance of the Employee's
obligations hereunder may not be transferred or assigned by the Employee.
15. NON-WAIVER
The failure of either party to insist upon the strict performance of any of the
terms, conditions and provisions of this Agreement shall not be construed as a
waiver or relinquishment of this Agreement shall not be construed as a waiver or
relinquishment of future compliance therewith, and said terms, conditions and
provisions shall remain in full force and effect. No waiver of any term or
condition of this Agreement on the part of either party shall be effective for
any purpose whatsoever unless such waiver is in writing and signed by such
party.
16. GOVERNING LAW
This Agreement shall be construed and governed by the laws of the State of
Florida.
17. ARBITRATION
Any controversy or claim arising under, out of, or in connection with this
Agreement or any breach or claimed breach thereof, shall be settled by
arbitration before the American Arbitration Association, in Palm Beach County,
Florida, before a panel of three arbitrators, in accordance with its rules, and
judgment upon any award rendered may be entered in any court having jurisdiction
thereof.
18. CONTRACT
This contract supersedes all previous contracts between Employee and Employer.
19. READINGS
The headings of the paragraphs herein are inserted for convenience and shall not
affect any interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have set their hands and seals this 1st day of
October, 1998.
Witness: Employer: ABLE TELCOM HOLDING CORP.
By: /s/ [ILLEGIBLE] By: /s/ FRAZIER GAINES
------------------- ------------------------
[ILLEGIBLE] Frazier Gaines
Chief Executive Officer
Witness: Employee: Mark A. Shain
By: /s/ ELIZABETH TERRERO By: /s/ MARK A. SHAIN
---------------------- ------------------------
EXHIBIT 10.33
EMPLOYMENT AGREEMENT
Agreement dated this first day of October, 1998, by and between Able Telcom
Holding Corp., with its address at 1601 Forum Place, Suite 1110, West Palm
Beach, Florida, 33401, ("Employer"), and Billy Ray, 2919 Truitt Drive,
Burlington, NC 27215 ("Employee").
WITNESSETH:
WHEREAS, Employer is engaged in the telephone and telecommunication installation
and service, and manufacture sale and installation of highway signs and traffic
control products.
WHEREAS, Employer desires to employ Employee as the Vice President, Treasurer &
Mergers and Acquisitions of Employer.
WHEREAS, Employer desires to avail itself of the services of the Employee in
order that his knowledge and ability may be utilized in the conduct and
development of the business and affairs of Employer.
WHEREAS, Employee has evidenced his willingness to enter into an employment
agreement with respect to his employment by Employer, pursuant to the terms and
conditions hereinafter set forth.
NOW THEREFORE, is consideration of the foregoing and mutual promises and
covenants herein contained, it is agree as follows:
1. EMPLOYMENT: DUTIES
Employer hereby employs Employee as the Vice President, Treasurer & Mergers and
Acquisitions of Employer. Subject at all times to the direction of the Board of
Directors and C.E.O. of Employer, Employee shall be in charge of the overall
business operations of the Employer and the performance of such services and
duties as the Board of Directors and C.E.O. shall determine. However, the duties
and responsibilities assigned to the Employee during the term of employment
shall be substantially similar in type and character to those ordinarily
assigned to and performed by persons employed as Vice President, Treasurer &
Mergers and Acquisitions by corporations carrying on a business similar to
Employer.
2. FULL TIME EMPLOYMENT
Employee hereby accepts employment by Employer upon the terms and conditions
contained herein and agrees that during the term of this Agreement, Employee
shall devote all of his business time, attention and energies to the business of
Employer.
3. TERM
Employee's employment thereunder shall be for a term of one (1) year to commence
on the date hereof. This Agreement may be extended for an additional three- (3)
one-year terms after the initial term of one (1) year. The Employee/Employer
must give a minimum of ninety (90) days prior written notice to the
Employee/Employer that either party elects to have the Agreement terminate
effective at the end of any term. If Employer violates a major provision of this
Agreement, Employee may terminate this Agreement and receive an amount equal to
the provisions under item 5 of this agreement titled "Termination without
Cause".
<PAGE>
2
4. TERMINATION FOR CAUSE
Not withstanding any other provision of this Agreement, Employee may be
terminated on thirty (30) days notice without further benefits or compensation
for any of the following reasons: a) misappropriation or embezzlement of any
Employer property or funds; b) conviction of a felony, c) breach of any material
provision of this agreement.
5. TERMINATION WITHOUT CAUSE
Termination without cause can only be affected by an action by the Board of
Directors representing a majority of the members approving such termination. In
the event of the termination without cause, the Employee will be paid one-year's
severance pay of $148,200 plus regular company fringe benefits. Severance will
be paid on the day of termination of $100,000 with the remainder of $48,200 to
be paid within 45 days from the date of termination. In the case of a change of
control/ownership (merger, acquisition, etc.) or a change to the current job
responsibilities as Vice President, Treasurer & Mergers and Acquisitions
severance pay of $148,200 will be paid upon the day of that change.
6. COMPENSATION
As full compensation for the performance of his duties on behalf of Employer,
Employee shall be compensated as follows:
i) BASE SALARY. Employer during the term hereof shall pay Employee a base salary
at the rate of one hundred forty eight thousand two hundred dollars per annum,
payable no less frequently than in monthly installments.
ii) REIMBURSEMENT OF EXPENSES. Employer shall reimburse Employee for the
expenses incurred by Employee in connection with his duties hereunder, including
travel and entertainment, such reimbursement to be made in accordance with
regular Employer policy and upon presentation by Employee of the details of, and
vouchers for, such expenses.
iii) SALARY ADJUSTMENTS. Prior to the expiration of each contract year, the
Board of Directors will review Employee's salary and benefits and if appropriate
in its sole and absolute discretion will increase such salary and benefits for
the next succeeding year.
iv) AUTOMOBILE ALLOWANCE. Employer shall provide Employee with an allowance of
Five Hundred Dollars ($500) per month.
7. OPTIONS
Employee will receive 50,000 share stock options (subject to) approval of the
Board of Directors. If there is a change of control, or sale of Able Telcom
Holding than the 50,000 share options will vest immediately. Otherwise the
50,000 share options will vest after one year of employment.
8. FRINGE BENEFITS
During the term of this Agreement, Employer shall provide at its sole expense to
the Employee, hospitalization, major medical, life insurance and other fringe
benefits on the same terms and conditions as it shall afford other management
employees.
<PAGE>
3
9. UPON TERMINATION OF EMPLOYMENT
Subsequent to the termination of the employment of Employee, Employee will not
interfere with or disrupt or attempt to disrupt Employer's business relationship
with its customers or suppliers. Further, Employee will not solicit any of the
employees of Employer to leave the Employer for a period of two (2) years
following such termination. In addition, Employee agrees that all information
received from principals and agents of Employer will be held in total confidence
for a period of two (2) years following termination of employment.
10. INCAPACITY
In the event that Employee shall become incapacitated or unable to perform the
duties of his employment hereunder for the balance of the current contractual
Contract Period (hereinafter referred to as the "Disability Period"), the
Employee nevertheless shall be entitled to full salary and other payments not
including bonus or stock options, provided for hereunder during the Disability
Period; provided, however, that any amount paid to the Employee under any
Employer provided disability insurance will be subtracted from payments to be
made to the Employee by the Employer. In the event that Employee is
incapacitated for a period which exceeds the Disability Period, Employee shall
not be entitled to receive the compensation and other payments provided for
hereunder for any time after the end of the Disability Period. In no event shall
the disability payment period exceed the period of this Contract. Employee shall
be considered to be incapacitated when he is unable to perform normal duties
required of him hereunder. Incapacity shall be determined by two (2) medical
doctors assigned by Employer.
11. NOTICES
All notices hereunder shall be in writing and shall be sent to the parties at
the respective addresses above set forth. All notices shall be delivered in
person or given by registered or certified mail, postage prepaid, and shall be
deemed to have been given when delivered in person or deposited in the United
States mail. Either party may designate any other address to which notice shall
be given, by giving notice to the other such change of address in the manner
herein provided. Employer, or its management, directors, representatives,
employees or affiliates will not make any public announcements or any other
information related to Employer, directly or indirectly, without the expressed
written consent of Employee.
12. SEVERABILITY OF PROVISIONS
If any provision of this Agreement shall be declared by a court of competent
jurisdiction to be invalid, illegal or incapable of being enforce in whole or in
part, the remaining conditions and provisions or portions thereof shall
nevertheless remain in full force and effect and enforceable to the extent they
are valid, legal and enforceable, and no provision shall be deemed dependent
upon any other covenant or provision unless no expressed herein.
13. ENTIRE AGREEMENT: MODIFICATION
All prior agreements (prior to October 1, 1998) with respect to the subject
matter hereof between the parties are hereby canceled. This Agreement contains
the entire agreement of the parties relating to the subject matter hereof, and
the parties hereto have made no agreements, representations or warranties
relating to the subject matter of this Agreement which are not set forth herein.
No modification of this Agreement shall be valid unless made in writing and
signed by the parties hereto.
<PAGE>
4
14. BINDING EFFECT
The rights, benefits, duties and obligations under this Agreement shall inure
to, and be binding upon, the Employer, its successors and assigns, and upon the
Employee and his legal representatives, heirs and legatees. This Agreement
constitutes a personal service agreement, and the performance of the Employee's
obligations hereunder may not be transferred or assigned by the Employee.
15. NON-WAIVER
The failure of either party to insist upon the strict performance of any of the
terms, conditions and provisions of this Agreement shall not be construed as a
waiver or relinquishment of this Agreement shall not be construed as a waiver or
relinquishment of future compliance therewith, and said terms, conditions and
provisions shall remain in full force and effect. No waiver of any term or
condition of this Agreement on the part of either party shall be effective for
any purpose whatsoever unless such waiver is in writing and signed by such
party.
16. GOVERNING LAW
This Agreement shall be construed and governed by the laws of the State of
Florida.
17. ARBITRATION
Any controversy or claim arising under, out of, or in connection with this
Agreement or any breach or claimed breach thereof, shall be settled by
arbitration before the American Arbitration Association, in Palm Beach County,
Florida, before a panel of three arbitrators, in accordance with its rules, and
judgment upon any award rendered may be entered in any court having
jurisdiction thereof.
18. CONTRACT
This contract supersedes all previous contracts between Employee and Employer.
19. READINGS
The headings of the paragraphs herein are inserted for convenience and shall not
affect any interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have set their hands and seals this 1st day of
October, 1998.
Witness: Employer: ABLE TELCOM HOLDING CORP.
By: /s/ [ILLEGIBLE] By: /s/ FRAZIER GAINES
--------------------- ------------------------------
[ILLEGIBLE] Frazier Gaines
Chief Executive Officer and Director
Witness: Employee: Billy Ray
By: /s/ ELIZABETH TERRERO By: /s/ BILLY RAY
---------------------- ------------------------------
EXHIBIT 10.34
ABLE TELCOM
Holding Corp.
EMPLOYMENT AGREEMENT
Agreement dated this 17th day of August, 1998, by and between Able Telcom
Holding Corp., with its address at 1601 Forum Place, Suite 1110, West Palm
Beach, Florida, 33401, ("Employer"), and Curtis A. Dale,("Employee").
WITNESSETH:
WHEREAS, Employer is engaged in the telephone and telecommunication installation
and service, and manufacture sale and installation of highway signs and traffic
control products.
WHEREAS, Employer desires to employ Employee as the Chief Operating Officer of
Able Telcom Holding Corp.
WHEREAS, Employer desires to avail itself of the services of the Employee in
order that his knowledge and ability may be utilized in the conduct and
development of the business and affairs of Employer.
WHEREAS, Employee has evidenced his willingness to enter into an employment
agreement with respect to his employment by Employer, pursuant to the terms and
conditions hereinafter set forth.
NOW THEREFORE, is consideration of the foregoing and mutual promises and
covenants herein contained, it is agree as follows:
1. EMPLOYMENT: DUTIES: Employer hereby employs Employee as the Chief Operating
Officer of Employer. Subject at all times to the direction of the Board of
Directors and C.E.O. of Employer, Employee shall be in charge of the overall
operating business of the Employer and the performance of such services and
duties as the Board of Directors and President shall determine. However, the
duties and responsibilities assigned to the Employee during the terms of
employment shall be substantially similar in type and character to those
ordinarily assigned to and performed by persons employed as Chief Operating
Officer by corporations carrying on a business similar to Employer. The overall
duties are to direct, administer, and coordinate the activities of the
organization in support of policies, goals, and objectives established by the
Chief Executive Officer and the Board of Directors by performing the following
duties personally or through subordinate managers.
2. FULL TIME EMPLOYMENT
Employee hereby accepts employment by Employer upon the terms and conditions
contained herein and agree that during the term of this Agreement, Employee
shall devote all of his business time, attention and energies to the business of
Employer.
3. TERM
Employee's employment thereunder shall be for a term of three (3) years to
commence on the date hereof.
In the event employee voluntarily resigns, employer's obligations are limited to
payment of base salary through the last day of employee's employment. Stock
options are exercisable per the stock option plan provisions and no acceleration
of unvested shares will be made to employee.
4. TERM1NATION FOR CAUSE
Not withstanding any other provision of this Agreement, Employee may be
terminated on ninety (90) days notice without further benefits or compensation
for any of the following reasons: a) misuse, misappropriation or embezzlement of
any Employer property or funds; b) conviction of a felony, c) breach of any
material provision of this agreement.
<PAGE>
ABLE TELCOM
Holding Corp.
5. TERMINATION WITHOUT CAUSE
Termination without cause can only be affected by an action by the Board of
Directors representing a majority of the members approving such termination. In
the event of the termination without cause, the Employee will be paid the
remainder of the base salary due under three-year contract period and with a
minimum of one-hundred eighty (180) days severance pay (base salary only).
All unexercised stock options shall be accelerated.
6. COMPENSATION
As full compensation for the performance of his duties on behalf of Employer,
Employee shall be compensated as follows:
i) BASE SALARY. Employer during the term hereof shall pay Employee a base salary
at the rate of one hundred twenty thousand dollars ($120,000) per annum, payable
no less frequently than in monthly installments. Upon the successful closing of
the MFS Network Technologies and World Com deal, the base salary will be
increased to one hundred fifty thousand dollars ($150,000) per annum, payable no
less frequency than in monthly installments.
ii) REIMBURSEMENT OF EXPENSES. Employer shall reimburse Employee for the
expenses incurred by Employee in connection with his duties hereunder, including
travel and entertainment, such reimbursement to be made in accordance with
regular Employer policy and upon presentation by Employee of the details of, and
vouchers for, such expenses.
iii) SALARY ADJUSTMENTS. Prior to the expiration of each contract year, the
Board of Directors will review Employee's salary and benefits and if appropriate
in its sole and absolute discretion will increase such salary and benefits for
the next succeeding year.
iv) AUTOMOBILE ALLOWANCE. Employer shall provide Employee with an allowance of
Five Hundred Dollars ($500) per month or suitable automobile, at the employee's
discretion.
7. OPTIONS
Will automatically vest if Able Telcom Holding Corp. is sold or there is a
change in control of Able Telcom Holding Corp. Employee will receive
100,000-share stock option at $3.00 per share, which vests after one year of
employment, pending Board of Directors approval.
8. FRINGE BENEFITS
During the term of this Agreement, Employer shall provide at its sole expense to
the Employee, hospitalization, major medical, life insurance and other fringe
benefits on the same terms and conditions as it shall afford other management
employees.
9. UPON TERMINATION OF EMPLOYMENT
Subsequent to the termination of the employment of Employee, Employee will not
interfere with or disrupt or attempt to disrupt Employer's business relationship
with its customers or suppliers. Further, Employee will not solicit any of the
employees of Employer to leave the Employer for a period of one (1) year
following such termination. In addition, Employee agrees that all information
received from principals and agents of Employer will be held in total confidence
for a period of one (1) year following termination of employment. To the extent
such information is proprietary and not generally available to the public or
sources outside employer's company.
<PAGE>
ABLE TELCOM
Holding Corp.
10. INCAPACITY
In the event that Employee shall become incapacitated or unable to perform the
duties of his employment hereunder for the balance of the current one year
Period (hereinafter referred to as the "Disability Period"), the Employee
nevertheless shall be entitled to full salary and other payments not including
bonus, provided for hereunder during the Disability Period; provided, however,
that any amount paid to the Employee under any Employer provided disability
insurance will be subtracted from payments to be made to the Employee by the
Employer. In the event that Employee is incapacitated for a period which exceeds
the Disability Period, Employee shall not be entitled to receive the
compensation and other payments provided for hereunder for any time after the
end of the Disability Period. In no event shall the disability payment period
exceed the period of this Contract. Employee shall be considered to be
incapacitated when he is unable to perform the normal duties required of him
hereunder. Two (2) medical doctors assigned by Employer shall determine
incapacity.
11. NOTICES
All notices hereunder shall be in writing and shall be sent to the parties at
the respective addresses above set forth. All notices shall be delivered in
person or given by registered or certified mail, postage prepaid, and shall be
deemed to have been given when delivered in person or deposited in the United
States mail. Either party may designate any other address to which notice shall
be given, by giving notice to the other such change of address in the manner
herein provided. Employer, or its management, directors, representatives,
employees or affiliates will not make any public announcements or any other
information related to Employer, directly or indirectly, without the expressed
written consent of Employee.
12. SEVERABILITY OF PROVISIONS
If any provision of this Agreement shall be declared by a court of competent
jurisdiction to be invalid, illegal or incapable of being enforce in whole or in
part, the remaining conditions and provisions or portions thereof shall
nevertheless remain in full force and effect and enforceable to the extent they
are valid, legal and enforceable, and no provision shall be deemed dependent
upon any other covenant or provision unless no expressed herein.
13. ENTIRE AGREEMENT: MODIFICATION
All prior agreements with respect to the subject matter hereof between the
parties are hereby canceled. This Agreement contains the entire agreement of the
parties relating to the subject matter hereof, and the parties hereto have made
no agreements, representations or warranties relating to the subject matter of
this Agreement which are not set forth herein. No modification of this Agreement
shall be valid unless made in writing and signed by the parties hereto.
14. BINDING EFFECT
The rights, benefits, duties and obligations under this Agreement shall inure
to, and be binding upon, the Employer, its successors and assigns, and upon the
Employee and his legal representatives, heirs and legatees. This Agreement
constitutes a personal service agreement, and the performance of the Employee's
obligations hereunder may not be transferred or assigned by the Employee.
15. NON-WAIVER
The failure of either party to insist upon the strict performance of any of the
terms, conditions and provisions of this Agreement shall not be construed as a
waiver or relinquishment of this Agreement shall not be construed as a waiver or
relinquishment of future compliance therewith, and said terms, conditions and
provisions shall remain in full force and effect. No waiver of any term or
condition of this Agreement on the part of either party shall be effective for
any purpose whatsoever unless such waiver is in writing and signed by such
party.
<PAGE>
ABLE TELCOM
Holding Corp.
16. GOVERNING LAW
This Agreement shall be construed and governed by the laws of the State of
Florida.
17 ARBITRATION
Any controversy or claim arising under, out of, or in connection with this
Agreement or any breach or claimed breach thereof, shall be settled by
arbitration before the American Arbitration Association, in Palm Beach County,
Florida, before a panel of three arbitrators, in accordance with its rules, and
judgment upon any award rendered may be entered in any court having jurisdiction
thereof.
18. CONTRACT
This contract supersedes all previous contracts between Employee and Employer.
19. HEADINGS
The headings of the paragraphs herein are inserted for convenience and shall not
affect any interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have set their hands and seals this 17th day of
August, 1998.
<TABLE>
<S> <C>
Witness: Employer: ABLE TELCOM HOLDING CORP
By: /s/ [ILLEGIBLE] By: /s/ Frazier Gaines
--------------------------- ---------------------------------------
Frazier Gaines
Chief Executive Officer & Director
Witness: Employee:
By: /s/ [ILLEGIBLE] By: /s/ Curtis A. Dale
-------------------------- ---------------------------------------
</TABLE>
EXHIBIT 10.35
FINANCIAL ADVISOR AND PLACEMENT AGENT ENGAGEMENT LETTER
April 3, 1998
Mr Richard J. Sandulli
Executive Vice President
Able Telcom Holding Corp.
1601 Forum Place
Suite 1110
West Palm Beach, Florida 33401
Dear Dick:
This letter confirms our understanding that Washington Equity Partners
("W\E\P") has been engaged on an exclusive basis as financial advisor to and
sole placement agent for Able Telcom Holding Corp. (the "Company"), including
its successors and assigns, with respect to reviewing the Company's capital
structure, its principal businesses and its financing and refinancing
alternatives, in connection with raising funds through a private sale of debt
and/or equity or equity-linked securities of the Company or any entity formed
by or at the direction of the Company to issue such securities
(the "Securities") for the desired gross proceeds to consummate the acquisition
by the Company (the "Acquisition") directly or indirectly of all or part of MFS
Network Technologies ("MFSNT") (the "Financing"). If appropriate in connection
with performing its services for the Company hereunder, W\E\P may utilize the
services of one or more of its affiliates, in which case references herein to
W\E\P shall include such affiliates.
1. W\E\P will perform the following financial advisory and investment
banking services:
(a) W\E\P will familiarize itself to the extent it deems
appropriate and feasible with the business, operations,
properties, condition (financial and otherwise) and prospects
of the Company.
(b) If requested by the Company, W\E\P will advise and assist the
management of the Company in making appropriate presentations
to the Board of Directors of the Company concerning the
Acquisition and the Financing;
(c) W\E\P will (i) advise and assist the Company in its
negotiations regarding the Acquisition, including the
participation of management of MFSNT as appropriate, and (ii)
advise and assist the Company in the course of its
negotiations with potential purchasers of the Securities and
will participate directly in such negotiations;
(d) If W\E\P and the Company believe it to be advisable to issue
Securities, W\E\P will assist the Company in developing and
preparing an offering memorandum to be used in soliciting
potential purchasers of the Securities (as the same may be
amended from time to time, the "Memorandum"), it being agreed
that (i) such Memorandum shall be based entirely upon
information supplied by the Company, which information the
Company hereby warrants shall be complete and accurate in all
material respects, and not misleading, (ii) the Company shall
be solely responsible for the accuracy and completeness of
such Memorandum except for information supplied by W\E\P, and
(iii) other than as contemplated by this subparagraph, such
Memorandum shall not be used, reproduced, disseminated, quoted
or referred to at any time, in any manner or for any
<PAGE>
ABLE TELCOM HOLDING CORP.-W\E\P ENGAGEMENT LETTER AGREEMENT
- -------------------------------------------------------------------------------
purpose, except with W\E\P's prior written consent, or except
as required by law or court process;
(e) W\E\P will use its best efforts to identify potential
purchasers of the Securities;
(f) W\E\P will assist the Company in marketing the Securities to
potential purchasers which have been approved by the Company.
(g) Subject to agreed upon reasonable compensation, if requested
by the Company, W\E\P shall render an opinion to the Board of
Directors of the Company as to whether the consideration to be
exchanged in the Acquisition and the structuring of any
related Financing is fair, from a financial point of view, to
the Company's shareholders, a copy of which opinion may be
provided by the Company to its shareholders;
(h) W\E\P will render such other financial advisory and investment
banking services as may from time to time be agreed upon by
W\E\P and the Company.
The Company acknowledges and agrees that nothing contained in this engagement
shall constitute a commitment by W\E\P to underwrite, place or purchase any
Securities.
2. W\E\P's compensation for services rendered under this engagement will
include the following cash fees:
(a) A financial advisory fee of $25,000, which is due and shall be
paid by the Company upon execution of this Agreement, and
which shall be credited against success fees contemplated
under paragraphs 2(b) and 2(c) below.
(b) If during the term of this engagement or within the 12 full
months following the termination of this engagement (the
"Financing Period"), (i) the Company consummates one or more
financings for the purpose of the Financing contemplated by
this engagement with any investor contacted by W\E\P during
the term of this Agreement or with any affiliate of any such
investor, which investor was identified to the Company in
writing during the term of this engagement or (ii) (A) the
Company receives and accepts written commitments for such
financing (the execution by a potential financing source and
the Company of a commitment letter or securities purchase
agreement shall be deemed to be receipt and acceptance of such
written commitment) and (B) at any time thereafter such
financing is consummated, the Company will pay to W\E\P upon
the closing date(s) thereof, the following (either as
placement fees or as underwriting discounts, as applicable):
(i) 2% of the gross proceeds of any senior indebtedness
issued by the Company;
(ii) 3% of the gross proceeds of any subordinated
indebtedness issued by the Company;
(iii) 4% of the gross proceeds of any equity securities issued
by the Company; and
(iv) with respect to any other Securities issued by the
Company, such placement fee or underwriting discounts as
shall be mutually agreed by the Company and W\E\P.
2
<PAGE>
ABLE TELCOM HOLDING CORP.-W\E\P ENGAGEMENT LETTER AGREEMENT
- -------------------------------------------------------------------------------
provided, however, that the success fees referenced in this
paragraph 2(b) shall not be payable in connection with any
indebtedness or securities issued to the seller in the
acquisition, but the value of any such securities shall be
included in the computation under 2(c) below.
It is understood and agreed that if the proceeds of any such
financing are to be funded in one or more stages, the
aggregate proceeds of such financing shall be deemed to have
been received, and W\E\P shall be entitled to its full fee
hereunder, upon the first closing date thereof.
(c) If the Acquisition is consummated during this engagement or
within 12 full months following the termination of this
engagement, the Company shall pay to W\E\P upon the closing
date an amount equal to (i) 2% of the aggregate purchase price
paid by the Company for such Acquisition (including the value
of any assets or subsidiaries or division transferred by the
Company as partial consideration for an Acquisition and the
value of any Securities issued to the seller) up to $50
million, and (ii) 1 1/2% of the aggregate purchase price paid
by the Company for such Acquisition (including such value) in
excess of $50 million.
(d) In connection with any Financing, the Company shall upon
request of W\E\P enter with W\E\P into an underwriting
agreement, placement agency agreement or purchase agreement
(in the event that W\E\P is the initial purchaser) as
applicable, in each case containing customary representations,
warranties, covenants, conditions, and indemnities, providing
for the discounts and fees described in subparagraph 2(b)
above. In no event, however, will the economic terms of any
such agreement be any less favorable to W\E\P than the
economic terms afforded to any other underwriter or placement
agent, as the case may be, participating in any Financing.
The Company shall bear all of its legal, accounting, printing and other expenses
in connection with the Acquisition and the offering and sale of any Securities.
It is understood that W\E\P will not be responsible for any fees, expenses or
commissions payable to any other advisors, underwriters or agents (if any)
utilized or retained by the Company or any offerees of the Securities.
3. The Company recognizes and confirms that, in advising the Company, in
assisting in the preparation of any Memorandum and in completing its
engagement hereunder, W\E\P will be using and relying on publicly
available information and on data, material and other information
furnished to W\E\P by the Company and other parties. It is understood
that in performing under this engagement W\E\P may assume and rely upon
the accuracy and completeness of, and is not assuming any
responsibility for independent verification of, such publicly available
information and the other information so furnished.
4 The Company represents and warrants that all information and documents
(including any Memorandum) furnished by the Company (either directly or
through W\E\P) in connection with the Acquisition and to offerees of
the Securities will not, at the time so furnished and at the time of
the closing of the Acquisition or any Financing, contain any untrue
statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. If the Financing takes the
form of a private placement, the Company agrees that any securities
purchase agreements relating to such placement will contain such terms,
covenants, conditions, representations, warranties and other
provisions as are reasonably satisfactory in form and substance to
W\E\P and its counsel.
3
<PAGE>
ABLE TELCOM HOLDING CORP.-\W\E\P ENGAGEMENT LETTER AGREEMENT
- -------------------------------------------------------------------
5 The Company agrees that, at the closing of the Acquisition or any
Financing if Securities are placed by W\E\P and as a condition thereof,
the Company will deliver or cause to be delivered to W\E\P executed
copies, addressed to W\E\P, of all opinions of counsel to the Company,
certificates of the Company or its officers and letters of its
accountants which are delivered to MFSNT or the seller of MFSNT or to
any offerees or purchasers of the Securities during the course of the
offering thereof or at the closing, in each case dated the date of such
delivery, as well as a copy of any opinion of counsel to MFSNT or the
seller of MFSNT or to any purchasers delivered to the Company regarding
the Acquisition or the purchase of Securities.
6. The Company will provide to W\E\P during the term of this engagement
such information regarding the business and financial condition of the
Company and its affiliates as W\E\P may request and as is reasonably
required by W\E\P in order to perform its obligations hereunder,
including without limitation such information as W\E\P may request in
order to satisfy itself as to the accuracy of the Company's
representation and warranty set forth in paragraph 4 hereof. All
non-public information supplied by the Company will be kept
confidential by W\E\P except to the extent required to be provided to
purchasers of Securities or to the seller in the Acquisition, in
accordance with the terms of this Agreement.
7 If the Financing includes a private placement of Securities, the
Company represents and warrants and agrees that no offer or sale of
securities of any class has been or will be made, which offer or sale
would be integrated with the sale of the Securities under the
Securities Act of 1933.
8. The Company agrees to idemnify and hold harmless W\E\P and its
affiliates, directors, officers, agents, employees and controlling
persons, and each of their respective successors and permitted assigns
(collectively, the "indemnified persons"), to the full extent lawful,
from and against all losses, claims, damages, liabilities and expenses
incurred by them which are related to or arise out of the Acquisition
or the Financing or the engagement of W\E\P pursuant to, and the
performance by W\E\P of the services contemplated by, this Agreement,
and will reimburse any indemnified person for all reasonable expenses
(including reasonable counsel fees and expenses) incurred, including
expenses incurrred in connection with the investigation of, preparation
for or defense of any pending or threatened claim or action or
proceeding arising therefrom; provided, however, that the Company will
not be liable under the foregoing indemnification provision to the
extent that any loss, claim, damage, liability or expense is found in a
final judgment by a court of competent jurisdiction to have resulted
from W\E\P's bad faith, gross negligence or breach of this Agreement.
W\E\P agrees to notify the Company promptly of the assertion against an
indemnified person of any claim or the commencement of any action or
proceeding relating to this indemnity provision, but failure to so
notify the Company will relieve the Company from any liability which it
may have hereunder only if and to the extent that such failure results
in the forfeiture of any rights or defenses. The Company shall be
entitled to assume the defense of any action against an indemnified
person with counsel reasonably satisfactory to W\E\P, in such event any
indemnified person shall have the right to retain its own counsel but
only at its own expense. The Company shall not be liable under these
indemnity provisions for any settlement made without the Company's
written consent of any claim against any indemnified person, which
consent shall not be unreasonably withheld. The provisions of this
paragraph 8 shall survive any termination of this Agreement or
completion of W\E\P's engagement hereunder.
9. In addition to any fees payable by the Company to W\E\P hereunder, the
Company shall, whether or not an Acquisition or a Financing shall be
proposed or consummated,
4
<PAGE>
ABLE TELCOM HOLDING CORP.-\W\E\P ENGAGEMENT LETTER AGREEMENT
- ---------------------------------------------------------------------
reimburse W\E\P for its reasonable travel and other reasonable
out-of-pocket expenses (including all disbursements and other charges
of counsel to be retained by W\E\P, and of any other consultants and
advisors retained by W\E\P, with the Company's prior written consent)
incurred in connection with, or arising out of, W\E\P's activities
under or contemplated by this engagement; provided, however, that W\E\P
agrees that all such expenses shall not exceed $20,000 in the aggregate
without the prior written approval of the Company. Such reimbursements
shall be made promptly upon submission by W\E\P of statements for such
expenses.
10 This Agreement may be terminated at any time by either W\E\P or the
Company upon 60 days' prior written notice thereof to the other party;
provided, however, that (a) termination of W\E\P's engagement hereunder
shall not affect the Company's obligation to pay fees to the extent, in
the amounts and at the times provided for in paragraph 2 hereof, and
(b) termination of W\E\P's engagement hereunder shall not affect the
Company's obligation to reimburse the expenses accruing prior to such
termination to the extent provided for herein.
11 W\E\P has been retained under this Agreement as an independent
contractor with duties owed solely to the Company. The advice (written
or oral) rendered by W\E\P pursuant to this Agreement is intended
solely for the benefit and use of the Board of Directors and senior
management of the Company in considering the matters to which this
Agreement relates, and the Company agrees that such advice may not be
relied upon by any other person, used for any other purpose or
reproduced, disseminated, quoted or referred to at any time, in any
manner or for any purpose, nor shall any public reference to W\E\P be
made by the Company or its representatives, without the prior written
consent of W\E\P, which consent shall not be reasonably withheld or
delayed (provided, however, that the Company may refer to W\E\P and its
involvement in the Acquisition and any Financing in press releases, and
in any notices and proxy solicitations to the Company's shareholders).
12. The Company agrees that W\E\P shall have the right to place
advertisements in financial and other newspapers and journals at its
own expense describing its services to the Company hereunder, provided
that W\E\P will submit a copy of any such advertisement to the Company
for its approval, such approval shall not be unreasonably withheld or
delayed.
13. This Agreement and all controversies arising from or relating to
performance under this Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving
effect to such state's rules concerning conflicts of laws. ANY RIGHT TO
TRIAL BY JURY WITH RESPECT TO ANY CLAIM OR ACTION ARISING OUT OF THIS
AGREEMENT OR CONDUCT IN CONNECTION WITH THIS ENGAGEMENT IS HEREBY
WAIVED.
14. This Agreement may be executed in counterparts, each of which together
shall be considered a single document. This Agreement shall be binding
upon W\E\P and the Company and their respective successors and assigns,
provided, however, that this Agreement shall not be assignable by
W\E\P. This Agreement is not intended to confer any rights upon any
shareholder, owner, or partner of the Company, or any other person not
a party hereto other than the indemnified persons referred to above.
This Agreement represents the entire agreement of the parties and may
not be amended or waived except by a writing signed by both parties.
15. It is understood and agreed that W\E\P and its affiliates may from time
to time make a market in, have a long or short position in, buy and
sell or otherwise effect transactions for customer accounts and for
their own accounts in the securities of, or perform
5
<PAGE>
ABLE TELCOM HOLDING CORP.-\W\E\P ENGAGEMENT LETTER AGREEMENT
- ---------------------------------------------------------------------
investment banking or other services, for, the Company and other
entities which are or may be the subject of the engagement contemplated
by this Agreement.
16. Any payments to be made to W\E\P hereunder shall be in U.S. dollars and
shall be free of all withholding, stamp and other taxes and of all
other government charges of any nature whatsoever, and shall not be
increased or grossed up to take into account W\E\P's income tax or
other tax obligations.
We are pleased to accept this engagement and look forward to working with the
Company. Please confirm that the foregoing is in accordance with your
understanding by signing and returning to us the enclose duplicate of this
letter, which shall thereupon constitute a binding agreement between the Company
and W\E\P.
Very truly yours,
Washington Equity Partners (W\E\P)
By: /s/ Thomas Davidson
-----------------------------------
Name: Thomas Davidson
Title: Managing Director
Accepted and agreed to:
ABLE TELCOM HOLDING CORP.
By: /s/ Gideon Taylor
-------------------------------
Name: Gideon Taylor
Title: Chairman
6
