AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 8, 1999
REGISTRATION STATEMENT NO. 333-65991
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
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>
Billy V. Ray, Jr.,
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:
ELIZABETH NOE, ESQ.
PAUL, HASTINGS, JANOFSKY & WALKER LLP
600 PEACHTREE STREET N.E. SUITE 2400
ATLANTA, GEORGIA 30308
(404) 815-2400
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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. [ ]
CALCULATION OF REGISTRATION FEE
<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(2)
- ------------------------------ ------------- ---------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.001(3)........ 1,817,941 $ 7.00 $12,725,587.00 $3,537.71
Common Stock, par value $.001(4)........ 409,505 8.25 3,378,416.25 939.20
Common Stock, par value $.001(5)(6)..... 2,744,920 5.91 16,222,477.00 4,509.85
Common Stock, par value $.001(7)(8)..... 1,500,000 13.41 20,115,000.00 5,591.97
Total:.................................. 6,472,366 48,430,064.04 14,578.73(2)
====================================================================================================================================
</TABLE>
(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 "WorldCom Option") to purchase up to 1,817,941 shares of Common
Stock of the Company, (iii) certain warrants (the "Senior Note 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) A registration fee of $28,613.50 was paid in connection with the initial
filing of this Registration Statement on October 22, 1998.
(3) Represents shares of Common Stock underlying the WorldCom Option.
(4) Represents shares of Common Stock underlying the Senior Note Warrants.
(5) 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 outstanding shares of
Series B Preferred Stock had been converted on March 26, 1999, at a
conversion price of $6.3858, the conversion price calculated as of such date
as to 375 of such shares, and at an agreed upon conversion price of $3.5138
with respect to 404 of such shares.
(6) In accordance with Rule 457(c), this maximum offering price per share has
been calculated based upon the average of the high ($6.1875) and low
($5.625) trading prices of the Common Stock as reported by the Nasdaq
National Market on April 7, 1999.
(7) 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.
(8) Represents the average exercise price of the Series B Preferred Stock
Warrants.
---------------
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>
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 APRIL 8, 1999
PROSPECTUS
6,472,366 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 6,472,366
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 granted
to it by 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
originally due January 6, 2005.
/bullet/ 2,744,920 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 March 26, 1999 plus certain
shares of Common Stock currently held by the Selling Shareholders as a
result of previous conversions of Series B Preferred Stock. 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 March 29, 1999, the last reported sales price of the Common Stock
was $7.5625 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 9.
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.
----------------
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.
----------------
PROSPECTUS DATED , 1999
<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 ........................................... 8
Risk Factors ......................................................................... 9
Use of Proceeds ...................................................................... 22
Market Price of Common Stock and Dividend Policy ..................................... 23
Capitalization ....................................................................... 24
Selected Consolidated Financial Data ................................................. 25
Management's Discussion and Analysis of Financial Condition and Results of Operations 26
Quantitative and Qualitative Disclosures about Market Risk............................ 35
Business ............................................................................. 37
Management ........................................................................... 56
Certain Relationships and Related Transactions ....................................... 64
Principal and Selling Shareholders ................................................... 65
Description of Indebtedness .......................................................... 68
Description of Securities ............................................................ 72
Shares Eligible for Future Sale ...................................................... 81
Plan of Distribution ................................................................. 82
Legal Matters ........................................................................ 83
Experts .............................................................................. 83
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 to
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 the Company's inability to comply with
contract terms in a timely manner, including the terms of its contract with
the Regional Consortium for Electronic Toll Collection
/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 THE NETWORK CONSTRUCTION AND TRANSPORTATION
SYSTEMS BUSINESS 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 TO REFER TO
OUR SUBSIDIARY THAT OWNS THE ASSETS AND LIABILITIES THAT WE ACQUIRED.
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 (Latin America) ................. 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>
FISCAL YEAR 1998 AND RECENT DEVELOPMENTS
MFSNT ACQUISITION. On July 2, 1998, Able acquired MFSNT's network
construction and transportation systems business from WorldCom, Inc.
("WorldCom") pursuant to a merger agreement dated April 26, 1998 ("Plan of
Merger"). On September 9, 1998, the Company, WorldCom and WorldCom Network
Services, Inc. ("WorldCom Network"), a wholly owned subsidiary of WorldCom,
finalized the terms of the Plan of Merger through the execution of an amended
agreement, which agreement was subsequently amended on January 26, 1999 (as
amended, the "September Agreement"). The acquisition of MFSNT was accounted for
using the purchase method of accounting at a total price of approximately $67.5
million comprised of a $58.8 million contract price, costs associated with the
acquisition and the value attributed to options and equity awards described
below. $38.8 million of the purchase price was paid in cash and the remainder
was paid by the issuance of a promissory note as described below (as amended to
date, the "WorldCom Note"). The MFSNT purchase price includes 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.
In conjunction with the acquisition of MFSNT, Able granted an option to
WorldCom's subsidiary, MFS Communications Company, Inc. ("MFSCC") (the "WorldCom
Option") to purchase up to 2,000,000 shares of the Company's common stock, par
value $.001 per share (the "Common Stock"), at an exercise price of $7.00 per
share, but subject to a 1,817,941 share limitation on the total number of shares
issuable, and the right to receive upon satisfaction of certain conditions
phantom stock awards (the "Phantom Stock Awards") equivalent to 600,000 shares
of common stock, payable in cash, stock, or a combination of both at the
Company's option. The WorldCom Phantom Stock Awards are 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 in no event shall the maximum payment exceed $25.00 per
share.
On January 8, 1999, we entered into a modification to the WorldCom Option
(the "WorldCom Modification") which modified the WorldCom Option into stock
appreciation rights ("SARs") unless and until such time as shareholder approval
is obtained by the Company (if ever), pursuant to the Nasdaq Stock Market, Inc.
("Nasdaq") Marketplace Rule 4460(i)(1)(C) ("Rule 4460(i)(1)(C)"), to approve the
issuance of 20 percent or more of the Common Stock in connection with the MFSNT
Acquisition.
Under the WorldCom Modification, WorldCom is entitled to participate in an
increase in the value of an aggregate of 2,000,000 shares of Common Stock. For
each SAR exercised, WorldCom is entitled to receive an amount equal to the
excess of the fair market value of the Common Stock as of the applicable
exercise date over $7.00 (the "Appreciation Amount"). The Appreciation Amount
will be paid in cash within fifteen days of receipt of an exercise notice;
provided, however, that to the extent that the Company would be required to pay
in excess of $10.0 million in any twelve month period as a result of any
exercises of any SARs, then the amount of such excess shall be represented by a
promissory note with quarterly payments amortized ratably over a period of six
months at 10% per annum. The exercise period for the SARs granted commences on
the earlier of: (i) one (1) business day after the date upon which the potential
issuance of Common Stock under this Agreement is voted upon by the shareholders
of the Company and (ii) July 1, 1999 (the "Commencement Date"), and ending on
January 2, 2002. Payment of any SARs in cash only could materially and adversely
affect the Company's cash flow because (i) of the short time frame to pay for
any SARs exercised (between 15 and 30 days from the date notice is received by
the Company), and (ii) the payment owed could be a significant amount depending
on the number of SARs exercised and the then fair market value of the Company's
Common Stock.
We will submit a proposal to the Company's shareholders at the Annual
Meeting of Shareholders to be held in 1999 to approve the issuance of more than
20 percent of the outstanding Common Stock in connection with the MFSNT
Acquisition. If the Company's shareholders approve such issuance the SARs
granted automatically revert back to the WorldCom Option and the holder will
have the right to purchase an aggregate of 1,817,941 shares of Common Stock at
$7.00 per share through January 2, 2002.
2
<PAGE>
As of January 31, 1999, approximately $30.0 million of principal and
approximately $1.4 million of accrued and unpaid interest were outstanding under
the WorldCom Note. We must repay the WorldCom Note in full on November 30, 2000.
The WorldCom Note is dated September 1, 1998 and bears interest at 11.5 percent
per year. The obligations under the WorldCom Note are junior and fully
subordinated to those under the Secured Credit Facility (as defined below).
No amounts may be paid on the WorldCom Note so long as any debt is outstanding
under the Secured Credit Facility. Subject to the subordination provisions and
after full payment of all amounts owed under the Secured Credit Facility, the
WorldCom Note may be prepaid as follows:
/bullet/ By applying 8 percent of the payment WorldCom Network owes us
under the WorldCom Master Services Agreement, described below
/bullet/ By paying to WorldCom a portion of certain proceeds received by
us upon the sale of certain conduit assets
/bullet/ By paying to WorldCom a portion of certain proceeds received from
time to time under maintenance contracts for certain conduit projects
In addition, if we do not repay the WorldCom Note in full by November
30, 2000, it is anticipated that WorldCom also will be able to:
/bullet/ Require us to pay a 13.5 percent annual default rate of interest
as long as we are in default
/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
3
<PAGE>
As part of the MFSNT acquisition, the Company, WorldCom Network and MFSNT
entered into a Master Services Agreement (the "WorldCom Master Services
Agreement") pursuant to which we agreed to provide telecommunication
infrastructure services to WorldCom Network on a cost-plus 12 percent basis for
a minimum of $40.0 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 the Company defaults on the WorldCom
Note. To achieve these established minimums, WorldCom Network has agreed to
award the Company at least 75 percent of all WorldCom Network's outside plant
work related to its local network projects up to $500.0 million and the Company
has agreed to accept and perform work orders from WorldCom Network for as much
as $130.0 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 $500.0 million at any time during the five-year term of
the contract.
We are permitted to use the trade name "MFSNT" during the 18-month
transition period immediately following the MFSNT Acquisition but will not be
entitled to use it after such 18-month period.
As part of the MFSNT Acquisition, we agreed that MFSCC may designate a
representative to the Company's Board of Directors if it exercises the WorldCom
Option (assuming it is reinstated as described above) for so long as MFSCC
retains at least 5 percent of the Company's outstanding Common Stock.
THE SERIES B PREFERRED STOCK. On June 30, 1998, Able 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 and the
Series B Preferred Stock Warrants, as defined below. As a result of the previous
conversion of and the redemption of shares of Series B Preferred Stock, there
are currently 779 shares of Series B Preferred Stock outstanding. Dividends
accrue on the Series B Preferred Stock at a rate of 4 percent 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--Preferred
Stock--Series B Convertible Preferred Stock." Able 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 percent of the "market value" of the
Common Stock; provided that a maximum price of $3.5138 was agreed to with the
holders of 404 shares of Series B Preferred 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 percent 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 percent of the lowest intraday trading
price of the Common Stock on the date of conversion.
4
<PAGE>
In addition, Able issued warrants (the "Series B Preferred Stock Warrants")
to purchase a total of up to 1,000,000 shares of Common Stock to the holders of
the Series B Preferred Stock. These warrants are currently exercisable at an
average price of $13.41 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 percent 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.
Able 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
May 18, 1999, 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 Preferred
Stock, 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 Preferred Stock 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.
PURCHASE OF SENIOR NOTES AND SERIES B PREFERRED STOCK
In February, 1999, WorldCom advanced us $32.0 million for purposes of
facilitating the purchase of 2,785 shares, or approximately 78 percent, of the
Series B Preferred Stock and the purchase of the outstanding $10.0 million
principal amount of the Company's 12 percent Senior Subordinated Notes
originally due January 6, 2005 (the "Senior Notes"). The advance accrues
interest at 11.5 percent and, based on recent amendments to the advance, is
subordinate to the Secured Credit Facility and matures on November 30, 2000.
WorldCom also agreed to make available additional advances to the Company
of up to $15.0 million against amounts otherwise payable pursuant to the
WorldCom Master Services Agreement. These additional advances accrue interest at
11.5 percent and are repayable to WorldCom on November 30, 2000.
We loaned the funds advanced by WorldCom to Cotton Communications, Inc.
(the "Purchaser"), which may be deemed an affiliate of the Company, and on
February 17, 1999, the holders of all of the Senior Notes and the holders of 78
percent of the Series B Preferred Stock transferred their holdings to the
Purchaser. In connection with the transfer of the Senior Notes and the Series B
Preferred Stock, the Purchaser and the remaining holders of the Series B
Preferred Stock agreed to either waive all outstanding defaults under such
securities or refrain from exercising any remedies with respect to any such
outstanding defaults for a period of 90 days from February 17, 1999. During such
period of time, the Company has agreed to use its best efforts to have declared
effective a registration statement covering the resale of shares of common stock
underlying the remaining Series B Preferred Stock and the Series B Preferred
Stock Warrants.
5
<PAGE>
In connection with the transfer of the Series B Preferred Stock, we agreed
with the original holders thereof to certain modifications in the conversion
price of the Series B Preferred Stock Warrants. The exercise price of (i)
warrants to purchase a total of 370,000 shares of the Company's common stock has
been reduced to $13.25 per share from $19.80 per share and (ii) warrants to
purchase a total of 630,000 shares of common stock has been reduced to $13.50
per share from $19.80 per share.
On March 22, 1999, we redeemed from the Purchaser the Senior Notes as well
as the 2,785 shares of Series B Preferred Stock in exchange for the cancellation
of the loan made to the Purchaser on February 17, 1999. The Company also assumed
the Purchaser's obligation to acquire 630,000 of the Series B Preferred Stock
Warrants at a price of $3.00 per warrant on or before April 30, 1999 if not
previously exercised or redeemed. The Senior Notes have now been marked paid and
the 2,785 shares of Series B Preferred Stock have been cancelled.
In connection with these transactions, we expect to recognize an
extraordinary loss in the second quarter of fiscal year 1999 on the purchase of
the Senior Notes of approximately $1.9 million and a reduction in income
applicable to common stock of approximately $10.0 million on the purchase of the
Series B Preferred Stock.
In addition, the modification to the terms of the existing Series B
Preferred Stock conversion and warrant agreements will result in a reduction in
income applicable to common stock of approximately $1.3 million during the
second quarter of fiscal year 1999.
SECURED CREDIT FACILITY. In June 1998, we replaced our previous bank credit
agreement with a new $35.0 million senior secured revolving credit facility with
a syndicate of lenders with an original term of three years (as amended to date,
the "Secured Credit Facility"). The Secured Credit Facility has a letter of
credit sublimit of $5.0 million. As amended to date, the Secured Credit Facility
matures on November 1, 2000. We used a portion of the proceeds from the Secured
Credit Facility to repay the previous credit facility and to finance $10.0
million of the MFSNT Acquisition purchase price.
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
Secured Credit Facility); and
/bullet/ A pledge of all existing intercompany notes issued to any
Restricted Subsidiary by any of its subsidiaries.
6
<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 interest, fixed charges and quick 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, Able
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 COMSAT CONTRACTS. On February 25, 1998, the Company, through
a wholly owned subsidiary, Georgia Electric Company ("GEC"), acquired 12
contracts ("COMSAT Contracts") with the Texas Department of Transportation from
CRSI Acquisition Inc., a subsidiary of COMSAT Corporation ("COMSAT"). The COMSAT
Contracts are for the installation of intelligent traffic management systems and
the design and construction of wireless communication networks. In exchange for
assuming the obligations to perform under the COMSAT Contracts, GEC received
consideration from COMSAT of approximately $15.0 million. These contracts are
now substantially complete.
JOINT VENTURE WITH CLARION RESOURCES COMMUNICATION CORP. On September 23,
1997, Able entered into a five-year joint venture with Clarion Resources
Communication Corp. ("Clarion"). Clarion is principally owned by Telenor, the
telephone company of Norway. Able has agreed with Clarion to jointly market,
manufacture and license Able's proprietary telephone call record and data
collection technology, called NeuroLAMA, in Europe and Asia. Clarion has agreed
to provide Able with an international sales force and to obtain suitable
financing to purchase and install NeuroLAMA. The venture will not require a
capital investment from Able but should provide a stable royalty stream if the
venture is successful. No material progress has been made in implementing this
joint venture.
7
<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 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 Financial Statements for MFSNT, and
the related notes to those statements, which are included in this Prospectus.
The financial data for the three months ended January 31, 1998 and 1999 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 three months ended January
31, 1999 are not necessarily indicative of results for a full year.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------
1994 1995 1996 1997 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues ........................................................ $ 25,784 $ 35,408 $ 48,906 $ 86,334 $217,481
-------- -------- -------- -------- --------
Costs and expenses:
Costs of revenues .............................................. 16,395 27,720 40,486 68,164 179,505
General and administrative ..................................... 4,167 5,464 8,404 8,780 18,692
Depreciation and amortization .................................. 854 1,914 2,750 4,532 7,600
Charges and transaction/ translation losses related to
Latin American operations ..................................... 2,382 96 3,553 17 275
-------- -------- -------- -------- --------
Total costs and expenses ....................................... 23,798 35,194 55,193 81,493 206,072
-------- -------- -------- -------- --------
Income (loss) from operations .................................. 1,987 214 (6,287) 4,841 11,409
-------- -------- -------- -------- --------
Other expenses (income), net:
Loss on sale of investments .................................... -- 100 -- -- --
Interest expense ............................................... 397 1,118 1,350 1,565 5,534
Interest and dividend income ................................... (418) (673) (270) (449) (342)
Change in value of stock appreciation rights.................... -- -- -- -- --
Other expenses ................................................. -- -- 32 (152) (320)
-------- -------- -------- -------- --------
Total other expenses (income), net ............................. (21) 546 1,112 964 4,872
-------- -------- -------- -------- --------
Income (loss) before income taxes and minority interest ......... 2,008 (332) (7,399) 3,877 6,537
Income tax (benefit) expense .................................... 632 (368) (891) 727 3,405
-------- -------- -------- -------- --------
Income (loss) before minority interest .......................... 1,376 37 (6,508) 3,150 3,132
Minority interest ............................................... (429) (317) 598 (293) (618)
-------- -------- -------- -------- --------
Net income (loss) ............................................... 947 (280) (5,910) 2,857 2,514
Preferred stock dividends ....................................... -- -- -- (260) (341)
Discount attributable to beneficial conversion privilege of
preferred stock ................................................ -- -- -- (1,266) (8,013)
-------- -------- -------- -------- --------
Income (loss) applicable to common stock ........................ $ 947 $ (280) $ (5,910) $ 1,331 $ (5,840)
======== ======== ======== ======== ========
PER SHARE DATA(1):
Earnings per share--basic ....................................... $ .12 $ (.03) $ (.71) $ .16 $ (.59)
Earnings per share--diluted ..................................... .12 (.03) (.71) .16 $ (.59)
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents ....................................... $ 3,432 $ 2,952 $ 3,267 $ 6,230 $ 13,544
Total assets .................................................... 36,604 32,482 38,919 50,346 290,760
Total debt ...................................................... 8,293 5,255 10,115 17,294 91,094
Total shareholders' equity ...................................... 15,832 17,467 11,598 15,247 40,217
<PAGE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
------------------------
1998 1999
----------- ------------
<S> <C> <C>
INCOME STATEMENT DATA:
Revenues ........................................................ $22,268 $ 91,777
------- ---------
Costs and expenses:
Costs of revenues .............................................. 18,996 76,246
General and administrative ..................................... 3,196 7,835
Depreciation and amortization .................................. 1,240 2,333
Charges and transaction/ translation losses (gains) related to
Latin American operations ..................................... -- --
------- ---------
Total costs and expenses ....................................... 23,432 86,414
------- ---------
Income (loss) from operations .................................. (1,164) 5,363
------- ---------
Other expenses (income), net:
Loss on sale of investments ....................................
Interest expense ............................................... 276 2,478
Interest and dividend income ...................................
Change in value of stock appreciation rights.................... -- 3,428
Other expenses ................................................. (102) 132
------- ---------
Total other expenses (income), net ............................. 174 6,038
------- ---------
Income (loss) before income taxes and minority interest ......... (1,338) (675)
Income tax (benefit) expense .................................... (522) (168)
------- ---------
Income (loss) before minority interest .......................... (816) (507)
Minority interest ............................................... 111 74
------- ---------
Net income (loss) ............................................... (927) (581)
Preferred stock dividends ....................................... 49 180
Discount attributable to beneficial conversion privilege of
preferred stock ................................................ 105 --
------- ---------
Income (loss) applicable to common stock ........................ $(1,081) $ (761)
======= =========
PER SHARE DATA(1):
Earnings per share--basic ....................................... $ (.12) $ (.06)
Earnings per share--diluted ..................................... (.12) (.06)
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents ....................................... $ 3,972 $ 7,323
Total assets .................................................... 52,202 280,316
Total debt ...................................................... 19,648 90,860
Total shareholders' equity ...................................... 17,880 34,251
</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 fiscal year ended
October 31, 1998.
8
<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.
HIGH LEVEL OF INDEBTEDNESS; ABILITY TO SERVICE INDEBTEDNESS
We have incurred a high level of debt. At Janurary 31, 1999 we had
approximately $90.9 million of total debt outstanding. 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 could 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", we
believe that we have available cash from operations, as well as from the
additional advance available from WorldCom described above, sufficient to meet
our operating and capital requirements for the next twelve months. Nonetheless,
pursuant to the terms of the documents relating to the Series B Preferred Stock,
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 on or before May 18, 1999, 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 outstanding shares of Series B Preferred
Stock, in whole or 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
Preferred Stock, the failure of which would provide the 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). In addition, there can be no assurance that the Company will not
experience adverse operating results or other factors 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.
9
<PAGE>
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 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,"
Able 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
May 18, 1999 (originally December 27, 1998), or if we are delisted under certain
circumstances from any securities exchange, or if any representation or warranty
made by Able 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 Preferred Stock at a 30 percent
premium over what was paid for such stock. Further, even though the terms of the
Series B Securities prohibit the issuance of Common Stock upon a holder's
conversion of their Series B Preferred Stock or Warrants if the issuance would
result in the holder and its affiliated entities beneficially owning more than
4.99 percent of the Company's then outstanding Common Stock, we may be required
to redeem all or part of the Series B Securities at a 30 percent premium over
what was paid upon issuance if we are unable to fully convert the Series B
Preferred Stock into Common Stock when we have been asked to do so. Any
conversion of the Series B Securities into Common Stock that would result in the
issuance of 20 percent or more of our outstanding Common Stock would violate the
rules of the Nasdaq Stock Market, unless such issuance has been approved by our
shareholders. We are seeking the required shareholder approval at the Annual
Shareholder Meeting to be held in 1999. However, if such approval is not
granted, and all holders of Series B Securities requested that we convert their
securities into Common Stock, we may not be able to do so and could be required
to redeem the Series B Securities at a 30 percent premium over what was paid
upon their issuance. In addition, we are 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 May 18, 1999 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 Securities and Exchange Commission with respect to the
effectiveness of the registration statement). If the holders of the Series B
Preferred Stock 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, results of operations and cash flow would be materially impacted.
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 January 31, 1999, the entire principal amount and approximately $1.4 million
in interest were outstanding under the WorldCom Note. All outstanding principal
and interest on the WorldCom Note is due and payable by November 30, 2000. If we
default on our obligation to pay the WorldCom Note on November 30, 2000,
WorldCom will be able to do any or all of the following:
10
<PAGE>
/bullet/ Require us to pay a 13.5 percent annual default rate of interest
while we are in default
/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
Our business and financial condition could be materially affected by any
default under the WorldCom Note.
11
<PAGE>
RISK OF CONTRACT DEFAULT; RISK OF LOSS OF BONDING CAPACITY
Our contracts generally contain performance milestones and deadlines for
the completion of phases of a project and the project as a whole. The failure
to meet such milestones or deadlines could result in the imposition of penalty
payments on the Company and/or termination of the contract.
We must submit performance bonds on substantially all contracts obtained.
We believe that our relations with our bonding company are good. However, the
financial viability of the Company is dependent on maintaining adequate bonding
capacity and any loss of bonding capacity would have a material adverse effect
on the Company's business and financial position.
We have not yet completed the required functional test demonstration in
accordance with contract provisions under our contract with the Regional
Consortium ("Consortium") for Electronic Toll Collection in a timely manner. In
January 1999, we received an extension under the contract, which initially
expired March 31, 1999 and was subsequently extended to April 8, 1999. In
exchange for such extension, we agreed to pay liquidated damages at a rate of
$25,000.00 per day. On April 8, 1999, the Company is required to present certain
information regarding its progress with the project to the Consortium. Following
such presentation, we anticipate the parties will enter into further
negotiations regarding completion of the project. No assurance can be given that
such negotiations will result in an agreement satisfactory to the Company. The
loss of this contract as a result of continuing defaults may have a material
adverse effect on the Company's business and financial position.
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. At present, the parties
are conducting discovery in this case.
On or about 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, then Chairman of the Board Gideon Taylor, then
Chief Executive Officer Frazier L. Gaines, Chief Accounting Officer Jesus
Dominguez, and then Chief Financial Officer Mark A. Shain. At or near that time,
five additional plaintiffs filed substantially similar lawsuits. By order dated
December 30, 1998, all of these cases have been consolidated with the SFCS case.
The plaintiffs have not yet filed their consolidated amended complaint. We
expect the consolidated amended complaint will be substantially similar to that
filed by SFSC, and will assert 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, MFSNT and the
acquisition of the COMSAT Contracts, and our ongoing financial condition as a
result of the acquisitions and the related financing of those acquisitions.
Additionally plaintiffs are expected to seek certification as a class action on
behalf of themselves 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, results of operations and cash flow.
The Company is aware that an additional shareholder lawsuit has been filed.
To date, this lawsuit has not been served on the defendants. The allegations in
this lawsuit appear to be based on the same facts and circumstances as those set
forth in the SFSC lawsuit. The Company is currently assessing the allegations in
this lawsuit and intends to defend this matter vigorously when and if the
defendants are served.
The Company is subject to a number of shareholder and other lawsuits and
claims for various amounts which arise out of the normal course of its business.
The Company intends to vigorously defend itself in these matters. The
disposition of all pending lawsuits and claims is not determinable and may have
a material adverse effect on the Company's financial position.
12
<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 on July 2, 2003. 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. 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
complete the successful integration of the operations of MFSNT into the Company.
Prior to MFSNT, we had not acquired the assets and liabilities of a company the
size of MFSNT, and this integration process has and will continue to require
substantial time and attention of our management. This process has and will
continue to 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 the Company without difficulty, if at all. MFSNT
had significant operating losses prior to the MFSNT Acquisition (approximately
$21.5 million for the six-month period ended July 2, 1998). We cannot guarantee
that MFSNT will not incur substantial operating losses in the future. If the
losses continue, our financial condition and results of operations likely would
be materially adversely affected.
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 need 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.
13
<PAGE>
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. 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 Indebtedness--Secured Credit Facility."
14
<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 $130.0 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
15
<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 effect
upon the Company's competitive position. See "Business--Research and
Development; 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 fiscal year ended October
31, 1998, our international operations accounted for approximately 2.5 percent
of our revenues and approximately 1.0 percent of income from continuing
operations. 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 in certain parts of the
world
/bullet/ Potentially adverse tax consequences
16
<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.
The market in which the Transportation Construction division of the
Transportation Services Group competes is characterized by small private
companies competing for projects of $3.0 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.
17
<PAGE>
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
We have experienced and expect to continue to experience quarterly
variations in revenues and income from operations. 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 from operations 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, 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.
As a result of the MFSNT Acquisition, we are dependent on the continued
services and experience of certain members of MFSNT's 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. Further, other employees of
18
<PAGE>
MFSNT may choose to resign as a result of the acquisition. 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."
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 all together, causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
We have established programs to coordinate our year 2000 (Y2K) compliance
efforts across all business functions and geographic areas. We are
utilizing the following steps in executing our Y2K compliance program: 1)
awareness, 2) assessment, 3) renovation, 4) validation and testing, and 5)
implementation. We have completed the awareness and assessment steps for all
areas and believe we will have substantially completed implementation by October
31, 1999. However, there can be no assurance that we will succeed in our Y2K
efforts. Failure to succeed with our Y2K efforts could have a material adverse
effect on our business and results of operations.
As part of our Y2K compliance program, we have contacted our significant
vendors to assess their Y2K readiness. For all mission critical third party
software embedded in or specified for use in conjunction with our IT systems and
products, our communications with the vendors indicates that the vendors believe
they will be Y2K compliant by October 31, 1999. Such third party software is
being tested in conjunction with the testing of the IT systems and products
discussed above. There can be no assurance that i) the Company's significant
vendors will succeed in their Y2K compliance efforts, or ii) the failure of
vendors to address year 2000 compliance will not have a material adverse effect
on our business or results of operations.
Since inception of this program through October 31, 1998, the costs related
to the Company's Y2K compliance efforts were not material. The total estimated
costs to complete the Company's Y2K compliance effort are approximately $2.0
million. The estimated costs to complete, which does not include any costs which
may be incurred if significant vendors fail to timely address Y2K compliance, is
based on currently known circumstances and various assumptions regarding future
events. However, there can be no assurance that these estimates will be achieved
and actual results could differ materially from those anticipated.
19
<PAGE>
PREFERRED STOCK
The Board of Directors has the authority to issue up to an additional
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 Credit Facility and the Series B Preferred
Stock 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 Able issued these
shares on June 30, 1998 in a private placement. Currently 779 shares of Series B
Preferred Stock are outstanding. See "Description of Securities--Preferred
Stock--Series B Convertible Preferred Stock."
SHARES ELIGIBLE FOR FUTURE SALE
As of March 26, 1999, the Company had approximately 11.8 million shares of
Common Stock issued and outstanding. Assuming that as of March 26, 1999, the
holders of the Series B Preferred Stock, the Series B Preferred Stock Warrants,
the Senior Note Warrants, and the WorldCom 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 14.9 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
20
<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 the Company
/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 percent 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
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 percent but less than 33 1/3 percent of all voting power, (b) at least
33 1/3 percent but less than a majority of all voting power; or (c) a majority
or more
21
<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 these shares. However, we
may receive proceeds from the exercise of the WorldCom Option, the Series B
Preferred Stock Warrants and the Senior Note Warrants, as follows:
/bullet/ To the extent that MFSCC exercises the WorldCom 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 warrants exercised, multiplied by an average exercise price of $13.41 per
share, subject to adjustment.
/bullet/ To the extent that the warrants issued in connection with the
Company's Senior Notes (the "Senior Note Warrants") are exercised, we
will receive gross proceeds in an amount equal to the number of warrants
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 from exercise, if any, for working capital and general
corporate purposes.
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<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 prices for the Common Stock.
<TABLE>
<CAPTION>
SALE PRICE RANGE
----------------------
HIGH LOW
---------- ---------
<S> <C> <C>
YEAR ENDED OCTOBER 31, 1997
1st Quarter .................................... $ 9.625 $ 7.25
2nd Quarter .................................... 9.000 7.375
3rd Quarter .................................... 9.000 7.125
4th Quarter .................................... 10.625 7.5625
YEAR ENDED OCTOBER 31, 1998
1st Quarter .................................... $ 10.75 $ 6.375
2nd Quarter .................................... 13.1875 7.0625
3rd Quarter .................................... 20.9375 8.625
4th Quarter .................................... 10.625 1.75
YEAR ENDED OCTOBER 31, 1999
1st Quarter .................................... $ 12.374 $ 5.0625
2nd Quarter (through March 26, 1999) ........... 11.5625 6.5625
</TABLE>
On March 29, 1999, the last reported sales price of the Common Stock was
$7.5625 and there were approximately 400 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 and the
WorldCom Note 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 percent 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.
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<PAGE>
CAPITALIZATION
The following table sets forth, as of January 31, 1999, the unaudited
capitalization of the Company, on a consolidated basis and as adjusted as
described in footnote 8 below. 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 JANUARY 31, 1999 AS ADJUSTED(8)
------------------- --------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C>
Advances from WorldCom .................................................... $ - $ 32,000
Total debt(1):
Secured Credit Facility ................................................... 35,000 35,000
Senior Notes(2) ........................................................... 8,961 -
WorldCom Note(3) .......................................................... 30,000 30,000
Other long-term debt(4) ................................................... 16,899 16,899
-------- --------
Total debt ............................................................... 90,860 81,899
Series B Convertible Preferred Stock, par value $.10 per share, 4,000 shares
authorized, 4,000 shares issued and 3,564 outstanding(5) ................. 11,233 2,385
Stockholders' equity:
Common Stock, par value $.001 per share, 25,000,000 shares authorized,
11,694,088 shares issued and outstanding(6)(7) .......................... 11 11
Additional paid-in capital ................................................. 33,364 36,760
Series B Preferred Stock Warrants .......................................... 5,400 3,311
Senior Note Warrants ....................................................... 1,244 1,244
WorldCom Phantom Stock ..................................................... 606 606
Retained deficit ........................................................... (6,459) (19,706)
Accumulated other comprehensive income ..................................... 85 85
-------- --------
Total shareholders' equity ................................................ 34,251 22,311
-------- --------
Total capitalization ..................................................... $136,344 $138,595
======== ========
</TABLE>
- ----------------
(1) For information concerning Able's indebtedness outstanding at January 31,
1999, see Note 3 of Notes to Able's Condensed Consolidated Financial
Statements.
(2) Amount is net of discount of approximately $1.0 million in debt discount
arising from valuation of the Senior Note Warrants.
(3) See "Business--Recent Developments--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
January 31, 1999, all of the Series A Convertible Preferred Stock had been
converted. See Note 4 of Notes to Able's Condensed Consolidated Financial
Statements.
(6) Excludes 937,970 shares of Common Stock subject to currently outstanding
options and 17,850 shares of Common Stock reserved for future issuance
under the Company's 1995 Stock Option Plan, as amended (the "Plan"). See
"Management--The Able Telcom Holding Corp. 1995 Stock Option Plan, as
Amended."
(7) Excludes options outside the plan of 160,000 which relate to members of the
Company's Board of Directors and 1,200,000 options for employees of certain
of the Company's subsidiaries, MFS Network Technologies, Inc. and MFS
Transportation, Inc., of which significantly all of the options have been
granted as of March 26, 1999.
(8) The "As Adjusted" amounts reflect the February 17, 1999 purchase of the
Senior Notes and Series B Preferred Stock. See "Fiscal Year 1998 and Recent
Developments--Purchase of Senior Notes and Series B Preferred Stock."
24
<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 "Management's
Discussion and Analysis of Financial Condition and Results of Operations." Our
results of operations reflect the operating results of MFSNT 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 Financial
Statements for MFSNT, and the related notes to those statements, which are
included in this Prospectus. The financial data for the three months ended
January 31, 1998 and 1999 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 three months ended January 31, 1999 are not necessarily indicative of
results for a full year.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------
1994 1995 1996 1997 1998
----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues ......................................................... $ 25,784 $ 35,408 $ 48,906 $ 86,334 $217,481
-------- -------- --------- -------- --------
Costs and expenses:
Costs of revenues ............................................... 16,395 27,720 40,486 68,164 179,505
General and administrative ...................................... 4,167 5,464 8,404 8,780 18,692
Depreciation and amortization ................................... 854 1,914 2,750 4,532 7,600
Charges and transaction/ translation losses related to
Latin American operations ...................................... 2,382 96 3,553 17 275
-------- -------- --------- -------- --------
Total costs and expenses ........................................ 23,798 35,194 55,193 81,493 206,072
-------- -------- --------- -------- --------
Income (loss) from operations ................................... 1,987 214 (6,287) 4,841 11,409
-------- -------- --------- -------- --------
Other expenses (income), net:
Loss on sale of investments ..................................... -- 100 -- -- --
Interest expense ................................................ 397 1,118 1,350 1,565 5,534
Interest and dividend income .................................... (418) (673) (270) (449) (342)
Change in value of stock appreciation rights..................... -- -- -- -- --
Other expenses .................................................. -- -- 32 (153) (320)
-------- -------- --------- -------- --------
Total other expenses (income), net .............................. (21) 546 1,112 964 4,872
-------- -------- --------- -------- --------
Income (loss) before income taxes and minority interest ......... 2,008 (332) (7,399) 3,877 6,537
Income tax (benefit) expense ..................................... 632 (368) (891) 727 3,405
-------- -------- --------- -------- --------
Income (loss) before minority interest ........................... 1,376 37 (6,508) 3,150 3,132
Minority interest ............................................... (429) (317) 598 (293) (618)
-------- -------- --------- -------- --------
Net income (loss) ................................................ 947 (280) (5,910) 2,857 2,514
Preferred stock dividends ........................................ -- -- -- (260) (341)
Discount attributable to beneficial conversion privilege of
preferred stock ................................................ -- -- -- (1,266) (8,013)
-------- -------- --------- -------- --------
Income (loss) applicable to common stock ........................ $ 947 $ (280) $ (5,910) $ 1,331 $ (5,840)
======== ======== ========= ======== ========
PER SHARE DATA(1):
Earnings per share--basic ....................................... $ .12 $ (.03) $ (.71) $ .16 $ (.59)
Earnings per share--diluted ..................................... .12 (.03) (.71) .16 (.59)
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents ....................................... $ 3,432 $ 2,952 $ 3,267 $ 6,230 $ 13,544
Total assets .................................................... 36,604 32,482 38,919 50,346 290,760
Total debt ...................................................... 8,293 5,255 10,115 17,294 91,094
Total shareholders' equity ...................................... 15,832 17,467 11,598 15,247 40,217
<PAGE>
<CAPTION>
THREE MONTHS ENDED JANUARY 31,
------------------------------
1998 1999
----------- ------------
<S> <C> <C>
INCOME STATEMENT DATA:
Revenues ......................................................... $22,268 $ 91,777
-------- ---------
Costs and expenses:
Costs of revenues ............................................... 18,996 76,246
General and administrative ...................................... 3,196 7,835
Depreciation and amortization ................................... 1,240 2,333
Charges and transaction/ translation losses (gains) related to
Latin American operations ...................................... -- --
-------- ---------
Total costs and expenses ........................................ 23,432 86,414
-------- ---------
Income (loss) from operations ................................... (1,164) 5,363
-------- ---------
Other expenses (income), net:
Loss on sale of investments .....................................
Interest expense ................................................ 276 2,478
Interest and dividend income ....................................
Change in values of stock appreciation rights.................... -- 3,428
Other expenses .................................................. (102) 132
-------- ---------
Total other expenses (income), net .............................. 174 6,034
-------- ---------
Income (loss) before income taxes and minority interest ......... (1,338) (675)
Income tax (benefit) expense ..................................... (522) (168)
-------- ---------
Income (loss) before minority interest ........................... (816) (507)
Minority interest ............................................... 111 74
-------- ---------
Net income (loss) ................................................ (927) (587)
Preferred stock dividends ........................................ 49 180
Discount attributable to beneficial conversion privilege of
preferred stock ................................................ 105 --
-------- ---------
Income (loss) applicable to common stock ........................ $(1,081) $ (761)
======== =========
PER SHARE DATA(1):
Earnings per share--basic ....................................... $ (.12) $ (.06)
Earnings per share--diluted ..................................... (.12) (.06)
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents ....................................... $ 3,972 $ 7,323
Total assets .................................................... 52,202 280,316
Total debt ...................................................... 19,648 90,860
Total shareholders' equity ...................................... 17,880 34,251
</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 fiscal year ended October 31, 1998.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company 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, the Company conducts business through three operating groups: the
Network Services Group, the Transportation Services Group, and the
Communications Development Group.
The Company 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 the Company's operations were in the Venezuelan
telecommunications business. Beginning in 1994, the Company 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 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 the Company's condensed consolidated statements of operations as a
percentage of its revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31, YEARS ENDED OCTOBER 31,
--------------------- ------------------------------------
1998 1999 1996 1997 1998
--------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
Revenues: 100.00% 100.00% 100.00% 100.00% 100.00%
Cost of revenues ...................... 85.31 83.08 82.78 78.95 82.54
General and administrative ............ 14.35 8.54 17.18 10.17 8.59
Depreciation and amortization ......... 5.57 2.54 5.62 5.25 3.49
Income (loss) from operations ......... (5.23) 5.84 (12.85) 5.60 5.25
Other expense, net .................... 0.78 (6.58) 2.27 1.12 2.24
Net income (loss) ..................... 4.16 (0.63) (12.08) 3.31 1.16
</TABLE>
The Company's results of operations reflect the operating results of MFSNT
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. As a result of these acquisitions, the results of Latin
America operations for the fiscal year ended October 31, 1998 and the quarter
ended January 31, 1999 are no longer significant to the consolidated results of
operations. 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.
26
<PAGE>
THREE MONTHS ENDED JANUARY 31, 1999
COMPARED WITH THREE MONTHS ENDED JANUARY 31, 1998
REVENUES: For the quarter ended January 31, 1999, revenues increased $69.5
million over the same period in the prior year from $22.3 million to $91.8
million. This increase in revenues is due primarily to growth of the Company's
operations through the acquisition of MFSNT in the third quarter of fiscal 1998,
the acquisition of the COMSAT Contracts and the acquisition of Patton
Management Corporation ("Patton") in the second quarter of fiscal 1998, as well
as increased demands for services in the traffic management and
telecommunications industry.
COST OF REVENUES: As a percentage of revenues, cost of revenues decreased from
85.3 percent to 83.1 percent for the three months ended January 31, 1999,
compared to the same period in the prior year. The decreases are due to
increased revenues related to the acquisitions of MFSNT and the COMSAT Contracts
resulting in slightly higher margins.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses
increased $4.6 million, from $3.2 million to $7.8 million, for the three months
ended January 31, 1999 compared to the same period in the previous year. These
increases are 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 revenues in accordance with the Company's strategic
objective of growth through acquisitions and an increase in costs resulting from
the acquisition of MFSNT.
DEPRECIATION AND AMORTIZATION: As a percentage of revenues, depreciation and
amortization expense decreased from 5.6 percent to 2.5 percent for the three
months ended January 31, 1999 as compared to the same period in the prior year.
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.
INCOME (LOSS) FROM OPERATIONS: For the quarter ended January 31, 1999 income
from operations for the Company was $5.4 million compared to a loss of $(1.2)
million in the quarter ended January 31, 1998.
OTHER EXPENSE, NET: Other expense, net, increased by $5.9 million to $6.0 for
the three month period ended January 31, 1999 as compared to $0.2 million for
the comparable period in 1998. This increase is due to increased interest cost
relating primarily to the acquisition of MFSNT and the Senior Notes issued in
January 1998 in the amount of $2.5 million and changes in value of stock
appreciation rights (SAR's) in connection with the purchase of MFSNT in the
amount of $3.4 million. The SAR's are not exercisable until the earlier of July
1, 1999 or one business day after the date upon which the potential issuance of
Common Stock under the MFSNT purchase agreement is voted upon by the
shareholders of the Company. The value reflected as a charge to the statement of
operations is based on a determination of fair value listing the price of common
stock on January 31, 1999 of $10.44 per share. This value will be increased or
decreased based on the fair value of the SAR's utilizing the price of the
Company's stock at each reporting date if or until the stock appreciation rights
are converted to options or exercised by the holder.
INCOME TAXES: The Company has provided income taxes at a rate which approximates
the rate used when applying federal and state statutory rates to pre-tax income,
after adjusting for the amortization of nondeductible goodwill.
NET LOSS: Net loss for the three months ended January 31, 1999
decreased $0.3 million from $(0.9) million in 1998 to $(0.6) million in 1999 for
the reasons described above.
LOSS APPLICABLE TO COMMON STOCK: Loss applicable to common stock was $(0.8)
million for the three months ending January 31, 1999 as compared to $(1.1)
million for the three months ended January 31, 1998. On a diluted basis, loss
per share was $(.06) per share for the three months ended January 31, 1999 as
compared to $(.12) per share for the same period in 1998.
27
<PAGE>
FISCAL YEAR ENDED OCTOBER 31, 1998 COMPARED WITH FISCAL YEAR ENDED
OCTOBER 31, 1997.
RESULTS OF OPERATIONS. The following discussion and analysis relates to the
financial condition and results of operations of the Company for the fiscal
years ended October 31, 1998 and 1997. This information should be read in
conjunction with the Company's condensed consolidated financial statements
appearing elsewhere in this document.
REVENUES. For the fiscal year ended October 31, 1998 revenues increased
$131.2 million, from $86.3 million through October 31, 1997 to $217.5 million,
for the fiscal year ended October 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 Patton and the COMSAT Contracts in
the second quarter of fiscal 1998, as well as increased demands for services in
the traffic management and telecommunications industry. For the fiscal year
ended October 31, 1998, revenues increased approximately $87.0 million, $17.6
million and $17.4 million related to the acquisition of MFSNT, and Patton, and
the COMSAT Contracts, respectively.
COST OF REVENUES. For the fiscal year ended October 31, 1998 and 1997, cost
of revenues as a percentage of revenues increased from 78.9 percent to 82.5
percent. The increase was due to increased costs 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 as a result of COMSAT Contracts included in the Transportation
Services Group's operations.
GENERAL AND ADMINISTRATIVE EXPENSES. For the fiscal year ended October 31,
1998 general and administrative expenses were $18.7 million, an increase of $9.9
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 fiscal year ended October 31, 1998, general and administrative expenses
relating to the operations of MFSNT were approximately $5.1 million.
DEPRECIATION AND AMORTIZATION. For the fiscal year period ended October 31,
1998, depreciation and amortization expense as a percentage of revenue decreased
from 5.25 percent to 3.5 percent 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.
INCOME FROM OPERATIONS. For the fiscal year ended October 31, 1998, income
from operations was $11.4 million compared to $4.8 million for the same period
in the prior year, primarily as a result of the Company's strategy of growth
through acquisitions.
OTHER EXPENSE, NET. Other expense, net, increased by $3.9 million to $4.9
million for the fiscal year ended October 31, 1998 as compared to $1.0 million
for the comparable period in 1997. This increase is due primarily to increased
interest costs related to the acquisition of MFSNT. Other expense, net was also
impacted by non-cash charges associated with stock options granted below market
prices, and amortization of loan costs associated with the Secured Credit
Facility.
Income taxes increased from $0.7 million in fiscal 1997 to $3.4 million in
fiscal 1998. This increase is due to increased income from operations, state
taxes provided in the State of Georgia, and the write-off of foreign tax
credits.
NET INCOME. For the fiscal year ended October 31, 1998, net income was $2.5
million compared to net income of $2.9 million for the comparable period in 1997
for the reasons described above. For the year ended October 31, 1998, the loss
applicable to common stock of $(5.8) million, or $(0.59) per share, is a result
of an $8.0 million charge associated with the beneficial conversion privileges
on the Series B Preferred Stock, other non-recurring adjustments associated with
the Company's obtaining financing for a portion of the purchase price of MFSNT
and preferred stock dividends. For the year ended October 31, 1997, income
applicable to common stock was $1.3 million, or $0.16 per share.
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 percent. 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
28
<PAGE>
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 percent in
1996 to 78.9 percent 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 percent in 1996 to 21.1 percent 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 percent of
revenues, compared to $8.4 million, or 17.2 percent 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 $0.2 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 percent of
revenues, compared to $2.7 million or 5.6 percent of revenues for 1996. The GEC
and Dial acquisitions accounted for $0.6 million and $0.8 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 $0.5 million in both 1997 and 1996.
INTEREST EXPENSE. Interest expense was $1.6 million for 1997, or 1.8
percent of revenues, compared to $1.4 million, or 2.8 percent 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 decreased to $1.0
million in 1997 from $1.1 million in 1996. These changes reflect the $0.3
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 $0.5 million and
interest and dividend income of $0.4 million.
NET INCOME. Able reported a net income of $2.9 million. or $0.34 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 $0.71 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
29
<PAGE>
Preferred Stock (the "Accretive Dividend"). For fiscal 1997, the Accretive
Dividend was $1.3 million which resulted in income applicable to Common Stock of
$1.3 million, or $0.16 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 $0.2 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 and 1996:
<TABLE>
<CAPTION>
1997 1996
----- ------------- ---------------
<S> <C> <C>
Revenues ................... $4,163,317 $ 3,745,858
Net income (loss) .......... 16,556 (3,628,503)
</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 $0.9 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.
30
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $7.3 million at January 31, 1999, compared
to $13.5 million at October 31, 1998.
Cash used in operating activities of $(5.2) million is a result of net loss
generated by the Company of $(0.6) million for the three month period, increased
by (i) depreciation and amortization charges of $2.3 million, (ii) $23.7 million
for increases in costs and profits in excess of billings/billings in excess of
costs, (iii) decreases in other non-current assets of $25.0 million, (iv)
increases in other non-current liabilities of $5.2 million and (v) additional
liability for stock appreciation rights in the amount of $9.3 million, offset by
(a) the current valuation of such rights in the amount of $5.4 million, (b)
increases in accounts receivable of $20.6 million, (c) decreases in accounts
payable of $16.3 million and (d) other changes increasing current assets by
$27.8 million.
Cash used in investing activities of $(0.3) million is due to net capital
expenditures required to support increased operations and replacement of
existing equipment.
Cash used in financing activities of approximately $(0.7) million is due
primarily to net repayments of long term debt and other borrowings, dividends
paid on preferred stock and proceeds from the issuance of stock options.
In February 1999, WorldCom advanced the Company $32.0 million for the
purposes of arranging the purchase of 2,785 shares, or approximately 78 percent
of the Series B Preferred Stock and the purchase of the outstanding $10.0
million of Senior Notes. This advance is due November 30, 2000.
In connection with this advance, the Company expects to recognize an
extraordinary loss on the purchase of the Senior Notes of approximately $1.9
million and a reduction in the income applicable to common stock of
approximately $10.0 million related to the purchase of the Series B Preferred
Stock. In addition, the Company agreed to modify the terms of the remaining
Series B Preferred Stock conversion and warrant agreements which will result in
a reduction in income applicable to common stock of approximately $1.3 million
during the second quarter of fiscal year 1999.
WorldCom has also agreed to make available additional advances to the
Company of up to $15.0 million against amounts otherwise payable pursuant to the
WorldCom Master Services Agreement, which, if advanced, would be due on October
31, 2000.
At the date of this filing, the Company has obtained all necessary waivers
which cover various defaults under the Company's financing and preferred stock
agreements.
The Company believes that it has available cash from operations as well as
from the additional advance available from WorldCom described above, sufficient
to meet the Company's operating and capital requirements for the next twelve
months. Nonetheless, pursuant to the terms of the documents relating to the
Series B Preferred Stock, 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 on or before
May 18, 1999, 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 certain outstanding shares
of Series B Preferred Stock, 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
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). In addition, there can be no assurance that the Company
will not experience adverse operating results or other factors which could
materially increase its cash requirements or adversely affect its liquidity
position.
31
<PAGE>
CAUTIONARY STATEMENTS
Certain of the information contained herein may contain "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, as the same may be amended from time to time ("the Act") and in
releases made by the Securities and Exchange Commission ("SEC") from time to
time. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance,
or achievements expressed or implied by such forward-looking statements. The
words "estimate," "believes," "project," "intend," "expect" and similar
expressions when used in connection with the Company, are intended to identify
forward-looking statements. Any such forward-looking statements are based on
various factors and derived utilizing numerous important assumptions and other
important factors that could cause actual results to differ materially from
those on the forward-looking statements. These cautionary statements are being
made pursuant to the Act, with the intention of obtaining benefits of the "Safe
Harbor" provisions of the Act. The Company cautions investors that any
forward-looking statements made by the Company are not guarantees of future
performance and that actual results may differ materially from those in the
forward-looking statements as a result of various factors, including but not
limited to those set forth below. Important assumptions and other important
factors that could cause actual results to differ materially from those in the
forward-looking statements include, but are not limited to: (i) risks associated
with leverage, including cost increases due to rising interest rates; (ii) risks
associated with the Company's ability to continue its strategy of growth through
acquisitions; (iii) risks associated with the Company's ability to successfully
integrate all of its recent acquisitions; (iv) the Company's 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; (v) loss of contracts due to defaults or loss of
bonding capacity; (vi) failure to update computer systems to deal with Year 2000
issues; (vii) changes in laws and regulations, including changes in tax rates,
accounting standards, environmental laws, occupational, health and safety laws;
(viii) access to foreign markets together with foreign economic conditions,
including currency fluctuations; (ix) the effect of, or changes in, general
economic conditions; (x) economic uncertainty in Venezuela; (xi) weather
conditions that are adverse to the specific businesses of the Company, and (xii)
the outcome of litigation, claims and assessments involving the Company. Other
factors and assumptions not identified above may also be involved in the
derivation of forward-looking statements, and the failure of such other
assumptions to be realized as well as other factors may also cause actual
results to differ materially from those projected. The Company assumes no
obligation to update these forward-looking statements to reflect actual results,
changes in assumptions or changes in other factors affecting such
forward-looking statements.
32
<PAGE>
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'S STATE OF READINESS. The Company has established programs to
coordinate its year 2000 (Y2K) compliance efforts across all business functions
and geographic areas. The scope of the programs include addressing the risks
associated with the Company's i) information technology (IT) systems (including
the Company's products and services), ii) non-IT systems that include embedded
technology (e.g., equipment and other infrastructure), and iii) significant
vendors and their Y2K readiness. The Company is utilizing the following steps in
executing its Y2K compliance program: 1) awareness, 2) assessment, 3)
renovation, 4) validation and testing, and 5) implementation. The Company has
completed the awareness and assessment steps for all areas.
IT Systems. The Company's most significant renovation effort involves the
conversion of substantially all of MFSNT's IT Systems. The Company believes it
will be substantially completed with its testing and implementation for all IT
Systems by October 31, 1999.
Non-IT Systems. The Company expects to have all of its mission critical
non-IT systems Y2K compliant by October 31, 1999. The Company is currently
formulating its testing and implementation plans for its mission critical non-IT
systems.
Significant Vendors. As part of the Company's Y2K compliance program, the
Company has contacted its significant vendors to assess their Y2K readiness. For
all mission critical third party software embedded in or specified for use in
conjunction with the Company's IT systems and products, the Company's
communications with the vendors indicates that the vendors believe they will be
Y2K compliant by October 31, 1999. Such third party software is being tested in
conjunction with the testing of the IT systems and products discussed above.
There can be no assurance that i) the Company's significant vendors will succeed
in their Y2K compliance efforts, or ii) the failure of vendors to address year
2000 compliance will not have a material adverse effect on the Company's
business or results of operations.
33
<PAGE>
THE COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES. Since inception of its
program through October 31, 1998, the costs related to the Company's Y2K
compliance efforts were not material. The total estimated costs to complete the
Company's Y2K compliance effort are approximately $2.0 million. The estimated
costs to complete, which does not include any costs which may be incurred by the
Company if its significant vendors fail to timely address Y2K compliance, is
based on currently known circumstances and various assumptions regarding future
events. However, there can be no assurance that these estimates will be achieved
and actual results could differ materially from those anticipated.
THE RISKS OF THE COMPANY'S YEAR 2000 ISSUES. The Company's failure to
timely resolve the Y2K risks could result in system failures, the generation of
erroneous information, and other significant disruptions of business activities.
Although the Company believes it will be successful in its Y2K compliance
efforts, there can be no assurance that the Company's systems and products
contain all necessary date code changes. In addition, the Company's operations
may be at risk if its vendors and other third parties fail to adequately address
the Y2K issue or if software conversions result in system incompatibilities with
these third parties. To the extent that either the Company or a third-party
vendor or service provider on which the Company relies does not achieve Y2K
compliance, the Company's results of operations could be materially adversely
affected. Furthermore, it has been widely reported that a significant amount of
litigation surrounding business interruption will arise out of Y2K issues. It is
uncertain whether, or to what extent, the Company may be affected by such
litigation.
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THE COMPANY'S CONTINGENCY PLAN. The Company has not yet developed a
comprehensive contingency plan to address the situation that may result if the
Company or its vendors are unable to achieve Y2K compliance for its critical
operations. During fiscal 1999, based upon the status of the Company's Y2K
compliance efforts at that time and the Company's perceived risks to critical
business operations, the Company plans to evaluate what areas the Company
believes a contingency plan may be necessary, and execute such contingency plan
if warranted. The i) inability to timely implement a contingency plan, if deemed
necessary, and ii) the cost to develop and implement such a plan, may have a
material adverse effect on the Company's results of operations.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS. Except for
statements of existing or historical facts, the foregoing discussion of Y2K
consists of forward-looking statements and assumptions relating to
forward-looking statements, including without limitation the statements relating
to future costs, the timetable for completion of Y2K compliance efforts,
potential problems relating to Y2K, the Company's state of readiness, third
party representations, and the Company's plans and objectives for addressing Y2K
problems. Certain factors could cause actual results to differ materially from
the Company's expectations, including without limitation i) the failure of
vendors and service providers to timely achieve Y2K compliance, ii) system
incompatibilities with third parties resulting from software conversions, iii)
the Company's systems and products not containing all necessary date code
changes, iv) the failure of existing or future clients to achieve Y2K
compliance, v) potential litigation arising out of Y2K issues, the risk of which
may be greater for information technology based service providers such as the
Company, vi) the failure of the Company's validation and testing phase to detect
operational problems internal to the Company, in the Company's products or
services or in the Company's interface with service providers, vendors or
clients, whether such failure results from the technical inadequacy of the
Company's validation and testing efforts, the technological infeasibility of
testing certain non-IT systems, the perceived cost-benefit constraints against
conducting all available testing, or the unavailability of third parties to
participate in testing, or vii) the failure to timely implement a contingency
plan to the extent Y2K compliance is not achieved.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates on debt
obligations that impact the fair value of these obligations. The Company's
policy is to manage interest rates through a combination of fixed and variable
rate debt. Currently, the Company does not use derivative financial instruments
to manage its interest rate risk. The table below provides information about the
Company's risk exposure associated with changing interest rates (amounts in
thousands):
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<TABLE>
<CAPTION>
EXPECTED MATURITY
---------------------------------------------------------------------------------
1999 2000 2001 2002 2003 THEREAFTER
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fixed rate debt $14,868 $18,225 $ 1,021 $935 $872 $19,939
Average interest rate 12.40% 13.00% 13.64% 13.61% 13.57% 13.54%
Variable rate debt $ - $ - $35,000 $ - $ - $ -
Average interest rate -% -% 7.69% -% -% -%
</TABLE>
The Company has no cash flow exposure due to interest rate changes for its fixed
debt obligations. All of the Company's debt is non-trading. The fair value of
the Company's debt approximates its carrying value.
Although the Company conducts business in foreign countries, the international
operations were not material to the Company's consolidated financial position,
results of operations or cash flows as of January 31, 1999. Additionally,
foreign currency transaction gains and losses were not material to the Company's
results of operations for the three months ended January 31, 1999. Accordingly,
the Company was not subject to material foreign currency exchange rate risk from
the effects that exchange rate movements of foreign currencies would have on the
Company's future costs or on future cash flows it would receive from its foreign
subsidiaries. To date, the Company has not entered into any significant foreign
currency forward exchange contracts or other derivative financial instruments to
hedge the effects of adverse fluctuations in foreign currency exchange rates.
36
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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 Communications
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 percent 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 H.C. Connell, Inc., GEC, Patton, Dial Communications, Inc., MFSNT and
the COMSAT Contracts.
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 "--Fiscal Year 1998 and Recent Developments."
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FISCAL YEAR 1998 AND RECENT DEVELOPMENTS
MFSNT ACQUISITION. On July 2, 1998, Able acquired MFSNT's network
construction and transportation systems business from WorldCom, Inc.
("WorldCom") pursuant to a merger agreement dated April 26, 1998 ("Plan of
Merger"). On September 9, 1998, the Company, WorldCom and WorldCom Network
Services, Inc. ("WorldCom Network"), a wholly owned subsidiary of WorldCom,
finalized the terms of the Plan of Merger through the execution of an amended
agreement, which agreement was subsequently amended on January 26, 1999 (as
amended, the "September Agreement"). The acquisition of MFSNT was accounted for
using the purchase method of accounting at a total price of approximately $67.5
million comprised of a $58.8 million contract price, costs associated with the
acquisition and the value attributed to options and equity awards described
below. $38.8 million of the purchase price was paid in cash and the remainder
was paid by the issuance of a promissory note as described below (as amended to
date, the "WorldCom Note"). The MFSNT purchase price includes 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.
In conjunction with the acquisition of MFSNT, Able granted an option (the
"WorldCom Option") to WorldCom's subsidiary, MFS Communications Company, Inc.
("MFSCC") to purchase up to 2,000,000 shares of the Company's Common Stock, at
an exercise price of $7.00 per share, but subject to a 1,817,941 share
limitation on the total number of shares issuable, and the right to receive upon
satisfaction of certain conditions phantom stock awards (the "Phantom Stock
Awards") equivalent to 600,000 shares of common stock, payable in cash, stock,
or a combination of both at the Company's option. The WorldCom Phantom Stock
Awards are 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 in no event shall
the maximum payment exceed $25.00 per share. Pursuant to the terms of the
WorldCom Option, WorldCom may elect to exercise some or all of the WorldCom
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 WorldCom Option. A "cashless" exercise means that WorldCom 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 WorldCom Option being exercised. Under its original terms, the WorldCom
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
WorldCom Option. We will not receive any cash for the part of the WorldCom
Option that WorldCom exercises on a "cashless" basis. The fair values of the
WorldCom Option and Phantom Stock Awards were estimated at the date of grant at
$3.5 million and $0.6 million, respectively, and are included as a component of
the total consideration paid for the acquisition of MFSNT.
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On January 8, 1999, we entered into a modification to the WorldCom Option
(the "WorldCom Modification") which modified the WorldCom Option into stock
appreciation rights ("SARs") unless and until such time as shareholder
approval is obtained by the Company (if ever), pursuant to the Nasdaq Stock
Market, Inc. ("Nasdaq") Marketplace Rule 4460(i)(1)(C) ("Rule 4460(i)(1)(C)"),
to approve the issuance of 20% or more of the Common Stock in connection with
the MFSNT Acquisition. Rule 4460(i)(1)(C) addresses the issuance of securities
in connection with the acquisition of stock or assets of another company if, due
to the present or potential issuance of common stock, or securities convertible
into or exercisable for common stock, the aggregate number of shares of common
stock which may be issued is or may be equal to or in excess of 20% of the
number of shares of common stock outstanding before the issuance of the stock or
securities.
Under the WorldCom Modification, WorldCom is entitled to participate in an
increase in the value of an aggregate of 2,000,000 shares of Common Stock. For
each SAR exercised, WorldCom is entitled to receive an amount equal to the
excess of the fair market value of the Common Stock as of the applicable
exercise date over $7.00 (the "Appreciation Amount"). The Appreciation Amount
will be paid in cash within fifteen days of receipt of an exercise notice;
provided, however, that to the extent that the Company would be required to pay
in excess of $10.0 million in any twelve month period as a result of any
exercises of any SARs, then the amount of such excess shall be represented by a
promissory note with quarterly payments amortized ratably over a period of six
months at 10 percent per annum. The exercise period for the SARs granted
commences on the earlier of: (i) one (1) business day after the date upon which
the potential issuance of Common Stock under this Agreement is voted upon by the
shareholders of the Company and (ii) July 1, 1999 (the "Commencement Date"), and
ending on January 2, 2002. Payment of any SARs in cash only could materially and
adversely affect the Company's cash flow because (i) of the short time frame to
pay for any SARs exercised (between 15 and 30 days from the date notice is
received by the Company), and (ii) the payment owed could be a significant
amount depending on the number of SARs exercised and the then fair market value
of the Company's Common Stock.
We will submit a proposal to the Company's shareholders at the Annual
Meeting of Shareholders to be held in 1999 to approve the issuance of more than
20% of the outstanding Common Stock in connection with the MFSNT Acquisition. If
the Company's shareholders approve such issuance, the SARs granted automatically
revert back to the WorldCom Option and the holder will have the right to
purchase an aggregate of 1,817,941 shares of Common Stock at $7.00 per share
through January 2, 2002.
As of January 31, 1999, approximately $30.0 million of principal and
approximately $1.4 million of accrued and unpaid interest were outstanding under
the WorldCom Note. We must repay the WorldCom Note in full on November 30, 2000.
The WorldCom Note is dated September 1, 1998 and bears interest at 11.5 percent
per year. The obligations under the WorldCom Note are junior and fully
subordinated to those under the Secured Credit Facility. No amounts may be paid
on the WorldCom Note so long as any debt is outstanding under the Secured Credit
Facility. Subject to the subordination provisions and after full payment of all
amounts owed under the Secured Credit Facility, the WorldCom Note may be prepaid
as follows:
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/bullet/ By applying 8 percent of the payment WorldCom Network owes us
under the WorldCom Master Services Agreement
/bullet/ By paying to WorldCom a portion of certain proceeds received by us
upon the sale of certain conduit assets
/bullet/ By paying to WorldCom a portion of certain proceeds received from
time to time under maintenance contracts for certain conduit projects
In addition, if we do not repay the WorldCom Note in full by November 30,
2000, WorldCom also will be able to:
/bullet/ Require us to pay a 13.5 percent annual default rate of interest
as long as we are in default
/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
As part of the MFSNT acquisition, the Company, WorldCom Network and MFSNT
entered into a Master Services Agreement (the "WorldCom Master Services
Agreement") pursuant to which we agreed to provide telecommunication
infrastructure services to WorldCom Network on a cost-plus 12 percent basis for
a minimum of $40.0 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 the Company defaults on the WorldCom
Note. To achieve these established minimums, WorldCom Network has agreed to
award the Company at least 75 percent of all WorldCom Network's outside plant
work related to its local network projects up to $500.0 million and the Company
has agreed to accept and perform work orders from WorldCom Network for as much
as $130.0 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 $500.0 million at any time during the five-year term of
the contract.
We are permitted to use the trade name "MFSNT" during the 18-month
transition period immediately following the MFSNT Acquisition but will not be
entitled to use it after such 18-month period.
As part of the MFSNT Acquisition, we agreed that MFSCC may designate a
representative to the Company's Board of Directors if it exercises the WorldCom
Option (assuming it is reinstated as described above) for so long as MFSCC
retains at least 5 percent of the Company's outstanding Common Stock.
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THE SERIES B PREFERRED STOCK. On June 30, 1998, Able 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 and the
Series B Preferred Stock Warrants. As a result of the previous conversion and
the redemption of shares of Series B Preferred Stock, there are currently 779
shares of Series B Preferred Stock outstanding. Dividends accrue on the Series B
Preferred Stock at a rate of 4 percent 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-- Preferred Stock--Series B Convertible Preferred
Stock." Able 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
percent of the "market value" of the Common Stock; provided that a maximum price
of $3.5138 was agreed to with the holders of 404 shares of Series B Preferred
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
41
<PAGE>
Stock only to the extent that, after the conversion, the holder and its
affiliates would beneficially own 4.99 percent 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 percent of the lowest intraday trading price of
the Common Stock on the date of conversion.
In addition, Able issued warrants (the "Series B Preferred Stock Warrants")
to purchase a total of up to 1,000,000 shares of Common Stock to the holders of
the Series B Preferred Stock. These warrants are currently exercisable at an
average price of $13.41 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 percent 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.
Able 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 (which date was subsequently extended by certain waivers until
May 18, 1999), 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.
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PUCHASE OF SENIOR NOTES AND SERIES B PREFERRED STOCK
In February, 1999, WorldCom advanced us $32.0 million for purposes of
facilitating the purchase of 2,785 shares, or approximately 78 percent, of the
Series B Preferred Stock and the purchase of the outstanding $10.0 million
principal amount of the Company's 12% Senior Subordinated Notes originally
due January 6, 2005 (the "Senior Notes"). The advance accrues interest at 11.5
percent and, based on recent amendments to the advance, is subordinate to the
Secured Credit Facility and matures on November 30, 2000.
WorldCom also agreed to make available additional advances to the Company
of up to $15.0 million against amounts otherwise payable pursuant to the
WorldCom Master Services Agreement. These additional advances accrue interest at
11.5 percent and are repayable to WorldCom on November 30, 2000.
We loaned the funds advanced by WorldCom to Cotton Communications, Inc.
(the "Purchaser"), which may be deemed an affiliate of the Company, and on
February 17, 1999, the holders of all of the Senior Notes and the holders of 78
percent of the Series B Preferred Stock transferred their holdings to the
Purchaser. In connection with the transfer of the Senior Notes and the Series B
Preferred Stock, the Purchaser and the remaining holders of the Series B
Preferred Stock agreed to either waive all outstanding defaults under such
securities or refrain from exercising any remedies with respect to any such
outstanding defaults for a period of 90 days from February 17, 1999. During such
period of time, the Company has agreed to use its best efforts to have declared
effective a registration statement covering the resale of shares of common stock
underlying the remaining Series B Preferred Stock and the Series B Preferred
Stock Warrants.
In connection with the transfer of the Series B Preferred Stock, we agreed
with the original holders thereof to certain modifications in the conversion
price of the related warrants. The exercise price of (i) warrants to purchase a
total of 370,000 shares of the Company's common stock has been reduced to $13.25
per share from $19.80 per share and (ii) warrants to purchase a total of 630,000
shares of common stock has been reduced to $13.50 per share from $19.80 per
share.
On March 22, 1999, we redeemed from the Purchaser the Senior Notes as well
as the 2,785 shares of Series B Preferred Stock in exchange for the cancellation
of the loan made to the Purchaser on February 17, 1999. The Company also assumed
the Purchaser's obligation to acquire 630,000 of the Series B Preferred Stock
Warrants at a price of $3.00 per warrant on or before April 30, 1999 if not
previously exercised or redeemed. The Senior Notes have now been marked paid and
the 2,785 shares of Series B Preferred Stock have been cancelled.
In connection with these transactions, we expect to recognize an
extraordinary loss in the second quarter of fiscal year 1999 on the purchase of
the Senior Notes of approximately $1.9 million and a reduction in income
applicable to common stock of approximately $10.0 million on the purchase of the
Series B Preferred Stock.
In addition, the modification to the terms of the existing Series B
Preferred Stock conversion and warrant agreements will result in a reduction in
income applicable to common stock of approximately $1.3 million during the
second quarter of fiscal year 1999.
SECURED CREDIT FACILITY. In June 1998, we replaced our previous bank credit
agreement with a new $35.0 million senior secured revolving credit facility with
a syndicate of lenders with an original term of three years (as amended to date,
the "Secured Credit Facility"). The Secured Credit Facility has a letter of
credit sublimit of $5.0 million. As amended to date, the Secured Credit Facility
matures on November 1, 2000. We used a portion of the proceeds from the Secured
Credit Facility to repay the previous credit facility and to finance $10.0
million of the MFSNT Acquisition purchase price. The Secured Credit Facility has
been 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
Secured 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
quick 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, Able
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 COMSAT CONTRACTS. On February 25, 1998, the Company, through
a wholly owned subsidiary, Georgia Electric Company ("GEC"), acquired 12
contracts ("COMSAT Contracts") with the Texas Department of Transportation from
CRSI Acquisition Inc., a subsidiary of COMSAT Corporation ("COMSAT"). The COMSAT
Contracts are for the installation of intelligent traffic management systems and
the design and construction of wireless communication networks. In exchange for
assuming the obligations to perform under the COMSAT Contracts, GEC received
consideration from COMSAT of approximately $15.0 million. These contracts are
now substantially complete. Once work under each contract has been completed, no
renewal of the contract will occur and no additional revenue will be earned by
the Company.
JOINT VENTURE WITH CLARION RESOURCES COMMUNICATION CORP. On September 23,
1997, Able entered into a five-year joint venture with Clarion Resources
Communication Corp. ("Clarion"). Clarion is principally owned by Telenor, the
telephone company of Norway. Able has agreed with Clarion to jointly market,
manufacture and license Able's proprietary telephone call record and data
collection technology, called NeuroLAMA, in Europe and Asia. Clarion has agreed
to provide Able with an international sales force and to obtain suitable
financing to purchase and install NeuroLAMA. The venture will not require a
capital investment from Able but should provide a stable royalty stream if the
venture is successful. No material progress has been made in implementing this
joint venture.
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 of the Network Services Group, 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
45
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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 percent voting and ownership interest and a 50 percent 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.
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<PAGE>
INDUSTRY AND GEOGRAPHIC AREA SEGMENT INFORMATION
The Company currently operates primarily in two industry segments: network
services and transportation services. Transportation 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 1996 1997 1998
- ---------------------------------------------- --------- -------- --------
<S> <C> <C> <C>
Sales to unaffiliated customers:
Transportation Services ..................... $ 22,661 $ 46,795 $ 84,022
Network services ............................ 26,245 39,539 133,459
--------- -------- --------
Total ..................................... $ 48,906 $ 86,334 $217,481
========= ======== ========
Income (loss) from operations:
Transportation services ..................... $ (3,454) $ 3,772 $ 8,220
Network services ............................ (2,833) 1,069 3,189
--------- -------- --------
Total ..................................... $ (6,287) $ 4,841 $ 11,409
========= ======== ========
Identifiable Assets:
Transportation services ..................... $ 25,099 $ 28,884 $ 88,340
Network services ............................ 13,820 21,462 202,420
--------- -------- --------
Total ..................................... $ 38,919 $ 50,346 $290,760
========= ======== ========
Capital Expenditures:
Transportation services ..................... $ 1,275 $ 1,635 $ 3,238
Network services ............................ 2,216 2,852 6,728
--------- -------- --------
Total ..................................... $ 3,491 $ 4,487 $ 9,966
========= ======== ========
Depreciation and Amortization:
Transportation services ..................... $ 1,229 $ 1,710 $ 2,824
Network services ............................ 1,521 2,822 4,776
--------- -------- --------
Total ..................................... $ 2,750 $ 4,532 $ 7,600
========= ======== ========
GEOGRAPHIC AREAS
- ----------------------------------------------
Revenues:
United States ............................... $ 45,160 $ 82,171 $212,152
Latin America ............................... 3,746 4,163 5,329
--------- -------- --------
Total ..................................... $ 48,906 $ 86,334 $217,481
========= ======== ========
Income (loss) from operations:
United States ............................... $ (2,073) $ 4,824 $ 11,310
Latin America ............................... (4,214) 17 99
--------- -------- --------
Total ..................................... $ (6,287) $ 4,841 $ 11,409
========= ======== ========
Identifiable Assets:
United States ............................... $ 36,410 $ 47,781 $287,569
Latin America ............................... 2,509 2,565 3,191
--------- -------- --------
Total ..................................... $ 38,919 $ 50,346 $290,760
========= ======== ========
</TABLE>
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<PAGE>
INDUSTRY OVERVIEW
TELECOMMUNICATIONS INFRASTRUCTURE. The International Telecommunications
Union estimates that between 1996 and 2000, telecommunications infrastructure
investment will exceed $50.0 billion in the United States and $600.0 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 are searching
for ways to reduce costs and become more efficient. Internal operations such as
network installation are increasingly being outsourced to companies such as us.
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 provides $217.0 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.
48
<PAGE>
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
We include all services projected to be performed over the life of each
executed contract in our backlog at the date of determination due to our
historical relationships with our customers and experience in the procurements
of this nature. As of January 31, 1999, backlog was approximately $1.0 billion,
approximately 31 percent of which was attributable to WorldCom Network. We
expect to complete approximately 45 percent of this backlog within the next
fiscal year. As of January 29, 1998, our backlog was approximately $159.0
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.
Contract backlog of approximately $549.0 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 1998, approximately 14 percent of our total revenues were
derived from WorldCom Network, 8 percent from BellSouth Telecommunications, Inc.
and 6% from Cooper Tire. 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
The Company has and will continue to execute various construction and other
contracts which may require the Company to, among other items, maintain specific
financial parameters, meet specific milestones and post adequate collateral
generally in the form of performance bonds. Failure by the Company to meet its
obligation under these contracts may result in the loss of the contract and
subject the Company to litigation and various claims, including liquidated
damages.
TELECOMMUNICATION AND RELATED SERVICES
The Company generally provides telecommunication, cable television,
electric utility and manufacturing system services (i.e., non-governmental
business) under comprehensive master service contracts that either give the
Company the right to perform certain services at negotiated prices in a
specified geographic area during the contract period or pre-qualify the Company
to bid on projects being offered by a customer. Contracts for projects are
awarded based on a number of factors such as price competitiveness, quality of
work, on-time completion and the ability to mobilize equipment and personnel
efficiently. The Company is typically compensated on an hourly or per unit basis
or, less frequently, at a fixed price for services performed. Contract duration
either is for a specified term, usually one to three years, or is dependent on
the size and scope of the project. In most cases, the Company's customers supply
most of the materials required for a particular project, generally consisting of
cable, equipment and hardware and the Company supplies the expertise, personnel,
tools and equipment necessary to perform its services.
49
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TRAFFIC MANAGEMENT AND GENERAL UTILITY SERVICES
For traffic management and general utility services (i.e., government
funded business), the Company generally obtains fixed price contracts for
projects, either as a prime or as a subcontractor, on a competitive bid basis.
Typically, for prime contracts, a state department of transportation ("DOT") or
other governmental body provides to qualified contractors a set of
specifications for the project. The Company then estimates the total project
cost based on input from engineering, production and materials procurement
personnel. A bid is then submitted by the Company along with a bid bond. For
most government funded projects, the scope of work extends across many industry
segments. In such cases, the Company subcontracts its expertise to a prime
contractor. The Company must submit performance bonds on substantially all
contracts obtained. The Company believes its relations with its bonding company
are good and that its bonding capacity is adequate. However, the financial
viability of the Company is dependent on maintaining adequate bonding capacity
and any loss of such would have a material adverse effect on the Company.
The Company derived approximately 29 percent of its total revenues for the
fiscal year ended October 31, 1998 from contracts with state and local
governments. No individual government customer accounted for more than 6 percent
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.
50
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Contract duration is dependent on the size and scope of the project but
typically is from six to nine months. Contracts generally set forth
date-specific milestones and provide for severe liquidated damages for failure
to meet the milestone by the specified dates. At January 31, 1999, the Company
has one contract for which it is subject to liquidated damages at a rate of
$25,000 per day commencing January 22, 1999 associated with obtaining an
extension of time for completing a phase of the project which extension expires
on April 8, 1999. On April 8, 1999, the Company is required to present certain
information regarding its progress with the project to the other party under
this contract. Following such presentation, we anticipate the parties will enter
into further negotiations regarding completion of the project. No assurance can
be given that such negotiations will result in an agreement satisfactory to the
Company.
The failure to complete the contract backlog on time could have a material
adverse impact on the financial condition of the Company. The Company is
typically paid based on "completed units." Retainage is normally held on
contracts (usually 5 percent to 10 percent of the contract amount), until
approximately 90 days after the services are rendered and accepted by the
customer. The majority of the contracts are bonded/guaranteed as to payment by
the DOT upon performance by the Company.
In addition to generating revenues from the installation of traffic
management systems under fixed price contracts, the Company performs under
maintenance contracts with the DOT obtained through competitive bidding.
Maintenance contracts are normally for a renewable one to three year term. Under
such contracts, the Company generally is assigned a section of highway along
which to maintain traffic control devices and is paid on a per unit basis.
In most cases, the Company must supply the materials required for a
particular project, including materials and component parts required for the
production of highway signage and guard rails and the assembly of various
electrical and computerized systems. Aluminum sheeting, steel poles, concrete,
reflective adhesive, wood products, cabling and electrical components are the
principal materials purchased domestically for the production of highway signage
and guard railing. Generally, the supply and costs of these materials has been
and is expected to continue to be stable, and the Company is not dependent upon
any one supplier for these materials. The Company also purchases various
components for the assembly of various electrical, lighting and computerized
traffic control systems. Many of these materials must be certified as meeting
specifications established by the DOT and are generally only supplied by a
limited number of vendors. The unavailability of those components could have an
adverse impact on meeting deadlines for the completion of projects which may
subject the Company to liquidated damages. However, the availability of these
materials, generally, has been adequate.
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, a request for proposal
("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.
51
<PAGE>
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.
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<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.
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 $3.0 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 decreases margins. 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 January 31, 1999, 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 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 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 Patton. 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.
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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. At present, the parties
are conducting discovery in this case.
On or about 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, then Chairman of the Board Gideon Taylor, then
Chief Executive Officer Frazier L. Gaines, Chief Accounting Officer Jesus
Dominguez, and then Chief Financial Officer Mark A. Shain. At or near that time,
five additional plaintiffs filed substantially similar lawsuits. By order dated
December 30, 1998, all of these cases have been consolidated with the SFCS case.
The plaintiffs have not yet filed their consolidated amended complaint. We
expect the consolidated amended complaint will be substantially similar to that
filed by SFSC, and will assert 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, MFSNT and the
acquisition of the COMSAT Contracts, and our ongoing financial condition as a
result of the acquisitions and the related financing of those acquisitions.
Additionally plaintiffs are expected to seek certification as a class action on
behalf of themselves and all others similarly situated persons and seek
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, results of operations and cash
flow.
The Company is aware that an additional shareholder lawsuit has been filed.
To date, this lawsuit has not been served on the defendants. The allegations in
this lawsuit appear to be based on the same facts and circumstances as those set
forth in the SFSC lawsuit. The Company is currently assessing the allegations in
this lawsuit and intends to defend this matter vigorously when and if the
defendants are served.
The Company is subject to a number of shareholder and other lawsuits and
claims for various amounts which arise out of the normal course of its business.
The Company intends to vigorously defend itself in these matters. The
disposition of all pending lawsuits and claims is not determinable and may have
a material adverse effect on the Company's financial position.
RESEARCH AND DEVELOPMENT; PROPRIETARY TECHNOLOGY AND RIGHTS
We 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
54
<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 provide 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 service personnel with the unique capability to
record, 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 video cassette recorders 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.
55
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information, as of March 26, 1999,
about each person who is currently a director or executive officer of the
Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
C. Frank Swartz (1)(2)(3) 60 Chairman of the Board of Directors
Jonathan A. Bratt 46 Director
Thomas M. Davidson (1)(2) 62 Director
Robert H. Young 72 Director
Alec McLarty 48 Director
Gerald Pye 54 Director
Billy V. Ray, Jr. 40 President, Chief Executive Officer and Acting Chief
Financial Officer and a Director
Jesus G. "Jay" Dominguez 54 Chief Accounting Officer
Michael Arp 52 Financial Vice President
Curtis A. "Butch" Dale 51 Chief Operating Officer
Edward Z. Pollock 60 In-House Counsel
Frazier L. Gaines 59 President - Able Telcom International
Stacy Jenkins 42 President - MFS Network Technologies
G. Vance Cartee 56 President - MFS Transportation Systems
J. Barry Hall 50 President - Traffic Management Group
Richard A. Boyle 44 President - Patton Management Group
Gideon D. Taylor 56 Vice President of Special Projects
</TABLE>
- ------------
(1) Member of the Audit Committee. Mr. C. Frank Swartz is the Chairman of the
Audit Committee.
(2) Member of the Compensation Committee. Mr. Davidson is the Chairman of the
Compensation Committee.
(3) Member of the Nominating Committee.
All directors are elected annually at the Annual Meeting of Shareholders of
Able Telcom Holding Corp. and hold office following election or until their
successors are elected and qualified. Once elected, the newly elected Directors
will determine who will serve as members of the Company's Audit Committee,
Compensation Committee and Nominating Committee. The chief executive officer is
elected by and serves at the discretion of the Company's Board of Directors. All
other executive officers are appointed by the Chief Executive Officer.
C. FRANK SWARTZ has served as a Director of the Company since August 1998
and as Chairman of the Board since November 30, 1998. Mr. Swartz has been
retired since November 1994. For the five (5) years prior to November 1994, Mr.
Swartz was employed by GTE as the Director of Internal Support, based in
Caracas, Venezuela.
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JONATHAN A. BRATT has served as a Director of the Company since 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 ("BGFP") (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 Tocolicao, D.A., a construction firm (from January 1986 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, C.A., a joint
venture of BFGP and the Company.
THOMAS M. DAVIDSON has served as a Director of the Company since August
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.
ROBERT H. YOUNG has served as a Director of the Company since January 1999.
Mr. Young is a principal in the firm of Neos Communications, Inc. in Dallas,
Texas. Mr. Young is also a principal of Interfiducia Partners, LLC in Dallas,
Texas.
ALEC MCLARTY is the Chairman and Chief Executive Officer of Clarion
Resources Communications Corporation. Since 1971, Mr. McLarty has developed six
companies, three of which are telecommunication companies. In 1987, Mr. McLarty
founded Resurgens West and in 1996, founded Clarion Resources Communications
Corporation, a multifaceted company in the domestic and international
telecommunications industry providing services ranging from research and
development to international long distance services.
Gerald Pye has served as a Director of the Company since January 1999.
Mr. Pye is a partner with Interfiducia, AG, a European investment firm.
BILLY V. RAY, JR. has been the Company's President, Chief Executive Officer
and acting Chief Financial Officer since November 30, 1998. From October 1, 1998
to November 30, 1998, Mr. Ray was the Company's Executive Vice President of
Mergers and Acquisitions and Treasurer. 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 of 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.
JESUS G. "JAY" DOMINGUEZ has been the Chief Accounting Officer since April
1998. Mr. Dominguez has served as Vice President - Finance of Able Telcom
International since May 1995 and controller of the Able Telcom International
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.
MICHAEL ARP became the Company's Financial Vice President and principal
accounting officer in January 1999. From February 1997 through December 1998,
Mr. Arp was the group controller of the Company's Traffic Management Group. From
January 1994 to February 1997, Mr. Arp was President of American Turf
Manufacturing.
57
<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 October 1997, Mr. Dale was a
Project/Staff Manager - Support for Network Operations for GTE, a
telecommunications company.
EDWARD Z. POLLOCK has been the Company's In-House Counsel since November
1998. From 1963 to 1998, Mr. Pollock was a sole practitioner at the law firm of
Edward Z. Pollock.
FRAZIER L. GAINES served as a Director of the Company from August 1992
until March 19, 1999 and served as Interim President and Chief Executive Officer
of the Company from March 6, 1998 to November 30, 1998. Mr. Gaines has also
served as the President of the Company's subsidiary, Able Telcom International,
Inc. ("ATI") since June 1994. From 1992-1994, Mr. Gaines was Chief Operating
Officer of the Company. 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.
STACY JENKINS was named President of MFS Network Technologies, Inc.
("MFSNT") in July 1998. From 1990 to July 1996, Mr. Jenkins served as the 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 United States and abroad.
G. VANCE CARTEE has been the President of MFS Transportation Systems since
January 1999. From June 1998 to December 1998, Mr. Cartee served as a
telecommunications consultant, including performing consulting services for the
Company. From January 1996 to June 1998, Mr. Cartee was a business unit director
for Loral/Lockheed Martin Corp. From March 1993 to January 1996, Mr. Cartee was
Vice President and General Manager of Alcatel Contracting, N.A.
J. BARRY HALL has been the President of Georgia Electric Company, a
subsidiary of the Company, since October 1996. From 1990 to October 1996, Mr.
Hall was Vice President of Georgia Electric Company.
RICHARD A. BOYLE has been the President of Patton Management Corp. and
subsidiaries, a subsidiary of the Company since April 1998, since March 1996.
From May 1991 to March 1996, Mr. Boyle was Vice President and General Manager of
Wright & Lopez, Inc. and Pressure Concrete Construction Co. From January 1990 to
May 1991, Mr. Boyle was Vice President and General Manager of Pressure Concrete
Construction Company, a division of South Eastern Public Services Co.
GIDEON D. TAYLOR served as a Director of the Company from its
inception until March 9, 1999 and served as Chairman of the Board of the Company
from March 25, 1997 through November 30, 1998. In addition, Mr. Taylor served as
the Company's Chief Administrative Officer from March 25, 1997 through
November 30, 1998 and the Company's Vice President of Special Projects since
December 1998. From October 1988 to August 1992, Mr. Taylor was also President
and Chief Executive Officer of the Company. Mr. Taylor has also served in
various executive capacities with the Company for the past ten years.
58
<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)
those persons serving as the Chief Executive Officer during the 1998 fiscal
year, (ii) the other four most highly compensated executive officers of the
Company who were serving as such at October 31, 1998, and (iii) up to two
additional individuals who had served as an executive officer of the Company
during the 1998 fiscal year but who were not executive officers at October 31,
1998, except that persons referred to in clauses (ii) and (iii) above are not
generally included in the table if they received total annual salary and bonus
of $100,000 or less for the 1998 fiscal year. The persons named in this table
shall collectively be referred to as the "Named Executive Officers."
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
FOR THE FISCAL YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------------- -------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND COMPEN- OPTIONS/ COMPEN-
PRINCIPAL POSITION YEAR SALARY($) BONUS($) SATION ($) SARS (#) SATION ($)
- ------------------ ---- --------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Frazier L. Gaines (1) 1998 153,986 210,000 4,609
Chief Executive Officer; 1997 110,000 5,000 1,024,375
President - Able 1996 110,000 36,000
Telcom International
Robert DuPuis (2) 1998 6,058
Former Chief Executive
Officer
Gerry W. Hall (3) 1998 103,846 4,787
Former Chief Executive 1997 180,769 75,000 27,500 3,200
Officer
Billy V. Ray, Jr. (4) 1998 48,462 35,000 110,818
Executive Vice President of 1997 34,615 40,000 56,961
Mergers and Acquisitions
and Treasurer; acting Chief
Financial Officer; promoted to
Chief Executive Officer on
December 1, 1998
J. Barry Hall (5) 1998 209,173 75,000 33,906
President - Traffic 1997 161,538 27,500
Management Group
Gideon D. Taylor (6) 1998 133,846 750 220,000 10,198
Chairman of the Board and 1997 45,308
Chief Administrative
Officer
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------- -------------------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND COMPEN- OPTIONS/ COMPEN-
PRINCIPAL POSITION YEAR SALARY($) BONUS($) SATION ($) SARS (#) SATION ($)
- ------------------ ---- --------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ralph Ouimette (7) 1998 93,267 48,000 6,500
President - Able 1997 59,452 40,000
Telecommunications and
Power Group
Richard J. Sandulli (8) 1998 134,615 30,000 12,078
Former Vice President - 1997 71,000 3,750
Finance
</TABLE>
- ------------
(1) Mr. Gaines served as the President and Chief Executive Officer of the
Company from March 1998 through November 30, 1998. Prior thereto, Mr. Gaines
was President of Able Telcom International, Inc. (a position which he
continues to hold). For 1998, other compensation includes an automobile
allowance of $4,500 and health insurance premiums paid by the Company on Mr.
Gaines behalf in the amount of $109. For 1997, other compensation consists
of an automobile allowance, a housing allowance and 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. For 1996, other
compensation includes an automobile allowance and a housing allowance.
(2) Mr. DuPuis was appointed President and Chief Executive Officer of the
Company on August 19, 1998 and resigned on August 31, 1998.
(3) Mr. Hall was President and Chief Executive Officer of the Company from June
1997 to March 1998 at an annual salary of $200,000. Mr. Hall also served as
President of Georgia Electric Company during the fiscal year ended October
31, 1997. In 1998, other compensation consists of a living allowance of
$3,000, a car allowance of $1,000, health insurance premiums paid on Mr.
Hall's behalf of $227 and contributions of $560 to the Company's 401(k)
plan. In 1997, other compensation consists of an automobile allowance.
(4) In 1998, other compensation includes consulting fees in the amount of
$92,099, an automobile allowance of $5,400, a housing allowance of $12,600
and health insurance premiums paid on Mr. Ray's behalf of $719. In 1997,
other annual compensation includes compensation for consulting services
rendered prior to Mr. Ray's appointment in June 1997 as the Company's Chief
Financial Officer, and a travel and housing allowance.
(5) In 1998, other compensation includes a housing allowance of $24,000, an
automobile allowance of $7,800 and contributions of $2,106 to the Company's
401(k) plan.
(6) In 1998, other compensation includes a housing allowance of $6,000, use of a
company vehicle estimated at $3,633 and health insurance premiums paid on
Mr. Taylor's behalf of $565.
(7) In 1998, other compensation includes an automobile allowance.
(8) In 1998, other compensation includes a moving allowance of $10,000, health
insurance premiums paid on Mr. Sandulli's behalf of $454, and $1,624 in
country club dues. In 1997, other compensation consists of an automobile
allowance.
DIRECTOR COMPENSATION
Directors who are not employees of the Company are paid $12,000 annually
plus $750 for each committee meeting attended and are reimbursed for expenses
associated with Board responsibilities. In addition, pursuant to the Company's
1995 Stock Option Plan, as amended, non-employee Directors receive one-time
automatic grants of options to purchase 5,000 shares of Common Stock having an
exercise price equal to the fair market value at the date of grant. To date, the
Company has not made any of these grants. However, in April 1998, the Company
granted an option to purchase 10,000 shares of the Company's common stock to all
Directors. Directors who are also employed by the Company receive no additional
fees or remuneration for acting in their capacity as a Director of the Company.
59
<PAGE>
THE ABLE TELCOM HOLDING CORP. 1995 STOCK OPTION PLAN, AS AMENDED
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 available for issuance 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 percent 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 Stock 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 percent 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 percent 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 percent 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 Stock 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.
STOCK OPTIONS ISSUED DURING FISCAL YEAR 1998
During the fiscal year ended 1998, the Company issued options to purchase
an aggregate of 902,000 shares of Common Stock to employees, Officers and
Directors of the Company and its subsidiaries at exercise prices ranging from
$5.34 to $14.00 per share. On December 31, 1998, in an effort to clear up a
large number of ambiguities in the minutes of Board of Directors meetings and in
order to maintain compliance with various debtor documents as well as to keep
the Company in substantial compliance with certain rules of the Securities and
Exchange Commission and The Nasdaq Stock Market, Inc. ("Nasdaq"), we rescinded
840,000 of these options. Immediately thereafter, the same number
of options were issued on December 31, 1998 at an exercise price of $5.75, which
was the average of the ten-day closing market price for the Company's Common
Stock for the period from December 16-December 30, 1998. The expiration for the
exercise period for these options range from December 31, 2000 to April 24,
2005. Of the 902,000 options granted in the fiscal year ended October 31, 1998,
all were immediately vested as of December 31, 1998.
OPTION GRANTS DURING THE FISCAL YEAR ENDED OCTOBER 31, 1998
During the fiscal year ended October 31, 1998, the following options were
granted to the following Named Executive Officers:
<PAGE>
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
% OF
TOTAL POTENTIAL REALIZABLE
OPTIONS VALUE AT
GRANTED MARKET ASSUMED ANNUAL RATES
NUMBER OF TO EXERCISE PRICE OF STOCK PRICE
SHARES EMPLOYEES OR BASE ON APPRECIATION
UNDERLYING IN FISCAL PRICE DATE OF EXPIRATION FOR OPTION TERM (2)
NAME OPTIONS(# ) YEAR(4) ($/SH) (1) GRANT DATE 5% ($) 10% ($)
---- ----------- --------- ---------- ------- ---------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Frazier L. Gaines 10,000 29% 6.20 7.75 4/24/05 $ 47,100 $ 89,000
20,000 11.9375 7.9375 7/3/04 - 47,600
80,000 14.00 14.00 7/8/00 114,400 235,200
100,000 6.00 11.1875 12/31/00 661,000 813,000
Gideon D. Taylor 10,000 30% 6.20 7.75 4/24/05 47,100 89,000
20,000 11.9375 7.9375 7/3/04 - 47,600
120,000 14.00 14.00 7/8/00 171,600 352,800
70,000 6.00 11.1875 12/31/00 462,700 569,100
Billy V. Ray, Jr. (3) 10,000 5% 14.00 14.00 7/8/00 14,300 29,400
25,000 7.75 7.75 9/19/05 90,250 215,000
Richard J. Sandulli 10,000 4% 6.20 7.75 4/24/05 47,100 89,000
20,000 11.9375 7.9375 7/3/04 - 47,600
</TABLE>
- ------------
Note: Mr. Robert DuPuis was also granted an option to purchase 125,000 shares of
the Company's common stock on August 19, 1998. Due to the fact that Mr.
DuPuis' employment with the Company was less than two weeks, the Company
has not included a valuation of those options in the above table. At the
time of Mr. DuPuis' separation from the Company, this option had not
vested and the option was forfeited.
(1) On December 31, 1998, in an effort to clear up a large number of
ambiguities in the minutes of Board of Director meetings and in order to
maintain compliance with various debtor documents as well as to keep the
Company in substantial compliance with certain rules of the Securities and
Exchange Commission and Nasdaq the Board of Directors rescinded all of the
above options grants and reissued new options in the amounts set forth
above at the then fair market value, as defined in the Plan, per share on
December 31, 1998, which was $5.75.
(2) The potential realizable values are based upon assumed 5 percent and 10
percent annualized stock price growth rates and are not intended to
forecast future price appreciation of the Company's Common Stock. Actual
gains, if any, on stock option exercises will depend on the amount, if
any, by which the fair market value exceeds the option exercise price on
the date the option is exercised. There is no assurance that the amounts
reflected in this table will be achieved.
(3) The option to purchase 25,000 shares of the Company's common stock were
cancelled in August 1998 pursuant to the 1995 Stock Option Plan, as
amended.
(4) The percentage of total options granted to employees is based upon grants
of options to purchase 735,000 shares granted to employees during the
fiscal year ended October 31, 1998.
OPTION EXERCISES AND PERIOD-END VALUES
The following table provides information on options exercised in the fiscal
year ended October 31, 1998 by the persons named in the "Summary Compensation
Table" above, the number of unexercised options each of them held at October 31,
1998 and the value of the unexercised "in-the-money" options each of them held
as of that date.
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY OPTIONS
SHARES VALUE OPTIONS/AT FYE (#) AT FYE ($)
ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) ($) UNEXERCISABLE (1) UNEXERCISABLE(1) (2)
---- ------------- --------- --------------------- --------------------
<S> <C> <C> <C> <C>
Frazier L. Gaines --- --- 210,000/--- $804,375/---
Gideon D. Taylor --- --- 220,000/--- $585,000/---
Billy V. Ray, Jr. --- --- ---/10,000 ---/---
Richard J. Sandulli --- --- 30,000/--- $73,125/---
</TABLE>
- ------------
(1) On December 31, 1998, in an effort to clear up a large number of ambiguities
in the minutes of Board of Director meetings and in order to maintain
compliance with various debtor documents as well as to keep the Company in
substantial compliance with certain rules of the Securities and Exchange
Commission and Nasdaq, the Board of Directors rescinded all of the above
options grants and reissued new options in the amounts set forth above at
the then fair market value, as defined in the Plan, per share on
December 31, 1998, which was $5.75.
(2) For those options which were "In-the-Money" at October 31, 1998, the
valuation is based on the closing price of the common stock of Able Telcom
Holding Corp. of $ 7 5/16.
60
<PAGE>
EMPLOYMENT AGREEMENTS OF NAMED EXECUTIVE OFFICERS
BILLY V. RAY, JR., President and Chief Executive Officer and acting Chief
Financial Officer, is party to an employment agreement, dated December 1, 1998
with the Company (the "Ray Employment Agreement"). The Ray Employment Agreement
terminates on November 30, 2000, and provides that Mr. Ray is to be paid a
salary of $180,000 per year, plus a monthly housing allowance of $1,500 per
month and an automobile allowance of $500 per month, plus health insurance and
other benefits. The Ray Employment Agreement may be extended for an additional
two year period. The Ray Employment Agreement also contains a covenant by Mr.
Ray not to compete with the Company for a period of three years following his
employment. The Ray Employment Agreement also provides that if Mr. Ray's
employment is terminated with cause, Mr. Ray would be entitled to 90 days prior
notice. However, should Mr. Ray be terminated without cause, Mr. Ray would be
paid out the remainder of his contract, or for 90 days, whichever is greater.
In addition, the Ray Employment Agreement provides for the grant of 100,000
options to purchase 100,000 shares of the Company's common stock, as approved by
the Company's Board of Directors, which vest immediately. On December 31, 1998,
the Company's Board of Directors rescinded the above grant of options and issued
new options to purchase 100,000 shares through December 31, 2001 at an exercise
price of $5.75 per share.
FRAZIER L. GAINES, President of Able Telcom International, is party to an
employment agreement, dated November 12, 1998 with the Company (the "Gaines
Employment Agreement"). The Gaines Employment Agreement terminates on November
11, 2001, may be extended for one additional year, allows for a consulting
agreement to be signed at the end of the initial three year term, and provides
that Mr. Gaines is to be paid a salary of $200,000 per year, health and life
insurance, other fringe benefits, and a monthly automobile allowance of $500.
The Gaines Employment Agreement also provides that the Company will pay all
fringe benefits plus $60,000 per year for the number of years equal to Mr.
Gaines years of service payable beginning upon the expiration of the Gaines
Employment Agreement. The Gaines Employment Agreement also contains a covenant
by Mr. Gaines not to compete with the Company for a period of three years
following his employment. The Gaines Employment Agreement also provides that if
Mr. Gaines is terminated with cause that Mr. Gaines would be entitled to 30 days
prior notice. However, should Mr. Gaines be terminated without cause, Mr. Gaines
would be paid one-year's salary as severance plus regular Company fringe
benefits. $100,000 of this amount would be payable immediately upon termination
with the remainder of the $100,000 payable within 45 days from termination. In
addition, the Gaines Employment Agreement provides for the grant of options to
purchase 100,000 shares of the Company's common stock, subject to approval by
the Company's Board of Directors, which vest over a three year period, or
immediately upon either a change in control/ownership of the Company. To date,
these options have not been approved by the Company's Board of Directors but
are expected to be approved in the future.
J. BARRY HALL, President of the Transportation Services Group, which
includes both Transportation Safety Contractors, Inc. ("TSCI") and Georgia
Electric Company, is party to an employment agreement dated October 12, 1996
with TSCI (the "Hall Employment Agreement"). The Hall Employment Agreement
terminates on October 11, 2001, and provides that Mr. Hall is to be paid a
salary of $150,000 per year, plus insurance and other benefits. The 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 if Mr. Hall
terminates the agreement with good reason, in which case the non-competition
period will terminate after six (6) 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, a former Chief Executive Officer of the Company currently under
contract and Mr. Hall's brother.
61
<PAGE>
GIDEON D. TAYLOR, Vice President of Special Projects, is party to an
employment agreement, dated December 7, 1998 with the Company (the "Taylor
Employment Agreement"). The Taylor Employment Agreeement terminates on June 6,
1999 and may be extended for a one year term at the option of the Company, and
provides that Mr. Taylor is to be paid at a rate of $15,000 per month, plus an
automobile allowance of $500 per month, health and life insurance and other
benefits. The Taylor Employment Agreement also provides that the Company will
also pay all fringe benefits plus $75,000 per year for the number of years equal
to Mr. Taylor years of service, subject to a minimum of ten (10) years, payable
beginning upon the expiration of the Taylor Employment Agreement. The Taylor
Employment Agreement also contains a covenant by Mr. Taylor not to compete with
the Company for a period of three years following his employment. The Taylor
Employment Agreement also provides that if Mr. Taylor is terminated with cause
that Mr. Taylor would be entitled to 30 days prior notice. However, should Mr.
Taylor be terminated without cause, which can only be effected by a majority
vote of the Company's Board of Directors, Mr. Taylor would be paid severance of
the remaining balance on the employment contract plus regular Company fringe
benefits for a period of one year from the date of termination.
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 of GEC to
Gerry W. Hall and J. Barry Hall in the event that Company should sell GEC prior
to October 31, 2001, as more fully described in Certain Relationships and
Related Transactions.
62
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended October 31, 1998, compensation for the
Company's Officers was determined by the Company's Compensation Committee,
consisting of Messrs. C. Frank Swartz, Thomas Davidson and Gideon Taylor, of
which Messrs. Swartz and Davidson are non-employee members of the Board of
Directors. Mr. Taylor was Chairman of the Compensation Committee from November
1, 1997 through August 18, 1998. On August 18, 1998, Mr. Davidson became the
Chairman of the Company's Compensation Committee. During the year, Mr. Taylor
was Chairman of the Company's Board of Directors and the Company's Chief
Administrative Officer.
In April 1998, the Company engaged Washington Equity Partners ("WEP")
as an advisor in connection with the acquisition of the network construction and
transportation systems business of MFS Network Technologies, Inc., a division of
WorldCom, Inc. ("MFSNT Acquisition"), including the financing thereof. At the
time of the engagement, Mr. Davidson, who subequently became a member of the
Company's Board of Directors and a member of the Compensation Committee, was
Managing Director of WEP. In connection with the engagement, the Company agreed
to pay WEP a fee if the Company consummated the financing of the MFSNT
Acquisition through an investor contacted by WEP. Such fee equaled 2 percent of
the gross proceeds of any senior indebtedness issued by the Company, 3 percent
of the gross proceeds of any subordinated indebtedness issued by the Company,
and 4 percent 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 percent of the aggregate purchase price paid
by the Company for this acquisition up to $50.0 million, and 1-1/2 percent of
the aggregate purchase price in excess of $50.0 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 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. Mr. Davidson subsequently left his position
as Managing Director of WEP in April 1998 and WEP assigned its rights in the
agreement to Mr. Davidson, who became a Director of the Company in August 1998.
On October 21, 1998, Mr. Davidson and the Company executed a letter agreement
pursuant to which the Company agreed to pay Mr. Davidson $1.3 million 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 then President and Chief
Executive Officer, and Gideon D. Taylor, the Company's then Chairman of the
Board of Directors, borrowed $5.0 million from a bank which was in turn lent to
the Company. This loan was secured by a pledge of the 1,047,000 shares of Common
Stock owned by Messrs. Taylor and Gaines. On July 2, 1998, to finance an
additional non-refundable deposit on the MFSNT Acquisition purchase price,
Messrs. Taylor and Gaines borrowed an additional $4.2 million which was in turn
lent to the Company. This loan was also secured by a pledge of 1,047,000 shares
of Common Stock owned by Messrs. Taylor and Gaines. Subsequently, the Company
repaid both of these loans as well as agreed to pay Messrs. Taylor and Gaines
$25,000 each for interest related to the loans. On July 8, 1998, Messrs. Taylor
and Gaines were granted two year options to purchase 120,000 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 December 31, 1998,
these options were rescinded and new options were granted at an exercise price
of $5.75 per share, the fair market value at December 31, 1998, as defined in
the Plan, as amended. See "-- Stock Options Issued During Fiscal Year 1998."
On August 11, 1998, Messrs. Taylor and Gaines each loaned the Company $1.0
million on an unsecured basis to cover certain expenses associated with the
MFSNT Acquisition. These loans were repaid in full on August 17, 1998 and
interest of $2,200 was paid to each Messrs. Taylor and Gaines.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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"). 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 $3.0 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 J. Barry Hall a number of shares of Common Stock having a market value (as
determined in accordance with the contract) of $1.0 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.
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 $0.1 million. 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 approximately $0.3 million, 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 and currently, the Company's Chief Executive Officer,
President and Acting Chief Financial Officer, beneficially owned approximately
7.7 percent of the voting stock of Ten-Ray and had personally guaranteed the
equipment loans to the bank.
On July 1, 1997, the Company entered into a six month consulting agreement
with Nelles & Associates, Inc. ("NAI"), an international telecommunications
consulting firm founded by Robert C. Nelles, a former Director of the Company.
The consulting agreement provided for NAI to be paid $6,000 per month to provide
consulting services in support of the Company's business activities for eight
days per month and for Mr. Nelles to be granted options to purchase 15,000
shares of Common Stock. On January 1, 1998, the Company entered into a three
month consulting agreement with NAI which provided for NAI to be paid $2,000 per
month to provide consulting services in support of the Company's business
activities for up to three days per month and an hourly fee for additional
services. On March 6, 1998, the Company entered into a four month consulting
agreement with NAI, pursuant to which Mr. Nelles served as the interim Chief
Operating Officer of the Company for which the Company paid him consulting fees
of $12,500 per month, provided Mr. Nelles with the use of a leased automobile
and reimbursed NAI for temporary living, travel and related expenses incurred in
connection with Mr. Nelles' performance of services as interim Chief Operating
Officer.
See also "Management--Compensation Committee Interlocks and Insider
Participation" regarding certain related party transactions with or between the
Company, members of the Compensation Committee and Mr. Frazier Gaines, the
former President and Chief Executive Officer of the Company and a former
Director of the Company.
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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 March 26, 1999,
and as adjusted assuming the exercise or conversion in full of the Senior Note
Warrants, the Series B Preferred Stock, the Series B Preferred Stock Warrants,
and the WorldCom Option, in each case as of such date, by (i) each of the
current Directors of the Company, (ii) each Executive Officer, (iii) all
Directors and Executive Officers as a group, (iv) each person known by the
Company to be the "beneficial owner" of more than five percent (5%) of such
Common Stock and (v) each Selling Shareholder. "Beneficial ownership" is a
technical term broadly defined by the Securities and Exchange Commission to mean
more than ownership in the usual sense. For example, you "beneficially" own
Common Stock only if you hold it directly, but also if you indirectly (through a
relationship, a position as a director or trustee, or a contract or
understanding), have (or share the power to vote the stock, or sell it) the
right to acquire it within 60 days. Except as disclosed in the footnotes below,
each of the Directors and Executive Officers listed have sole voting and
investment power over his or her shares. As of March 26, 1999, there were
11,754,593 shares of Common Stock issued and outstanding and approximately 400
holders of record.
<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 EXECUTIVE
OFFICERS:
F. Carl Swartz(2)(7)................. 20,000 * -- 20,000 *
Gideon D. Taylor(7).................. 946,638 7.91% -- 946,638 5.89%
Frazier L. Gaines(5)................. 684,430 6.19% -- 684,430 4.26%
Jonathan A. Bratt(4)................. 36,500 * -- 36,500 *
Thomas M. Davidson(6)................ 20,000 * -- 20,000 *
Alex McLarty......................... -- * -- -- --
Gerald Pye........................... -- * -- -- --
Robert Young......................... -- -- -- -- --
Billy V. Ray, Jr.(6)................. 110,000 * -- 110,000 *
Jesus G. ("Jay") Dominguez(6) ....... 97,000 * -- 97,000 *
Michael Arp.......................... 50,000 * -- 50,000 *
Curtis A. "Butch" Dale .............. 103,300 * -- 103,300 *
Edward Z. Pollock(6)................. 15,000 * -- 15,000 *
Stacy Jenkins(6)..................... 100,000 * -- 100,000 *
G. Vance Cartee...................... -- -- -- -- --
J. Barry Hall........................ 356,429 3.03% -- 356,429 2.25%
Richard A. Boyle..................... -- -- -- -- --
All Directors and Executive
Officers as a Group
(17 Persons) ...................... 2,519,297 20.00% -- 2,519,297 15.12%
SELLING SHAREHOLDERS:
John Hancock Mutual Life
Insurance Company ................. 266,178 2.21% 266,178 -- --
John Hancock Variable Life
Insurance Company ... ............. 20,475 * 20,475 -- --
Barnett & Co.(9)..................... 122,852 1.03% 122,852 -- --
Colonial Penn Life
Insurance Company ................. 129,056(10) 1.09% 129,056(10) -- --
Halifax Fund, L.P. .................. 650,614(10) 5.37% 650,614(10) -- --
Palladin Partners I, L.P. ........... 129,056(10) 1.09% 129,056(10) -- --
Palladin Securities, L.L.C. ......... 242,806(10) 2.03% 242,806(10) -- --
Palladin Overseas Fund
Limited ........................... 242,806(10) 2.03% 242,806(10) -- --
The Gleneagles Fund
Company ........................... 356,556(10) 2.96% 356,556(10) -- --
RGC International
Investors, LDC..................... 1,125,527(10) 9.06% 1,125,527(10) -- --
MFS Communications
Company, Inc.
11808 Miracle Hills Drive
Omaha, Nebraska 68154 ............. 1,817,941(11) 13.39% 1,817,941(11) -- --
</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 March 26, 1999 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 and 6,500 shares owned by Mr. Bratt.
(5) Includes 210,000 shares underlying options which are immediately
exercisable and 474,430 shares held in a trust controlled by Mr. Gaines.
(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) Includes 100,000 shares underlying options which are immediately
exercisable.
(9) Barnett & Co. is the nominee for Signature 1A (Cayman), Ltd.
(10) In addition to shares currently owned by each Selling Shareholder, 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 percent 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 March 26, 1999. In
addition, the Company has agreed to register 150 percent 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 March 26, 1999.
Pursuant to the terms of the Series B Preferred Stock, the conversion price
on March 26, 1999 would have been $6.3858 for 375 shares of Series B
Preferred Stock related to RGC International Investors, Inc. and the
remaining 404 shares of Series B Preferred Stock are convertible at a
maximum fixed price of $3.5138 per share. Based on these conversion prices,
the Series B Preferred Stock would convert into a total of 868,496 shares
of Common Stock. The Series B Preferred Stock Warrants are exercisable into
1,000,000 shares of Common Stock at an average exercise price of $13.41 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.
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(13) 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. On January 8, 1999, this option was
converted into a SAR. However, upon approval at the Annual Meeting of
Shareholders to be held in 1999, the SAR will revert back to the option.
Accordingly, the number of shares of Common Stock set forth in the table
for this Selling Shareholders represents shares that this Selling
Shareholder could not beneficially own at this time. In that regard,
beneficial ownership of this Selling Shareholder has not been determined in
accordance with Rule 13d-3 under the Exchange Act.
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<PAGE>
DESCRIPTION OF INDEBTEDNESS
The following discussion 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 (as amended to date, the "Secured Credit
Facility"). Pursuant to the Secured Credit Facility, a syndicate of lenders lent
to the Company $35.0 million in the form of senior secured revolving credit
facilities. The Secured Credit Facility has a letter of credit sublimit of $5.0
million.
The Secured Credit Facility matures on November 1, 2000.
The interest rate under the Secured Credit Facility is, at the option of
the Company, 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 percent.
The Secured Credit Facility is guaranteed by all of the Company's existing
and future Restricted Subsidiaries, as defined in the Secured Credit Facility.
Each of the Company's subsidiaries are Restricted Subsidiaries other than MFSNT
and the Company's international subsidiaries. The Secured Credit Facility is
secured by a pledge of 100 percent 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
quick ratio.
The Secured Credit Facility has been amended on several occasions to (i)
permit the Company's acquisition of MFSNT and the related financing of such
transaction, (ii) make certain changes in the financial covenants, and (iii)
make other amendments relating to investments, pledging and intercompany
matters.
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<PAGE>
WORLDCOM NOTE
In order to finance the MFSNT Acquisition, we issued the WorldCom Note to MFSCC
pursuant to the September Agreement. We must repay the WorldCom Note in full on
November 30, 2000. The WorldCom Note bears interest at 11.5 percent per year.
Pursuant to a Pledge Agreement, dated as of July 2, 1998 (the "Pledge
Agreement"), we pledged all of the shares of capital stock in MFSNT (the
"Pledged Stock") to WorldCom and MFSCC to secure our obligations under the
WorldCom Note. Pursuant to subsequent negotiations among us, WorldCom and the
Lenders under the Secured Credit Facility, this pledge was cancelled and the
capital stock in MFSNT has now been pledged to the Lenders under the Secured
Credit Facility. Our obligations under the WorldCom Note are junior and fully
subordinated to those under the Secured Credit Facility and the Senior Notes. No
amounts may be paid on the WorldCom Note so long as any debt is outstanding
under the Secured Credit Facility. Subject to the subordination provisions and
after full payment of all amounts owed under the Secured Credit Facility, the
WorldCom Note may be prepaid as follows:
/bullet/ By applying 8 percent of the payment WorldCom Network owes us
under the WorldCom Master Services Agreement
/bullet/ By paying to WorldCom a portion of certain proceeds received by us
upon the sale of certain conduit assets
/bullet/ By paying to WorldCom a portion of certain proceeds received from
time to time under maintenance contracts for certain conduit projects
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<PAGE>
If we do not repay the WorldCom Note in full by November 30, 2000,
WorldCom will be able to:
/bullet/ Require us to pay a 13.5 percent annual default rate of interest
while we are in default
/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
WorldCom's right to receive such payments on the WorldCom Note is a senior
obligation of the Company, except that its payment right is subordinated and
junior in right of payment to all of the Company's obligations under the Secured
Credit Facility. All amounts owed under the Secured Credit Facility must be
fully paid in cash and all commitments to lend under the Secured Credit Facility
must have been extinguished before payment can be made by the Company on the
WorldCom Note. In addition, so long as any amount is outstanding under the
Secured Credit Facility, and for so long as there is any commitment to lend
existing under the Secured Credit Facility, WorldCom cannot exercise any
remedies with respect to the WorldCom Note.
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<PAGE>
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 Kanas 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
January 31, 1999, we have contract backlog of approximately $549.0 million
under performance bonds.
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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 March 26, 1999, there were
approximately 11.8 million shares of Common Stock outstanding, held of record
by approximately 400 shareholders, no shares of Series A Preferred Stock
outstanding, and 779 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
$18.1 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 percent
72
<PAGE>
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
percent 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 at any time up
until June 30, 2000 (the "Maturity Date"), or as may be extended by the Articles
and the Registration Rights Agreement; 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 percent of the outstanding shares of Common Stock.
Pursuant to the terms of the Series B Preferred 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 percent of the lesser of
(a) the lowest intraday trading price of the Common Stock for any three
(3) 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 percent 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/ Distribution of assets to holders of Common Stock
/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
Notwithstanding the above, the Company and the holders of 404 shares of
Series B Preferred Stock have agreed to a maximum conversion price of $3.5138
per share applicable with respect to such shares.
Any Series B Preferred Stock not previously converted will automatically
convert into shares of Common Stock on 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. The Company will submit a proposal to its shareholders at the
Annual Meeting of Shareholders to be held in 1999 to approve the issuance of
more than 20 percent of the outstanding Common Stock upon exercise of
instruments issued in connection with the MFSNT Acquisition together with the
conversion of the Series B Preferred Stock.
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 percent 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 percent 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 of 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 percent 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 and 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 percent 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) which was subsequently extended to
May 18, 1999 by agreement with certain holders of 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 1.5
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 (3) 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. The December 27, 1998 date has been extended to
May 18, 1999 for certain purposes, but not with respect to this default payment
provision.
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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
of 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.
As indicated above, the Conversion Price is generally tied to the trading
price of the Common Stock although a maximum price of $3.5138 has been
established for 404 shares. The lower the price of the Common Stock, the lower
the Conversion Price, and, consequently, the more shares of Common Stock which
are issuable upon conversion of the Series B Preferred Stock. Short selling of
the Common Stock (i.e., committing to sell the stock for delivery at a future
date with the hope that the trading price falls so that the seller may purchase
the stock at a lower price than the price at which he committed to sell),
including by the holders of the Series B Preferred Stock, could lead to a
lowering of the trading price of the Common Stock, resulting in more shares of
Common Stock being issuable upon conversion of the Series B Preferred Stock.
While we do not encourage short selling of the Common Stock, we cannot prevent
this activity from occurring, which could lead to a drop in the trading price of
our Common Stock.
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 were initially exercisable at a price of $19.80 per share. In
connection with the purchase of a portion of the Series B Preferred Stock, the
exercise price of 370,000 Series B Preferred Stock Warrants was reduced to
$13.25 per share and of 630,000 Series B Preferred Stock Warrants was reduced to
$13.50. The Warrants 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 percent 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 Preferred Stock 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"). Further, the Company has assumed the obligation of Cotton
Communications, Inc. to purchase 630,000 of the Series B Preferred Stock
Warrants on or before April 30, 1999 at a price of $3.00 per warrant. See,
"Business--Sale of Senior Notes and Series B Preferred Stock."
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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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SENIOR NOTE WARRANTS
In connection with the sale of the Senior Notes, the Company issued to the
holders thereof 409,505 warrants (the "Senior Note 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 cash or on a "cashless" basis. A cashless
exercise means that the holder of the Senior Note 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 Senior Note 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.
The Company is required to file a registration statement to register the
shares of Common Stock underlying the Senior Note Warrants and to keep that
registration statement effective until January 1, 2000, or until the holders of
the Senior Note 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 Senior Note 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 Senior Note
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 Senior Note 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 WORLDCOM OPTION
As part of the MFSNT Acquisition, Able granted an option to WorldCom (the
"WorldCom Option") to purchase up to 2,000,000 shares of Common Stock, at an
exercise price of $7.00 per share. WorldCom may elect to exercise some or all of
the WorldCom 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
be issued upon exercise of the WorldCom Option. A "cashless" exercise means that
WorldCom 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 WorldCom Option being exercised. Following is an
example of how a "cashless" exercise would work. Assume that the per share
"market value" of the Common Stock is $10.00, and that the WorldCom Option is
being exercised for 1,000,000 shares. WorldCom would receive shares of Common
Stock with a total market value equal to the "per share excess of the market
value over the exercise price" (i.e., $10.00 - $7.00, equal to $3.00) multiplied
by the number of shares being exercised (i.e., 1,000,000), resulting in a total
market value of $3.0 million. At a market price of $10.00 per share, WorldCom
would receive the number of shares of Common Stock equal to (i) $3.0 million
divided by (ii) $10.00, or 300,000 shares of Common Stock. The WorldCom 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 WorldCom Option
that WorldCom 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 in no event shall the maximum payment
exceed $25.00 per share.
For purposes of the WorldCom 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 WorldCom Option.
The WorldCom Option may be exercised by WorldCom, in whole or in part, by
delivery of an exercise notice to the Company during the period commencing on
the consummation date of the WorldCom 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
WorldCom Option.
In the event that WorldCom exercises the WorldCom 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 WorldCom pursuant to the
exercise of the WorldCom Option is greater than or equal to 5 percent of the
then outstanding shares of Common Stock.
On January 8, 1999, we entered into a modification to the WorldCom Option
(the "WorldCom Modification") which modified the WorldCom Option into stock
appreciation rights (an "SARs") unless and until such time as shareholder
approval is obtained by the Company (if ever), pursuant to the Nasdaq Stock
Market, Inc. ("Nasdaq") Marketplace Rule 4460(i)(1)(C) ("Rule 4460(i)(1)(C)"),
to approve the issuance of 20 percent or more of the Common Stock in connection
with the MFSNT Acquisition. Rule 4460(i)(1)(C) addresses the issuance of
securities in connection with the acquisition of stock or assets of another
company if, due to the present or potential issuance of common stock, or
securities convertible into or exercisable for common stock, the aggregate
number of shares of common stock which may be issued is or may be equal to or in
excess of 20 percent of the number of shares of common stock outstanding before
the issuance of the stock or securities.
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Under the WorldCom Modification, WorldCom is entitled to participate in an
increase in the value of an aggregate of 2,000,000 shares of Common Stock. For
each SAR exercised, WorldCom is entitled to receive an amount equal to the
excess of the fair market value of the Common Stock as of the applicable
exercise date over $7.00 per share (the "Appreciation Amount"). The Appreciation
Amount will be paid in cash within fifteen days of receipt of an exercise
notice; provided, however, that to the extent that the Company would be required
to pay in excess of $10.0 million in any twelve month period as a result of any
exercises of any SARs, then the amount of such excess shall be represented by a
promissory note with quarterly payments amortized ratably over a period of six
months at 10 percent per annum. The exercise period for the SARs granted
commences on the earlier of: (i) one (1) business day after the date upon which
the potential issuance of Common Stock under this Agreement is voted upon by the
shareholders of the Company and (ii) July 1, 1999 (the "Commencement Date"), and
ending on January 2, 2002. Payment of any SARs in cash only could materially and
adversely affect the Company's cash flow because (i) of the short time frame to
pay for any SARs exercised (between 15 and 30 days from the date notice is
received by the Company), and (ii) the payment owed could be a signiificant
amount depending on the number of SARs exercised and the then fair market value
of the Company's Common Stock.
We will submit a proposal to the Company's shareholders at the Annual
Meeting of Shareholders to be held in 1999 to approve the issuance of more than
20 percent of the outstanding Common Stock in connection with the MFSNT
acquisition. If the Company's shareholders approve such issuance (taking into
account the issuances pursuant to the Series B Offering, the Phantom Stock
Awards, and the WorldCom Option) the SARs granted automatically revert back to
the WorldCom Option and the holder will have the right to purchase an aggregate
of 1,817,941 shares of Common Stock at $7.00 per share through January 2, 2002.
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
percent 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 March 26, 1999, the Company had approximately 11.8 million shares
of Common Stock issued and outstanding. Assuming that as of March 26, 1999,
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
14.9 million shares of Common Stock issued and outstanding on that date,
substantially all of which would have been freely tradeable.
On May 22, 1996, Able 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 Able's current and former directors, officers and employees. On June
18, 1997, Able 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 January 31, 1999, options to purchase 906,975
shares of Common Stock were outstanding under the Plan and options with respect
to 283,675 shares of Common Stock had been exercised. See "Management--The Able
Telcom Holding Corp. 1995 Stock Option Plan, as amended."
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 Edward Z. Pollock, in-house counsel to the
Company.
EXPERTS
The consolidated financial statements of Able Telcom Holding Corp. and its
subsidiaries at October 31, 1998 and for the year then ended included in this
Prospectus and Registration Statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and is included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said report.
The consolidated financial statements of Able Telcom Holding Corp. and its
subsidiaries at October 31, 1997, and for each of the two 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 report given upon the authority of such
firm as experts in accounting and auditing.
The financial statements of the Network Technologies Division of MFS
Network Technologies, Inc. for each of the three years in the period ended
December 31, 1997, included in this Prospectus and Registration Statement, have
been audited by Arthur Andersen, LLP, independent public accountants, as
indicated in their report with respect thereto, and is included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving such report.
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 Able's financial
83
<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 Able's financial statements for each of the two fiscal years
ended October 31, 1997 and 1996, 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 events" (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 Able as to the existence of reportable
conditions in Able's 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.
84
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
Condensed Consolidated Financial Statements (unaudited):
Condensed Consolidated Balance Sheet--January 31, 1999................................. F-2
Condensed Consolidated Statements of Operations--
Three Months ended January 31, 1999 and 1998 ......................................... F-3
Condensed Consolidated Statement of Comprehensive Income--
Three Months ended January 31, 1999 .................................................. F-4
Condensed Consolidated Statement of Cash Flows--
Three Months ended January 31, 1999 and 1998 ......................................... F-5
Notes to Condensed Consolidated Financial Statements .................................. F-6
Consolidated Financial Statements:
Report of Independent Public Accountants .............................................. F-15
Report of Independent Certified Public Accountants .................................... F-16
Consolidated Balance Sheets--October 31, 1998 and 1997 ................................ F-17
Consolidated Statements of Operations--Years ended October 31, 1998, 1997 and 1996 .... F-18
Consolidated Statements of Shareholders' Equity--Years ended October 31, 1998, 1997
and 1996 ............................................................................ F-19
Consolidated Statements of Cash Flows--Years ended October 31, 1998, 1997 and 1996 .... F-20
Notes to the Consolidated Financial Statements ........................................ F-21
NETWORK TECHNOLOGIES DIVISION OF MFS NETWORK TECHNOLOGIES, INC.
Report of Independent Public Accountants ............................................... F-44
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
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 Financial Statements ......................................................... F-47
</TABLE>
F-1
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 31,
1999
----------------
<S> <C>
ASSETS
Currents Assets:
Cash and cash equivalents .............................................................. $ 7,323
Accounts receivable, net ............................................................... 84,735
Costs and profits in excess of billings on uncompleted contracts ....................... 79,387
Assets held for sale ................................................................... 25,975
Prepaid expenses and other current assets .............................................. 4,475
------------
Total current assets ................................................................. 201,895
Property and equipment, net ............................................................. 30,571
Other assets: ...........................................................................
Goodwill, net .......................................................................... 30,954
Assets held for sale ................................................................... 12,775
Other non-current assets ............................................................... 4,121
------------
Total other assets ................................................................... 47,850
------------
Total assets ......................................................................... $ 280,316
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term-debt ...................................................... $ 14,868
Accounts payable and accrued liabilities................................................ 53,219
Billings in excess of costs and profits on uncompleted contracts ....................... 55,046
Reserves for losses on uncompleted contracts ........................................... 18,392
Stock appreciation rights payable ...................................................... 9,340
------------
Total current liabilities ............................................................ 150,865
Long-term debt, non-current portion .................................................... 75,992
Other non-current liabilities .......................................................... 7,975
------------
Total liabilities .................................................................... 234,832
Contingencies ........................................................................... --
Convertible redeemable Series B preferred stock, $.10 par value, authorized 1,000,000
shares, 4,000 shares issued 3,564 and outstanding .................................... 11,233
Shareholders' Equity:
Common stock, $.001 par value, authorized 25,000,000 shares; 11,694,058
shares issued and outstanding ......................................................... 11
Additional paid-in capital ............................................................. 33,364
Series B Preferred Stock Warrants ...................................................... 5,400
Senior Subordinated Note Warrants ...................................................... 1,244
WorldCom Stock Options ................................................................. --
WorldCom Phantom Stock ................................................................. 606
Retained earnings (deficit) ............................................................ (6,459)
Accumulated other comprehensive income ................................................. 85
------------
Total shareholders' equity ........................................................... 34,251
------------
Total liabilities and shareholders' equity ........................................... $ 280,316
============
</TABLE>
See notes to condensed consolidated financial statements.
F-2
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE THREE MONTHS ENDED
JANUARY 31,
--------------------------
1999 1998
---------- -----------
Revenues ........................................ $ 91,777 $ 22,268
Costs and expenses:
Costs of revenues ............................. 76,246 18,996
General and administrative .................... 7,835 3,196
Depreciation and amortization ................. 2,333 1,240
-------- --------
Total costs and expenses .................... 86,414 23,432
-------- --------
Income (loss) from operations ................... 5,363 (1,164)
Other expense, net:
Interest expense (2,478) (276)
Change in value of stock appreciation rights (3,428) --
Other (132) 102
-------- --------
Income (loss) before income taxes and
minority interest ............................. (675) (1,338)
Provision (benefit) for income taxes ............ (168) (522)
-------- --------
Income (loss) before minority interest .......... (507) (816)
Minority Interest ............................... 74 111
-------- --------
Net income (loss) ............................... (581) (927)
Preferred stock dividends ....................... 180 49
Discount attributable to beneficial
conversion privilege of preferred
stock ........................................ -- 105
-------- --------
Income (loss) applicable to common stock ........ $ (761) $ (1,081)
======== ========
Weighted average shares outstanding
(basic and diluted) .......................... 11,694,088 8,759,300
========== =========
Income (loss) per common share (See Note 6):
Basic ......................................... $ (.06) $ (.12)
======== ========
Diluted ....................................... $ (.06) $ (.12)
======== ========
See notes to condensed consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
THREE MONTHS ENDED JANUARY 31, 1999
(IN THOUSANDS)
1999 1998
---- ----
<S> <C> <C>
Net Income $ (581) $(1,081)
------ -------
Other comprehensive income, net of tax:
Foreign currency translation adjustments $ 85
------
Total other comprehensive income 85 -
------ -------
Comprehensive income $ (496) $(1,081)
====== =======
</TABLE>
F-4
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
JANUARY 31,
--------------------------
1999 1998
-------- ---------
<S> <C> <C>
Cash used in operating activities .......................... $ (5,247) $ (514)
Investing Activities:
Capital expenditures, net ................................ (291) (3,076)
-------- --------
Net cash used in investing activities .................... (291) (3,076)
-------- --------
Financing Activities:
Repayments of long-term debt and other borrowings ........ (478) (7,817)
Proceeds from the issuance of long-term debt
and other borrowings ................................... -- 10,419
Net proceeds from preferred stock offering ............... (92) (949)
Proceeds from the exercise of stock options .............. 82 63
Dividends paid on preferred stock ........................ (262) (50)
Distributions to minority interests ...................... (28) (160)
Foreign currency translation adjustment................... (42) --
Other .................................................... 137 (174)
-------- --------
Net cash provided by (used in) financing activities .... (683) 1,332
-------- --------
(Decrease) in cash and cash equivalents .................... (6,221) (2,258)
Cash and cash equivalents, beginning of period ............. 13,544 6,230
-------- --------
Cash and cash equivalents, end of period ................... $ 7,323 $ 3,972
======== ========
Supplemental Disclosure:
Valuation of stock appreciation rights...................... $ 5,850 $ --
</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 Telcom" or the "Company")
develops, builds and maintains communications systems for companies and
governmental authorities. The Company is headquartered in West Palm Beach,
Florida, and operates its subsidiaries throughout the United States, as well as
in South America. The Company is organized in the following groups:
<TABLE>
<CAPTION>
ORGANIZATIONAL GROUP SERVICES PROVIDED
- -------------------- -----------------
<S> <C>
Network Services Group Design, development, engineering,
installation, construction, operation and
maintenance services for telecommunications
systems
Transportation Services Group Design, development, integration,
installation, construction, project management,
maintenance and operation of automated
toll collection systems, electronic traffic
management and control systems, and
computerized manufacturing systems
Communications Development Group Design, installation and maintenance
(Latin America) services to foreign telephone companies
</TABLE>
Each group is comprised of subsidiaries of the Company with each having local
executive management functioning under a decentralized operating environment.
The Company's 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.
F-6
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
1. OPERATION AND BASIS OF PRESENTATION-(CONTINUED)
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 1998 Annual Report on Form 10-K/A ("Form 10-K/A").
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 October
31, 1998 and January 31, 1998 have been reclassified to conform with the current
presentation.
2. ACQUISITION
On July 2, 1998, the Company acquired the network construction and
transportation systems business of ("MFSNT") from WorldCom, Inc. ("WorldCom")
pursuant to a merger agreement dated April 26, 1998 ("Plan of Merger"). On
September 9, 1998, the Company and WorldCom finalized the terms of the Plan of
Merger through the execution of an amended agreement. The acquisition of MFSNT
was accounted for using the purchase method of accounting at a total price of
approximately $67.5 million. The allocation of purchase price to identifiable
assets and liabilities acquired is based upon preliminary estimates. The Company
is in the process of obtaining additional information necessary to finalize the
allocation of purchase price. The effect of the final allocation on previously
reported amounts is not expected to be significant.
In conjunction with the acquisition of MFSNT, the Company granted an option to
WorldCom (the "WorldCom Option") to purchase up to 2,000,000 shares of the
Company's common stock, at an exercise price of $7.00 per share, but subject to
a 1,817,941 share maximum limitation, and the right to receive phantom stock
awards (the "Phantom Stock Awards") equivalent to 600,000 shares of common
stock, payable in cash, stock, or a combination of both at the Company's option.
The WorldCom Phantom Stock Awards are 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 in no event shall the maximum payment exceed $25.00 per share. The
fair values of the WorldCom Option and Phantom Stock Awards were estimated at
the date of grant at $3.5 million and $0.6 million, respectively, and are
included as a component of the total consideration paid for the acquisition of
MFSNT.
F-7
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
2. ACQUISITION-(CONTINUED)
On January 8, 1999, the Company and WorldCom agreed to convert the WorldCom
Option to stock appreciation rights with similar terms and provisions, except
that the stock appreciation rights provide for the payment of cash to WorldCom
based upon the appreciation of the Company's common stock over a base price of
$7.00 per share. The stock appreciation rights may revert back to the WorldCom
Option if certain shareholder approvals are received. In connection with the
establishment of the stock appreciation rights liability as of January 8, 1999,
the fair value was estimated to be approximately $5.9 million as compared to the
previously estimated fair value of the option of $3.5 million. The difference of
$2.4 million represents debt issue costs of $0.5 million and a reduction of
paid-in capital of $1.9 million. In addition, as of January 31, 1999, the fair
value of the stock appreciation rights liability has been estimated to be $9.3
million and a charge to income of $3.4 million has been reflected as a change in
value of stock appreciation rights in the accompanying condensed consolidated
statement of operations.
3. BORROWINGS
During the three months ended January 31, 1999, the Company was in violation of
the payment terms of its $10.0 million principal amount 12 percent Senior
Subordinated Notes (the "Senior Notes"). These Senior Notes were purchased and
retired from the holders effective February 17, 1999 (Refer to Note 8).
On June 11, 1998, and amended on June 30, 1998, the Company obtained a $35.0
million three-year senior secured revolving credit facility ("Credit Facility").
The Credit Facility contains certain financial covenants which require, among
other conditions, that the Company maintain certain minimum ratios, as well as
limitations on total debt. In connection with the senior secured revolving
credit facility, the company is currently in compliance with the provisions of
such agreement and anticipates continuing compliance therewith. If compliance is
not maintained, reported current liabilities would be increased by $35 million.
4. SERIES B PREFERRED STOCK
During the three months ended January 31, 1999, the Company was in technical
violation of certain provisions of its Series B Preferred Convertible Stock
("Series B Preferred Stock") issued in June 1998. Such default resulted from the
Company's failure to have a registration statement registering the common stock
underlying the Series B Preferred Stock and certain related warrants declared
effective by December 27, 1998. Such default gave the holders of the Series B
Preferred Stock the option to require the Company to redeem their securities at
premium prices. During the quarter ended January 31, 1999, the holders of the
Series B Preferred Stock notified the Company of their intent to exercise such
redemption right; however, such notice has been withdrawn. In February 1999,
approximately 78 percent of the Series B Preferred Stock was purchased from the
original holders (Refer to Note 8) and, in connection with such purchase, the
Company was given until May 18, 1999 to effect the registration described above.
F-8
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
5. STOCK OPTION PLAN
In 1996, the Company's shareholders adopted a stock option plan for the issuance
of up to 550,000 shares which included provisions for both incentive and
nonqualified stock options (the "Plan") and which expires on September 19, 2005.
On April 24, 1998, the shareholders increased the number of shares issuable
under the Plan to 1,300,000 and made certain other amendments to the Plan, which
relate primarily to the issuance of restricted stock awards.
In an effort to correct certain of the actions taken by the Company's Board of
Directors in order to maintain compliance with the Plan, as amended, the Board
of Director's rescinded certain of the stock option grants, or 530,000 options
under the Plan and 310,000 options outside the Plan, and granted replacement
options for the same number of shares at the fair market value, as defined by
the Plan, on December 31, 1998, as well as shortened certain of the expiration
dates of the options.
A summary of the Company's stock options activity under the Plan, and related
information for the period from October 31, 1998 through January 31, 1999
follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
--------- ------------
<S> <C> <C> <C>
Options Outstanding at
October 31, 1998 664,475 $6.00 - $14.00
Grants 772,500 $5.75 - $7.125
Cancellations (530,000) $6.20 - $14.00
--------
Options Outstanding at
January 31, 1999 906,975 $5.75 - $7.813
========
</TABLE>
In addition, stock options have been granted to certain employees of the Company
outside of the Plan.
F-9
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
5. STOCK OPTION PLAN-(CONTINUED)
A summary of the Company's stock option activity outside the plan, and related
information for the period from October 31, 1998 through January 31, 1999
follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
--------- ------------
<S> <C> <C> <C>
Options Outstanding at
October 31, 1998 310,000 $6.20 - $14.00
Grants 1,710,000 $5.75 - $7.125
Cancellations (660,000) $6.20 - $14.00
---------
Option Outstanding at
January 31, 1999 1,360,000 $5.75
=========
</TABLE>
The Financial Accountings Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 123, ACCOUNTING FOR STOCK BASED COMPENSATION,
in 1995, 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 apply Accounting Principles Board Opinion ("APB") 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 No. 25. Under APB No. 25, to the extent the
exercise price of the Company's employee stock options equal 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 (loss) and
earnings (loss) per share as if the Company had adopted the expense recognition
requirement of SFAS No. 123 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JANUARY 31,
--------------------------------------
1999 1998
---- ----
<S> <C> <C>
Pro forma income (loss) available to
common stockholders................. $(2,453) $(1,114)
Basic.......................... (.20) (.13)
Diluted........................ (.20) (.13)
Pro forma income (loss)................. (2,273) (955)
Basic.......................... (.19) (.11)
Diluted........................ (.19) (.11)
</TABLE>
F-10
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
6. EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of the
basic and diluted per share computation as required by SFAS No. 128, EARNINGS
PER SHARE (dollars, in thousands):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JANUARY 31,
--------------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Basic:
Loss available to common stockholders
(numerator) ................................ $ (761) $ (1,081)
Weighted-average number of common shares
(denominator)(1)............................. 11,694,088 8,759,300
(Loss) per common share ....................... $ (.06) $ (.12)
Diluted:
(Loss) available to common stockholders
(numerator) ................................ $ (581) $ (1,081)
Weighted-average number of common shares
(denominator) ............................... 11,694,088 8,759,300
Common stock equivalents arising from stock
options, warrants and convertible preferred
stock ....................................... 2,809,081 66,062
Total shares (denominator) .................... 14,503,169 8,825,362
Loss per common share-diluted (2) ............. $ (.06) $ (.12)
</TABLE>
- ------------
(1) Amount includes 628,418 shares issuable as contingent consideration related
to the acquisition of Georgia Electric Company.
(2) The effect of securities that could dilute basic earnings per share are
antidilutive for all periods presented, therefore, basic and diluted
earnings per share are equivalent. The Company has potentially dilutive
securities that could have a dilutive effect in the future. Those securities
include warrants related to the Series A Preferred Stock, Series B Preferred
Stock, stock options, warrants and phantom stock awards.
F-11
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
7. LITIGATION
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 tortuous
interference, fraudulent inducement, negligent misrepresentation and breach of
contract in connection with the Company's agreement to purchase the shares of
MFSNT and seeks injunction relief and compensatory damages in excess of $100.0
million.
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, and certain of its officers. 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.
The Company is subject to a number of shareholder and other lawsuits and claims
for various amounts which arise out of the normal course of its business. The
Company intends to vigorously defend itself in these matters. The disposition of
all pending lawsuits and claims is not determinable and may have a material
adverse effect on the Company's financial position.
KANAS GUARANTY AGREEMENT
In conjunction with the acquisition of MFSNT, the Company has agreed to
guarantee the payment obligations of Kanas under its credit agreement. The
aggregate commitment of the lenders under this agreement is $85.4 million, and
the purpose of the Kanas Credit Agreement is to provide the funds necessary to
complete the Alyeska Project.
CONTRACTS
The Company has and will continue to execute various construction and other
contracts which may require the Company to, among other items, maintain specific
financial parameters, meet specific milestones and post adequate collateral
generally in the form of performance bonds. Failure by the Company to meet its
obligation under these contracts may result in the loss of the contract and
subject the Company to litigation and various claims, including liquidated
damages.
F-12
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
8. PURCHASE OF SENIOR NOTES AND SERIES B PREFERRED STOCK
In February 1999, WorldCom advanced the Company $32.0 million for purposes of
facilitating the purchase of 2,785 shares, or approximately 78 percent of the
Series B Preferred Stock and the purchase of the outstanding $10.0 million
principal amount of Senior Notes. The advance accrues interest at 11.5 percent
and is repayable on the earlier of (i) October 31, 2000 or (ii) the dates of
redemption and/or conversion of the Series B Preferred Stock or the Senior
Notes.
In connection with the purchase of the Series B Preferred Stock, the Company
agreed to certain modifications in the conversion price of the related warrants.
The conversion price of (i) warrants to purchase a total of 370,000 shares of
the Company's common stock has been reduced to $13.25 per share and (ii)
warrants to purchase a total of 630,000 shares of common stock has been reduced
to $13.50 per share. In addition, the Company agreed to modify the terms of the
404 shares of remaining Series B Preferred Stock conversion price from 97% of
market value to a fixed amount of approximately $3.50 per share.
In connection with these transactions and as a result of the loan of the
WorldCom funds to the Purchaser, as defined below, the Company expects to
recognize an extraordinary loss (net of income taxes) in the second quarter of
fiscal year 1999 on the purchase of the Senior Notes of approximately $1.9
million and a reduction in income applicable to common stock of approximately
$11.3 million on the purchase and modification of the Series B Preferred Stock
and related warrants.
WorldCom also agreed to make available additional advances to the Company of up
to $15.0 million against amounts otherwise payable pursuant to the WorldCom
master services agreement. These additional advances will accrue interest at
11.5 percent and would be repayable to WorldCom on October 31, 2000.
Had these transactions occurred in the three months ended January 31, 1999
shareholders' equity at such date would have been as follows:
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS FOR SUBSEQUENT EVENT
------------------------------------------
AS REPORTED PRO FORMA
----------- ---------
<S> <C> <C>
Common stock............ $ 11 $ 11
Paid-in capital......... 33,364 36,760
Series B Preferred
Stock warrants........ 5,400 3,311
Senior warrants......... 1,244 1,244
WorldCom options........ -- --
WorldCom phantom stock.. 606 606
Retained earnings
(deficit).............. (6,459) (19,706)
Other................... 85 85
------- --------
$34,251 $ 22,311
======= ========
</TABLE>
F-13
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Able Telcom Holding Corp.:
We have audited the accompanying consolidated balance sheet of Able Telcom
Holding Corp. (a Florida Corporation) and subsidiaries as of October 31, 1998,
and the related consolidated statements of operations, shareholders' equity and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Able Telcom
Holding Corp. and subsidiaries as of October 31, 1998, and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Omaha, Nebraska
February 17, 1999
F-15
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders and Board of Directors
Able Telcom Holding Corp.:
We have audited the accompanying consolidated balance sheet of Able Telcom
Holding Corp. and subsidiaries (the "Company") as of October 31, 1997, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the two years in the period ended October 31, 1997. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express and 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 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 the consolidated
results of their operations and their cash flows for each of the two years in
the period ended October 31, 1997, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
West Palm Beach, Florida
January 19, 1998
F-16
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--OCTOBER 31, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS 1998 1997
------ ---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 13,544 $ 6,230
Accounts receivable, net of allowances for bad debts of $866
and $686 at October 31, 1998 and 1997, respectively 64,159 13,399
Costs and profits in excess of billings on uncompleted contracts 105,478 5,615
Prepaid expenses and other 2,641 1,766
------- -------
Total current assets 185,822 27,010
------- -------
PROPERTY AND EQUIPMENT:
Land and buildings 4,473 1,415
Equipment, furniture and fixtures 42,522 19,982
------- -------
46,995 21,397
Less- Accumulated depreciation (14,921) (8,283)
------- ------
Property and equipment, net 32,074 13,114
------- ------
OTHER ASSETS:
Goodwill, net of accumulated amortization of $2,162 and $1,200
at October 31, 1998 and 1997, respectively 31,374 8,341
Assets held for sale 38,750 -
Other 2,740 1,881
------- ------
Total other assets 72,864 10,222
------- -------
Total assets $ 290,760 $ 50,346
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 15,047 $ 3,154
Accounts payable and accrued liabilities 61,376 8,649
Billings in excess of costs and profits on uncompleted contracts 57,439 291
Reserves for losses on uncompleted contracts 25,390 -
Notes payable shareholders/directors 1,182 875
------- ------
Total current liabilities 160,434 12,969
Long-term debt, excluding current portion 76,047 14,140
Other 2,737 1,277
------- ------
Total liabilities 239,218 28,386
------- ------
COMMITMENTS AND CONTINGENCIES (Note 8)
CONVERTIBLE PREFERRED STOCK
Series A redeemable preferred stock, $.10 par value, 995 shares issued and
outstanding in 1997 - 6,713
Series B preferred stock, $.10 par value, (aggregate liquidation
value of $17,820,000), 4,000 shares authorized; 3,564 shares issued
and outstanding in 1998 11,325 -
------- ------
Total convertible preferred stock 11,325 6,713
------- ------
SHAREHOLDERS' EQUITY:
Preferred stock, 1,000,000 shares authorized - -
Common stock, $.001 par value, authorized 25,000,000 shares;
11,065,670 and 8,580,422 shares issued and outstanding at
October 31, 1998 and 1997, respectively 11 9
Additional paid-in-capital 35,164 15,096
Series B Preferred Stock warrants 5,400 -
Senior Subordinated Note warrants 1,244 -
WorldCom stock options 3,490 -
WorldCom phantom stock 606 -
Retained earnings (deficit) (5,698) 142
------- ------
Total shareholders' equity 40,217 15,247
------- ------
Total liabilities and shareholders' equity $ 290,760 $ 50,346
======== =======
</TABLE>
The accompanying notes are an integral part to these consolidated financial
statements
F-17
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- -----
<S> <C> <C> <C>
REVENUES $ 217,481 $ 86,334 $ 48,906
COSTS AND EXPENSES:
Cost of revenues 179,505 68,164 40,486
General and administrative 18,692 8,780 8,404
Depreciation 6,638 4,124 2,411
Amortization 962 408 339
Charges and transaction/translation losses related to
Latin American operations 275 17 3,553
------- ------ ------
Total costs and expenses 206,072 81,493 55,193
------- ------ ------
INCOME (LOSS) FROM OPERATIONS 11,409 4,841 (6,287)
OTHER (INCOME) EXPENSE, NET:
Interest expense, including amortization of discount of $157
in 1998 5,534 1,565 1,350
Interest and dividend income (342) (449) (270)
Other (320) (152) 32
----- ----- ------
Total other expense, net 4,872 964 1,112
----- ----- -----
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES
AND MINORITY INTEREST 6,537 3,877 (7,399)
PROVISION (BENEFIT) FOR INCOME TAXES 3,405 727 (891)
----- ----- ------
INCOME (LOSS) BEFORE MINORITY INTEREST 3,132 3,150 (6,508)
MINORITY INTEREST 618 293 (598)
----- ----- ------
NET INCOME (LOSS) 2,514 2,857 (5,910)
PREFERRED DIVIDENDS (341) (260) -
BENEFICIAL CONVERSION PRIVILEGE OF PREFERRED STOCK (8,013) (1,266) -
------- ------ ------
INCOME (LOSS) APPLICABLE TO COMMON STOCK $ (5,840) $ 1,331 $(5,910)
====== ===== =====
INCOME (LOSS) PER COMMON SHARE:
Basic $ (0.59) $ 0.16 $ (0.71)
=========== ========= ==========
Diluted $ (0.59) $ 0.16 $ (0.71)
=========== ========= ==========
WEIGHTED AVERAGE SHARES OUTSTANDING - (basic and diluted) 9,907,060 8,504,972 8,361,458
=========== ========= ==========
</TABLE>
The accompanying notes are an integral part to these consolidated financial
statements
F-18
<PAGE>
<TABLE>
<CAPTION>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996
(in thousands, except common stock shares and amounts)
Series B
Common Stock Additional Preferred Subordinated
------------------------ Paid-In Stock Notes
Shares Amount Capital Warrants Warrants
------------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, November 1, 1995 8,193,212 $ 8,193 $ 12,790 $ - $ -
Issuance of common stock to
directors in connection with acquisition 10,000 10 43 - -
Change in unrealized loss on investments - - - - -
Net loss - - - - -
------------ -------- -------- ------- -------
BALANCE, October 31, 1996 8,203,212 8,203 12,833 - -
Issuance of common stock in connection with acquisition 108,489 108 620 - -
Issuance of common stock for services 2,000 2 12 - -
Issuance of common stock for exercise of options 262,240 262 732 - -
Compensation recognized on stock options - - 338 - -
Issuance of common stock for conversion of
convertible preferred shares 4,481 4 34 - -
Changes in unrealized loss on investments - - - - -
Convertible preferred dividends paid - - - - -
Embedded dividend recognized on convertible
preferred shares - - - - -
Tax benefit from exercise of options - - 527 - -
Net income - - - - -
------------ -------- -------- ------- -------
BALANCE, October 31, 1997 8,580,422 8,579 15,096 - -
Issuance of common stock for GEC earnout 204,440 204 1,278 - -
Compensation expense for below market options - - 93 - -
Issuance of common stock for exercise of options
net of tax benefit 351,935 352 2,071 - -
Dividends on Series A preferred stock - - - - -
Embedded dividend recognized on Series A
convertible preferred shares - - - - -
Issuance of common stock for conversion of
Series A convertible preferred shares 920,946 921 6,817 - -
Valuation of subordinated note warrants - - - - 1,244
Valuation of Series B Preferred Stock warrants - - - 5,400 -
Beneficial conversion privilege applicable to
Series B Preferred Stock - - 7,909 - -
Valuation of WorldCom options - - - - -
Valuation of WorldCom phantom stock awards - - - - -
Issuance of common stock for conversion of
Series B Preferred Stock 1,007,927 1,008 1,384 - -
Dividends on Series B preferred stock - - - - -
Tax benefit from exercise of options - - 516 - -
Net income - - - - -
------------ -------- -------- ------- -------
BALANCE, October 31, 1998 11,065,670 $ 11,064 $ 40,564 $ 5,400 $ 1,244
============ ======== ======== ======= =======
<CAPTION>
Unrealized
Loss on Retained
WorldCom WorldCom Investments Earnings
Stock Options Phantom Stock Net of Taxes (Deficit)
------------- ------------- ------------ --------
<S> <C> <C> <C> <C>
BALANCE, November 1, 1995 $ - $ - $ (53) $ 4,721
Issuance of common stock to
directors in connection with acquisition - - - -
Change in unrealized loss on investments - - (1) -
Net loss - - - (5,910)
------- ----- ----- --------
BALANCE, October 31, 1996 - - (54) (1,189)
Issuance of common stock in connection with acquisition - - - -
Issuance of common stock for services - - - -
Issuance of common stock for exercise of options - - - -
Compensation recognized on stock options - - - -
Issuance of common stock for conversion of
convertible preferred shares - - - -
Changes in unrealized loss on investments - - 54 -
Convertible preferred dividends paid - - - (260)
Embedded dividend recognized on convertible
preferred shares - - - (1,266)
Tax benefit from exercise of options - - - -
Net income - - - 2,857
------- ----- ----- --------
BALANCE, October 31, 1997 - - - 142
Issuance of common stock for GEC earnout - - - -
Compensation expense for below market options - - - -
Issuance of common stock for exercise of options,
net of tax benefit - - - -
Dividends on Series A preferred stock - - - (79)
Embedded dividend recognized on Series A
convertible preferred shares - - - (104)
Issuance of common stock for conversion of
Series A convertible preferred shares - - - -
Valuation of subordinated note warrants - - - -
Valuation of Series B Preferred Stock warrants - - - -
Beneficial conversion privilege applicable to
Series B Preferred Stock - - - (7,909)
Valuation of WorldCom options 3,490 - -
Valuation of WorldCom phantom stock awards - 606 -
Issuance of common stock for conversion of
Series B Preferred Stock - - - -
Dividends on Series B preferred stock - - - (262)
Net income - - 2,514
------- ----- ----- --------
BALANCE, October 31, 1998 $ 3,490 $ 606 $ - $ (5,698)
======= ===== ===== ========
<CAPTION>
Total
--------
<S> <C>
BALANCE, November 1, 1995 $ 17,466
Issuance of common stock to
directors in connection with acquisition 43
Change in unrealized loss on investments (1)
Net loss (5,910)
--------
BALANCE, October 31, 1996 11,598
Issuance of common stock in connection with acquisition 621
Issuance of common stock for services 12
Issuance of common stock for exercise of options 732
Compensation recognized on stock options 338
Issuance of common stock for conversion of
convertible preferred shares 34
Changes in unrealized loss on investments 54
Convertible preferred dividends paid (260)
Embedded dividend recognized on convertible
preferred shares (1,266)
Tax benefit from exercise of options 527
Net income 2,857
--------
BALANCE, October 31, 1997 15,247
Issuance of common stock for GEC earnout 1,278
Compensation expense for below market options 93
Issuance of common stock for exercise of options 2,071
Dividends on Series A preferred stock (79)
Embedded dividend recognized on Series A
convertible preferred shares (104)
Issuance of common stock for conversion of
Series A convertible preferred shares 6,818
Valuation of subordinated note warrants 1,244
Valuation of Series B Preferred Stock warrants 5,400
Beneficial conversion privilege applicable to Series B Preferred Stock -
Valuation of WorldCom options 3,490
Valuation of WorldCom phantom stock awards 606
Issuance of common stock for conversion of
Series B Preferred Stock 1,385
Dividends on Series B preferred stock (262)
Tax benefit from exercise of options 516
Net income 2,514
--------
BALANCE, October 31, 1998 $ 40,217
========
</TABLE>
The accompanying notes are an integral part to these consolidated financial
statements
F-19
<PAGE>
<TABLE>
<CAPTION>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED (IN THOUSANDS):
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,514 $2,857 $(5,910)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities,
net of effects of acquisitions:
Depreciation 6,638 4,532 2,750
Amortization 962
Bad debt expense -- 160 1,094
Translation/transaction Losses 275 17 1,180
Deferred income taxes 717 727 (891)
Minority interest 618 293 (598)
Write down of Latin American assets -- -- 1,593
Compensation recognized for conversion
of stock options 93 338 --
Reduction in revenue for litigation -- (433) --
Other - net 156 10 313
------- ------ ------
11,973 8,501 (469)
Changes in operating assets and liabilities,
net of effects from acquisitions:
Decrease in accounts receivable 2,694 842 1,855
Increase in costs and profits in
excess of billings on
uncompleted contracts (16,987) (4,661) (829)
Decrease in inventory 2,602 118 1,871
Decrease (increase) in other current assets (268) 313 340
Decrease (increase) in other assets 1,247 (280) (287)
Increase (decrease) in accounts payable
and accrued expenses 2,273 (199) 160
Increase (decrease) in billings
in excess of costs and estimated
profits on uncompleted contracts 569 (927) 681
Increase in other liabilities 2,789 230 --
------- ------ ------
Cash Provided by Operating Activities 6,892 3,937 3,322
------- ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (9,966) (4,487) (2,557)
Net proceeds from sale of assets 90 96 129
Sales of investments 0 567 --
Cash acquired in acquisitions 4,661 404 1,761
Cash paid for acquisitions (8,681) (3,000) (3,500)
------- ------ ------
Net cash used in investing activities (13,896) (6,420) (4,167)
------- ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under lines of credit 50,518 (4,626) 1,254
Payment of shareholder/directors loans (2,925) (250) (500)
Borrowings from shareholder/directors 2,050 -- 500
Proceeds from long-term debt 10,000 11,014 4,547
Proceeds from debt to finance acquisition 10,000 3,000 3,000
Repayments on long-term debt (74,388) (9,272) (6,251)
Distributions to minority interests (502) (293) (210)
Foreign currency translation adjustment (275) (17) (779)
Proceeds from the issuance of preferred
stock, net 18,110 5,418 --
Proceeds from the exercise of stock options 2,071 732 --
Dividends paid (341) (260) --
------- ------ ------
Net cash provided by financing activities 14,318 5,446 1,561
------- ------ ------
Effect of exchange rate changes on cash
and cash equivalents -- -- (401)
Increase in cash and cash equivalents 7,314 2,963 315
Cash and cash equivalents at beginning of year 6,230 3,267 2,952
------- ------ ------
Cash and cash equivalents at end of year $13,544 $6,230 $3,267
======= ====== ======
Supplemental disclosures of cash flow information:
Valuation of warrants $ 6,644 $ -- $ --
Discount on preferred stock 7,909 -- --
Conversion of Series B Preferred Stock 1,385 -- --
Conversion of Series A Preferred Stock 6,818 -- --
Issuance of common stock for acquisition 1,278 621 43
Issuance of common stock for services -- 11 --
GEC earnout (4,595) (1,278) --
Compensation recognized on below market options 93 338 --
Valuation of below market options on acquisition 4,096 -- --
Cash paid for:
Interest 4,226 1,684 1,120
Income taxes 29 -- --
</TABLE>
F-20
<PAGE>
ABLE TELCOM HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1998
1. THE COMPANY:
Able Telcom Holding Corp. ("Able Telcom" or the "Company") develops, builds and
maintains communications systems for companies and governmental authorities. The
Company is headquartered in West Palm Beach, Florida, and operates its
subsidiaries throughout the United States, as well as in areas of South America.
The Company has three main organizational groups:
ORGANIZATIONAL GROUP SERVICES PROVIDED
Network Services Group Design, development, engineering,
installation, construction, operation and
maintenance services for telecommunications
systems
Transportation Services Group Design, development, integration,
installation, construction, project
management, maintenance and operation of
automated toll collection systems,
electronic traffic management and control
systems, and computerized manufacturing
systems
Communications Development Group Design, installation and maintenance
(Latin America) services to foreign telephone companies
Each group is comprised of subsidiaries of the Company with each having local
executive management functioning under a decentralized operating environment.
The Company's 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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements are prepared on an accrual
basis and include the accounts of the Company and its subsidiaries. A
substantial portion of consolidated total assets, liabilities and revenues are
generated by one subsidiary of the Company, MFS Network Technologies, Inc.
(MFSNT) which was acquired during the fiscal year ended October 31, 1998.
Operations for subsidiaries acquired in purchase business combinations are
included in the consolidated results of operations since the date of
acquisition. All material intercompany accounts and
F-21
<PAGE>
transactions have been eliminated. Certain items in the 1997 and 1996
consolidated financial statements have been reclassified to conform to the 1998
presentation.
USE OF ESTIMATES
The preparation of the consolidated 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 consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all unrestricted highly liquid investments with original
maturities of three months or less to be cash equivalents.
ASSETS HELD FOR SALE
Assets held for sale represent certain assets acquired in connection with the
acquisition of MFSNT which are held for sale and are reported at the estimated
fair value less costs to sell.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets which
generally range from five to ten years.
GOODWILL
Goodwill represents the amount by which the purchase price of businesses
acquired exceeds the fair market value of the net tangible and identifiable
intangible assets acquired under the purchase method of accounting. Goodwill is
being amortized on a straight-line basis over 20 years.
The Company, at each balance sheet date, evaluates the recoverability of the
carrying amount of goodwill if circumstances suggest that 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.
F-22
<PAGE>
STOCK BASED COMPENSATION
The Company accounts for its stock based compensation under Accounting Principle
Board Opinion No. 25, ("APB No. 25")"Accounting for Stock Issued to Employees,"
and follows the disclosure provisions of Statement of Financial Accounting
Standards ("SFAS") No. 123, "Acounting for Stock-Based Compensation." See Note
12.
REVENUE RECOGNITION
Revenues from "per unit basis" contracts are recognized at the time services are
rendered and accepted by the customer. Revenues from construction contracts and
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. Generally, the determination of substantial contract completion is made
by the project owner.
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.
When the current estimates of total contract revenue and contract cost indicates
a loss ("loss jobs"), a provision for the entire loss on the contract is made.
During the fiscal year ended October 31, 1998, costs on loss jobs of
approximately $15.1 million were charged to reserves for losses on uncompleted
contracts which relate primarily to loss contracts acquired in connection with
the acquisition of MFSNT.
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. Nonmonetary assets and liabilities, and related
income statement amounts are remeasured at historical exchange rates.
INCOME TAXES
The Company files consolidated federal income tax returns. The Company
recognizes deferred tax assets and liabilities based on the difference between
the financial statement and tax bases of assets and liabilities using estimated
tax rates in effect for the year in which the differences are expected to
reverse.
F-23
<PAGE>
INCOME (LOSS) PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, "Earnings Per Share" ("SFAS No. 128"), which specifies the computation,
presentation and disclosure requirements for earnings per share (EPS). SFAS No.
128 is effective for periods ending after December 15, 1997, and requires
retroactive restatement of EPS for all prior periods presented. The statement
replaces the previous "primary earnings per share" computation with a "basic
earnings per share" and redefines the "diluted earnings per share" computation.
The difference between the Company's weighted average shares outstanding and
diluted shares outstanding is due to the dilutive effect of stock options and
convertible securities. There are no significant differences in the numerator of
the Company's computations of basic and diluted earnings per share for any
period presented. The effect of securities that could dilute basic earnings per
share would be antidilutive for all periods presented. The Company has
potentially dilutive securities that could have a dilutive effect in the future.
Those securities include warrants related to the Series A Preferred Stock,
Series B Preferred Stock, stock options, warrants and phantom stock awards.
FAIR VALUE 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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
SFAS No. 130 - In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income." This statement establishes standards for reporting and
display of comprehensive income and its components in a full set of financial
statements. This statement is effective for fiscal years beginning after
December 15, 1997. Companies are also required to report comparative totals for
comprehensive income in interim reports. The Company will report comprehensive
income commencing in fiscal year 1999.
SFAS No. 131 - In June 1997, the FASB issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information". This
statement requires disclosures for each segment that are similar to those
required under current standards with the addition of quarterly disclosure
requirements and more specific and detailed geographic disclosures especially by
countries as opposed to broad geographic regions. The provisions of SFAS No. 131
are effective for fiscal years beginning after December 15, 1997. The Company
will adopt this statement in the fiscal year 1999.
SFAS No. 133 - In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and for Hedging Activities." This statement revises the
accounting for the recognition and measurement of derivatives and hedging
transactions and is effective for fiscal years beginning after June 15, 1999.
The Company does not anticipate the early adoption of this statement and has not
determined the impact it will have on the consolidated financial statements.
3. ACQUISITIONS
On July 2, 1998, the Company acquired the network construction and
transportation systems business of MFSNT from WorldCom, Inc. ("WorldCom")
pursuant to a merger agreement dated April 26, 1998 ("Plan of Merger"). On
September 9, 1998, the Company and WorldCom finalized the terms of the Plan of
Merger through the execution of an amended agreement. The acquisition of MFSNT
was accounted for using the purchase method of accounting at a total price of
approximately $67.5 million, as described below.
In conjunction with the acquisition of MFSNT, the Company granted an option to
WorldCom (the "WorldCom Option") to purchase up to 2,000,000 shares of the
Company's common stock, at an exercise price of $7.00 per share, but subject to
a 1,817,941 share maximum limitation, and the right to receive upon satisfaction
of certain conditions phantom stock awards (the "Phantom Stock Awards")
equivalent to 600,000 shares of common stock, payable in cash, stock, or a
combination of both at the Company's option. The WorldCom Phantom Stock Awards
are 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 in no event shall the
maximum payment exceed $25.00 per share. The fair values of the WorldCom Option
and Phantom Stock Awards were estimated at the date of grant at $3.5 million and
$0.6 million, respectively, and are included as a component of the total
consideration paid for the acquisition of MFSNT.
Subsequent to October 31, 1998, the Company and WorldCom agreed to convert the
WorldCom Option to stock appreciation rights with similar terms and provisions,
except that the stock appreciation rights provide for the payment of cash to
WorldCom based upon the appreciation of the Company's common stock over a base
price of $7.00 per share. The stock appreciation rights may revert back to the
Option if certain shareholder approvals are received.
The purchase price for MFSNT was determined as follows (in millions):
Contract price(1) $58.8
Transaction related costs 4.6
WorldCom Option 3.5
WorldCom Phantom Stock Awards .6
-----
Total Purchase Price $67.5
=====
- ----------
(1) As of October 31, 1998, $28.8 million of the contract price was paid and
the remainder is subject to a note to WorldCom as described in Note 7.
F-24
<PAGE>
The Company allocated the purchase price to the assets acquired and the
liabilities assumed based on the fair value of those assets and liabilities as
follows (in millions):
Cash and accounts receivable $47.0
Costs and profits in excess of billings on
uncompleted contracts 93.7
Assets held for sale 38.8
Prepaid expenses 1.0
Property 5.7
Goodwill(1) 16.5
Accounts payable (13.7)
Billings in excess of costs and profits
on uncompleted contracts (56.6)
Reserve for losses on uncompleted contracts (40.5)
Accrued restructuring costs(2) (2.0)
Property taxes payable (15.0)
Other accrued liabilities(3) (7.4)
-----
Total allocated purchase price $67.5
=====
- -------------
(1) Goodwill is being amortized on a straight-line basis over 20 years.
(2) Accrued restructuring costs related primarily to severance and benefit costs
associated with the involuntary termination of employees pursuant to an
approved restructuring plan. During the fiscal year ended October 31, 1998,
approximately $1.7 million was charged against this reserve.
(3) Includes allowances for costs related to litigation and claims of $5.0
million which, according to the Plan of Merger, is payable to WorldCom in
the event specified litigation costs and claims are not paid by the Company.
In conjunction with the acquisition of MFSNT, the Company entered into a
five-year agreement with WorldCom to provide telecommunications infrastructure
services to WorldCom (the "WorldCom Master Services Agreement") 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 percent of reimbursable
costs under the agreement ("Aggregate Sum"). 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. During the fiscal year ended October 31, 1998, the Company recognized
revenues of approximately $30.3 million from the WorldCom Master Services
Agreement.
F-25
<PAGE>
The Company is entitled to use the name "MFSNT" during the 18-month transition
period commencing July 2, 1998.
PATTON MANAGEMENT CORPORATION
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. The acquisition was accounted for using the purchase
method of accounting. Goodwill of approximately $2.8 million was recorded and is
being amortized on a straight-line basis over 20 years.
DIAL COMMUNICATIONS, INC.
On December 2, 1996, Able acquired all 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 (fair value of $0.6 million) and
issued a $0.9 million promissory note with a three year term bearing interest
at Prime plus 1/2 percent. 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 $1.5 million
was recorded in this transaction which is being amortized over 20 years using
the straight-line method.
F-26
<PAGE>
GEORGIA ELECTRIC COMPANY
On October 12, 1996, the Company acquired all of the outstanding common stock of
Georgia Electric Company (GEC). As initial consideration, the Company paid $3.0
million 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 Company recorded goodwill of $1.3 million at October 31, 1997 and additional
goodwill of $4.6 million at October 31, 1998 as a result of additional purchase
price due to the former owner of GEC under the terms of the earn-out provisions
of the acquisition agreement. The goodwill is being amortized over 20 years
using the straight-line method. Corresponding amounts are reflected as accounts
payable and accrued liabilities in the consolidated balance sheets pending the
issuance of the Company's common stock.
F-27
<PAGE>
H. C. CONNELL, INC.
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 $0.5 million in cash and issued a $1.9 million
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.
F-28
<PAGE>
Pro Forma Financial Information (Unaudited)
Unaudited pro forma financial information for the Company is presented below as
if the Company's acquisitions had taken place as of November 1, for each of the
respective years (in thousands, except per share amounts):
Years Ended October 31,
------------------------
1998 1997 1996
---- ---- ----
Revenues $392,046 $457,820 $85,095
Net loss (22,823) (14,127) (1,346)
Loss applicable to common
stock (31,710) (15,653) (1,346)
Loss applicable to common
stock per share (3.20) (1.84) (.17)
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. ACQUISITION OF COMSAT CONTRACTS:
On February 25, 1998, GEC acquired 12 contracts (the "COMSAT Contracts") with
the Texas Department of Transportation from CRSI Acquisition, Inc., a subsidiary
of COMSAT Corporation ("COMSAT"). The COMSAT Contracts are for the installation
of intelligent traffic management systems and the design and construction of
wireless communication networks. In exchange for assuming the obligations to
perform under the COMSAT Contracts, GEC received consideration from COMSAT of
approximately $15.0 million.
During the fiscal year ended October 31, 1998, the Company recognized revenues
and cost of revenues related to the COMSAT contracts of $19.8 million and $10.7
million, respectively. At October 31, 1998, seven of the COMSAT Contracts were
substantially complete.
F-29
<PAGE>
5. UNCOMPLETED CONTRACTS:
Uncompleted contracts consist of the following at October 31, (in thousands):
1998 1997
----- ----
Costs incurred on uncompleted contracts $116,073 $43,237
Earnings recognized on uncompleted contracts 29,086 7,361
------ ------
Total 145,159 50,598
Less billings to date (97,120) (45,274)
------- ------
Net $ 48,039 $ 5,324
======== ========
Included in the accompanying balance sheets under the following headings at
October 31, (in thousands):
1998 1997
---- ----
Costs and profits in excess of billings on
uncompleted contracts $105,478 $5,615
Billings in excess of costs and profits on
uncompleted contracts 57,439 291
-------- ------
Net $ 48,039 $5,324
======== ======
6. ASSETS HELD FOR SALE:
Assets held for sale consist of: (1) certain fiber optic conduit that runs from
Ohio to New York; and (2) an interest in Kanas Telcom, Inc. ("Kanas") whose
primary asset is a telecommunications network along the Alaskan pipeline (the
"Alyeska Project") (Refer to "Kanas Guarantee Agreement" in Note 8). These
assets were acquired in connection with the acquisition of MFSNT and are
reflected in the accompanying October 31, 1998 consolidated balance sheet at
their estimated fair value less costs to sell. Subsequent to October 31, 1998,
the Company negotiated the sale of the fiber optic conduit for approximately
$26.0 million which approximated the October 31, 1998 carrying value.
F-30
<PAGE>
7. DEBT:
The Company's debt consist of the following at October 31, (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Note payable to bank under Revolving Credit Facility, maturing on
June 20, 2001, interest payment dates and rates vary (7.69 percent
at October 31, 1998), secured by the Company's existing and future
restricted subsidiaries, excluding MFSNT $ 35,000 $ -
Note payable to WorldCom maturing on December 15, 2000, interest is
payable quarterly at an annual rate of 11.5 percent 30,000 -
Senior Subordinated Notes, annual payments of $5.0 million on January 6,
2004 and 2005, 12 percent interest per annum, in arrears, paid
semi-annually 10,000 -
Notes payable to a bank, payable in monthly installments aggregating
approximately $47,161, interest payable monthly ranging from
2.0 to 8.75 percent secured by substantially all the assets of
the Company in 1997 491 3,560
Notes payable to former owner of Dial payable in monthly installments
of principal and interest of 8.75 percent at October 31, 1998 369 669
Bank lines of credit, $6.0 million maturing on March 1, 1998, interest
payable monthly at prime (8.75 percent at October 31, 1997) secured
by substantially all the assets of the Company - 6,000
Notes payable to banks, payable in monthly installments of principal and
interest of 8.5 percent at October 31, 1997, secured by real and
personal property of GEC - 2,500
Mortgage note payable to a bank, payable in monthly installments
of $1,604 plus interest at prime (8.75 percent at October 31, 1997) - 269
Notes payable to bank, payable in monthly installments
of principal and interest at prime (8.75 percent at October 31,
1997), secured by real and personal property of Dial - 2,876
Notes payable to banks, payable in monthly installments of
principal and interest at prime (8.75 percent at
October 31, 1997), secured by related equipment - 385
Notes payable to bank, payable in monthly installments of
principal and interest at prime (8.75 percent at October 31,
1997), secured by related equipment - 511
------ -------
75,860 16,770
Property taxes payable under certain contractual agreements at the
present value of estimated amounts payable over 20 years discounted
at 15 percent, payments to commence in fiscal year 1999 15,000 -
Capital leases 1,321 524
------ -------
92,181 17,294
Less- Discount on Senior Subordinated Notes (1,087) -
------ -------
91,094 17,294
Less- Current portion (15,047) (3,154)
------ -------
Long-term debt, excluding current portion $ 76,047 $14,140
====== =======
</TABLE>
F-31
<PAGE>
CREDIT FACILITIES
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 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. At
October 31, 1998 and thereafter, the Company was in violation of certain of the
covenants in the New Credit Facility which were subsequently waived through
November 1, 1999.
WORLDCOM NOTE:
In conjunction with the acquisition of MFSNT, the Company executed a $30.0
million promissory note to WorldCom bearing interest of 11.5 percent per year
(the "WorldCom Note").
The principal amount of the WorldCom Note is to be repaid in part by applying a
portion of certain fees (i) due under the WorldCom Master Services Agreement and
(ii) received by the Company in connection with the sale and installation of
certain fiber optic conduit projects. Pursuant to an agreement, the Company has
pledged all of the shares of capital stock in MFSNT to WorldCom to secure the
Company's obligations under the WorldCom Note.
The Company has classified $13.2 million of the WorldCom Note as a current
liability based upon the estimates of the fiscal year 1999 repayments resulting
from proceeds under the WorldCom Master Services Agreement and the sale of the
fiber optic conduit.
The WorldCom Note provides for covenants of which the Company was in compliance
at October 31, 1998. Upon noncompliance or an event of default, the entire
balance of the WorldCom Note shall automatically become due and payable, subject
to certain subordination provisions. In addition, remedies available to WorldCom
include the following:
/bullet/ Acquire all of the stock in MFSNT.
/bullet/ Keep all principal and interest already paid under the WorldCom Note.
/bullet/ Require an 18 percent annual default rate of interest.
/bullet/ Cause WorldCom to apply 12 percent of the payment it owes to the
Company 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 the WorldCom Note is not repaid in full by December 15, 2000,
it is anticipated that WorldCom will be able to:
/bullet/ Reduce the minimum yearly and aggregate revenues under the WorldCom
Master Services Agreement.
/bullet/ Refuse to give additional work under the WorldCom Master Service
Agreement while in default.
SENIOR SUBORDINATED NOTES
Effective January 6, 1998, the Company issued $10.0 million of unsecured 12
percent Senior Subordinated Notes due January 6, 2005 (the "Senior Subordinated
Notes") with detachable warrants to purchase 409,505 shares of common stock at a
price of $8.25 per share, which were valued at approximately $1.2 million
resulting in a corresponding discount applicable to the Senior Subordinated
Notes which is being amortized to interest expense over the life of such notes.
The agreement, pursuant to which the Senior Subordinated 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. At October 31, 1998, the Company was in violation of certain of
the covenants in the Senior Subordinated Note agreement. These notes were
purchased from the holder of these notes subsequent to October 31, 1998, which
will be accounted for as a redemption by the Company. See Note 17.
OTHER 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 and was repaid
in 1998.
AGGREGATE MATURITIES
The aggregate maturities of long-term debt and capital leases for years
subsequent to October 31, 1998, are as follows:
1999 $ 15,047
2000 18,225
2001 36,021
2002 935
2003 872
Thereafter 21,081
--------
$92,181
========
F-32
<PAGE>
8. COMMITMENTS AND CONTINGENCIES:
F-33
<PAGE>
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 tortuous
interference, fraudulent inducement, negligent misrepresentation and breach of
contract in connection with the Company's agreement to purchase the shares of
MFSNT and seeks injunction relief and compensatory damages in excess of $100.0
million.
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, and certain of its officers. 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.
The Company is subject to a number of shareholder and other lawsuits and claims
for various amounts which arise out of the normal course of its business. The
Company intends to vigorously defend itself in these matters. The disposition of
all pending lawsuits and claims is not determinable and may have a material
adverse effect on the Company's financial position.
KANAS GUARANTY AGREEMENT
In conjunction with the acquisition of MFSNT, the Company has agreed to
guarantee the payment obligations of Kanas under its credit agreement. The
aggregate commitment of the lenders under this agreement is $85.4 million, and
the purpose of the Kanas Credit Agreement is to provide the funds necessary to
complete the Alyeska Project.
CONTRACTS
The Company has and will continue to execute various construction and other
contracts which may require the Company to, among other items, maintain specific
financial parameters, meet specific milestones and post adequate collateral
generally in the form of performance bonds. Failure by the Company to meet its
obligation under these contracts may result in the loss of the contract and
subject the Company to litigation and various claims, including liquidated
damages.
F-34
<PAGE>
LEASED PROPERTIES
As of October 31, 1998, the Company leased office space and equipment under
various noncancelable long-term operating lease arrangements.
Rental expense for operating leases amounted to $2.4 million, $0.8 million and
$0.6 million for the fiscal years ended October 31, 1998, 1997 and 1996,
respectively.
During fiscal year 1998, the Company leased certain equipment under capitalized
lease agreements which have been included in Property and Equipment. Cost
and accumulated amortization of such assets as of October 31, 1998, totaled $3.2
million and $1.8 million, respectively.
Future minimum lease payments required under operating and capital leases with
initial terms in excess of one year are as follows (in thousands):
CAPITAL OPERATING
YEARS ENDING OCTOBER 31, LEASES LEASES
-------- ----------
1999 $ 788 $3,177
2000 454 1,738
2001 149 1,238
2002 64 1,125
2003 - 625
Thereafter - 416
------ ------
Total minimum lease payments $1,455 $8,319
====== ======
Present value of net minimum lease
payments $1,321
Less current installments of
obligations under capital leases 706
------
Obligations under capital leases,
excluding current installments $ 615
======
F-35
<PAGE>
9. PREFERRED STOCK:
SERIES A PREFERRED
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 percent for
conversions after December 20, 1997) 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 $1.3 million 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 five percent and is
payable quarterly in arrears in cash or through a dividend of additional shares
of Preferred Stock.
During fiscal 1998, all remaining Series A Preferred Stock was converted into
common stock pursuant to the terms thereof and the related number of warrants
was reduced to 62,000, due to either exercise or forfeiture.
SERIES B PREFERRED
Effective June 30, 1998 (the "Closing"), the Company completed a private
offering (the "Offering") of 4,000 shares of $0.10 par value, nonvoting Series B
Convertible Preferred Stock (the "Series B Preferred Stock") which bear annual
dividends of 4 percent, 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"). Net proceeds from the Offering totaled $18.1
million. 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 percent 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
percent 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 percent of the then outstanding common stock
of the Company.
F-36
<PAGE>
Of the $18.1 million of proceeds $5.4 million was assigned to the value of the
warrants and $12.7 million was assigned as the Series B Preferred Stock. The
warrants are exercisable for a five-year period commencing June 30, 1998. In
addition, approximately $7.9 million was assigned to the beneficial conversion
privilege and has been reflected as a reduction in income available to common
stock for the fiscal year ended October 31, 1998.
As of October 31, 1998, 436 shares of the Series B Preferred Stock were
converted into 1,007,927 shares of common stock at a price of $2.17 per share.
Subsequent to October 31, 1998, 2,785 shares were acquired from the holders of
this stock by an affiliate of the Company. See Note 17.
The Series B Preferred Stock agreements contain certain covenants including
registration rights and limitations on common stock dividends. Subsequent to
October 31, 1998, the Company was in violation of certain of the covenants
related primarily to registration rights and intends to complete the required
registration statement in the fiscal year 1999. The Series B Preferred Stock
agreements provide for mandatory redemption at amounts up to 130% of the
liquidation value under certain circumstances.
10. IMPAIRMENT OF LATIN AMERICAN OPERATIONS
During the second quarter of fiscal 1996, the Company identified circumstances
that 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 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 1997.
11. INCOME TAXES:
An analysis of the components of income (loss) before income taxes and minority
interest and the related provision (benefit) for income taxes is presented below
(in thousands):
1998 1997 1996
------ ------- -------
Domestic $6,084 $3,304 $(3,770)
Foreign 453 573 (3,629)
------ ------ -------
$6,537 $3,877 $(7,399)
====== ====== ========
Provision (benefit) for
income taxes:
Federal
Current $1,937 $ - $ -
Deferred 792 657 (969)
State
Current 751 - -
Deferred (75) 70 (167)
Foreign
Current - - -
Deferred - - 245
------ ------ -------
Provision (benefit) for income
taxes $3,405 $ 727 $ (891)
====== ====== ========
Reconciliation of the federal statutory income tax rate to the Company's
effective income tax rate is as follows:
1998 1997 1996
---- ---- ----
Provision (benefit) tax at
federal statutory rate 34% 34% (34)%
State income tax, net 7 .2 4
Non-deductible goodwill 4 4 2
Reduction in valuation
Allowance - - (1)
Foreign operations, net 4 (20) 22
Other items, net 3 3.8 (5)
-- --- ---
Effective income tax rate 52% 22% (12)%
== === ===
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below:
1998 1997
------ ------
Deferred tax assets-
Reserve for bad debts $ 312 $ 135
Net operating loss carryforward - 1,143
Foreign tax credit carryforwards - 424
Other 747 69
------ ------
1,059 1,771
------ ------
Deferred tax liabilities-
Plant, property and equipment (755) (660)
Investment in foreign subsidiaries - (129)
Other (39) -
------ ------
(794) (789)
------ ------
Net deferred tax asset $ 265 $ 982
====== ======
On October 31, 1997, the Company had Federal net operating loss carryforwards
of approximately $3.3 million which were fully utilized in 1998.
F-37
<PAGE>
12. STOCK OPTIONS:
In fiscal 1996, the Company's shareholders adopted a stock option plan for the
issuance of up to 550,000 shares which included provisions for both incentive
and nonqualified stock options (the Plan) and which expires on September 19,
2005. Salaried employees are eligible to receive both incentive and nonqualified
stock options, except that employees of the Company may not receive incentive
stock options if at the date of grant they own more than ten percent (10%) of
the Company's outstanding stock, unless (i) the incentive stock options are
granted at an option price at least equal to 110 percent of the fair market
value of the Company's common stock at the date of grant, and (ii) the options
are not exercisable after five years from the date of the grant. Grants of
incentive stock options are also limited under the Plan to the extent that the
aggregate fair market value at the date of grant is exercisable for the first
time by an employee of the Company during any calendar year in an amount which
exceeds $100,000. Nonemployee directors who do not own more than five percent
(5%) of any class of the Company's outstanding stock, consultants and advisors
are eligible to receive nonqualified stock options under the Plan.
The Plan specifies that all options must be granted at a price which is equal to
or in excess of the fair market value of the Company's common stock, determined
in accordance with the Plan (the average closing price of the Company's common
stock for the ten (10) business days immediately preceding the date of grant)
and are not transferable other than at the death of the optionee. Incentive
stock options generally become exercisable over a three-year period in equal
installments beginning in the year
F-38
<PAGE>
after the date of grant, while nonqualified stock options are exercisable, as
determined by the plan administrator described below. The Plan is currently
administered by the Company's Board of Directors, although the Plan provides
that a committee of disinterested persons appointed by the Board of Directors
may also administer the Plan.
On April 24, 1998, the shareholders increased the number of shares issuable
under the Plan to 1,300,000 and made certain other amendments to the Plan which
relate primarily to the issuance of restricted stock awards.
A summary of the Company's stock option activity under the Plan, and related
information for the period from October 31, 1996, through October 31, 1998,
follows:
NUMBER OF OPTION PRICE
SHARES PER SHARE
--------- ----------
Options Outstanding at
October 31, 1996 160,000 $5.75 - $6.875
Grants 323,500 6.00 - 7.813
Exercises (71,740) 6.00 - 6.875
Cancellations (39,320) 5.875 - 7.813
Option Outstanding at
October 31, 1997 372,440 6.00 - 7.813
Grants 592,000 5.34 - 14.00
Exercises (211,935) 5.34 - 7.813
Cancellations (88,030) 6.375 - 7.813
--------------------------------
Options Outstanding at
October 31, 1998 664,475 6.20 - 14.00
================================
In addition, stock options have been granted to certain officers prior to the
adoption of the Plan and to certain employees of the Company outside of the
Plan. During fiscal 1992, an option to purchase 260,000 shares of the Company's
common stock at $0.05 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 $0.50 per share and a financial consultant for the
Company was granted a total of 200,000 shares at an average price of $3.38 per
option, all of which were exercised prior to October 31, 1996. During fiscal
1995, options to purchase 100,000 shares at the fair market value of $4.83 per
share were granted to an officer, pursuant to an employment agreement. During
fiscal 1996, options to purchase 40,000 were granted to an employee at an option
price of $6.44 per share, which was above the fair market value at the date of
grant ($6.00). During fiscal 1998, options to purchase 160,000 shares of the
Company's common stock were granted to members of the Company's Board of
Directors at option prices of $6.20 or $11 15/16 per share, and 150,000 options
were granted to certain employees of the Company at an option price of $14.00
per share.
F-39
<PAGE>
A summary of the Company's stock option activity outside the Plan, and related
information for the period from October 31, 1996, through October 31, 1998,
follows:
NUMBER OF OPTION PRICE
SHARES PER SHARE
-------- -----------
Options Outstanding at
October 31, 1996 300,500 $0.05 - $6.44
Grants - -
Exercises (190,500) 0.05 - 4.83
Cancellations - -
Option Outstanding at
October 31, 1997 110,000 0.05 - 6.44
Grants 310,000 6.20 - 14.00
Exercises (110,000) 0.05 - 6.44
Cancellations - -
--------------------------------
Options Outstanding at
October 31, 1998 310,000 6.20 - 14.00
================================
The estimated average remaining life of the stock options in the Plan and
outside the Plan is approximately 3.5 years and 6 years, respectively.
Subsequent to October 31, 1998, in an effort to correct certain of the actions
taken by the Company's Board of Directors in order to maintain compliance with
the Plan, as amended, the Board of Director's rescinded certain of the above
stock option grants, or 530,000 options under the Plan and 310,000 options
outside the Plan, and reissued these options at the calculated fair market value
on December 31, 1998, as well as shortened certain of the expiration dates of
the options. In addition, subsequent to October 31, 1998, the Board of Directors
of the Company granted an additional 162,500 stock options under the Plan and
1,050,000 options outside the Plan to employees of the Company.
Compensation expense associated with options issued at an option price less than
fair market value for the fiscal year ended October 31, 1998 totaled $0.1
million. For the fiscal years ended October 31, 1997 and 1996, the Company did
not have any compensation expense associated with stock options.
FASB issued SFAS No. 123 in 1995, 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 apply APB No. 25 which recognizes compensation
cost based on the intrinsic value of the equity instrument awarded. The Company
has elected to continue to apply APB No. 25. Under APB No. 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 (loss) and
earnings (loss) per share as if the Company had adopted the expense recognition
requirement of SFAS No. 123:
YEAR ENDED OCTOBER 31,
1998 1997 1996
Proforma income (loss) applicable
to common stock $ (7,303) $ 1,121 $ (5,760)
Proforma income (loss) applicable
to common stock per share:
Basic (0.74) .13 (0.69)
13. MAJOR CUSTOMERS/CONCENTRATION OF CREDIT RISK
During fiscal year 1998, only one customer, WorldCom, accounted for ten percent
or more of the Company's consolidated revenues. Revenues from WorldCom during
the fiscal year ended October 31, 1998 totaled approximately $30.3 million, and
receivables from WorldCom at October 31, 1998 totaled $11.8 million.
In fiscal years 1997 and 1996, a significant portion of the Company's business
was derived from four major customers including a governmental agency, two
telephone companies and an industrial manufacturer. At October 31, 1997, the
Company had accounts receivable from these customers of $3.1 million or 48% of
total accounts receivable. Revenues from these customers totaled approximately
$30.9 million and $22.8 million or 36% and 50% of consolidated revenues in
fiscal years 1997 and 1996, 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 and 4% in 1996. Accounts receivable outstanding
for this customer were $0.8 million at October 31, 1997.
14. RELATED-PARTY TRANSACTIONS:
In conjunction with certain finders fees associated with the acquisition of
MFSNT, the Company entered into three-year, 10 percent note for $1.3 million
with a third party who subsequently became a member of the Company's Board of
Directors. At October 31, 1998, the outstanding balance of this note was $1.2
million and is reflected in current liabilities in the accompanying consolidated
balance sheet.
At various times in the past, certain of the Company's directors have loaned the
Company money for a variety of purposes. Generally these loans are unsecured at
market rates of interest. Other than the note described above, there were no
notes to directors at October 31, 1998 and $0.9 million outstanding under such
notes at October 31, 1997.
F-40
<PAGE>
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 $0.1 million. 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
$0.3 million, 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 and at the time of this transaction. The Company's Chief Financial
Officer, beneficially owned approximately 7.7 percent of the voting stock of
Ten-Ray and had personally guaranteed the equipment loans to the bank.
F-41
<PAGE>
15. INDUSTRY AND GEOGRAPHIC AREA SEGMENT INFORMATION:
The Company currently operates primarily in two industry segments: network
services and transportation services. Transportation 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>
INDUSTRY SEGMENTS 1998 1997 1996
----------------- ---- ---- ----
<S> <C> <C> <C>
Sales to unaffiliated customers:
Transportation services $ 84,022 $46,795 $22,661
Network services 133,459 39,539 26,245
-------- ------- -------
Total $217,481 $86,334 $48,906
======== ======= =======
Income (loss) from operations:
Transportation services $ 8,220 $3,772 $(3,454)
Network services 3,189 1,069 (2,833)
-------- ------- -------
Total $ 11,409 $4,841 $(6,287)
======== ======= =======
Identifiable assets:
Transportation services $ 88,340 $28,884 $25,099
Network services 202,420 21,462 13,820
-------- ------- -------
Total $290,760 $50,346 $38,919
======== ======= =======
Capital expenditures:
Transportation services $ 3,238 $1,635 $1,275
Network services 6,728 2,852 2,216
-------- ------- ------
Total $ 9,966 $4,487 $3,491
======== ====== ======
Depreciation and amortization:
Transportation services $ 2,824 $1,710 $1,229
Network services 4,776 2,822 1,521
-------- ------- ------
Total $ 7,600 $4,532 $2,750
======== ====== ======
GEOGRAPHIC AREAS
Revenues:
United States $212,152 $82,171 $45,160
Latin America 5,329 4,163 3,746
-------- ------- -------
Total $217,481 $86,334 $48,906
======== ======= =======
Income (loss) from operations:
United States $ 11,310 $ 4,824 $(2,073)
Latin America 99 17 (4,214)
-------- ------- --------
Total $ 11,409 $ 4,841 $(6,287)
======== ======= ========
Identifiable assets:
United States $287,569 $47,781 $36,410
Latin America 3,191 2,565 2,509
-------- ------- -------
Total $290,760 $50,346 $38,919
======== ======= =======
</TABLE>
F-42
<PAGE>
16. QUARTERLY FINANCIAL DATA (UNAUDITED):
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------ ------- ------- -------
<S> <C> <C> <C> <C>
1998(1)
Revenues $22,268 $34,552 $58,305 $102,356
Operating income (loss) (1,261) 2,083 4,032 5,156
Net income (loss) (927) 867 790 1,785
Income (loss) applicable to
common stock (1,081) 838 (7,186) 1,589
1997(2)
Revenues $18,326 $20,871 $21,984 $25,153
Operating income (loss) 1,142 1,785 1,024 888
Net income (loss) 505 851 932 567
Income (loss) applicable to
common stock 470 337 491 33
</TABLE>
- -----------
(1) Quarterly amounts for 1998 have been adjusted from amounts previously
reported by the Company in their quarterly filings with the SEC for
adjustments related to a) the beneficial conversion feature associated with
the Series B Preferred Stock; b) the recognition of certain contract
revenues; and c) several adjustments for depreciation and miscellaneous
accruals.
(2) 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 $0.2 million.
The previously reported financial data are as follows (amounts in thousands):
FIRST SECOND THIRD
QUARTER QUARTER QUARTER
------- ------- -------
1998
----
Revenues $22,268 $34,552 $57,705
Operating income (loss) (776) 3,725 4,763
Net income (loss) (670) 1,835 1,464
Income (loss) applicable
to common stock (824) 1,792 824
17. SUBSEQUENT EVENT:
Subsequent to October 31, 1998, WorldCom advanced the Company $32.0 million for
purposes of arranging the purchase of 2,785 shares, or approximately 78 percent,
of the Series B Preferred Stock and the purchase of the outstanding $10.0
million of Senior Subordinated Notes. The advance accrues interest at 11.5
percent and is repayable on the earlier of (i) October 31, 2000 or (ii) the
dates of redemption and/or conversion of the Series B Preferred Stock or the
Senior Subordinated Notes.
In connection with these transactions, the Company expects to recognize an
extraordinary loss in the second quarter of fiscal year 1999 on the purchase of
the Senior Subordinated Notes of approximately $1.9 million, net of tax, and a
reduction in income applicable to common stock of approximately $10.0 million on
the purchase of the Series B Preferred Stock.
In addition, the Company agreed to modify the terms of the existing Series B
Preferred Stock conversion and warrant agreements which will result in a
reduction in income applicable to common stock of approximately $6.0 million
during the second quarter of fiscal year 1999.
WorldCom also agreed to make available additional advances to the Company of up
to $15.0 million against amounts otherwise payable pursuant to the WorldCom
Master Services Agreement. These additional advances accrue interest at 11.5
percent and are repayable to WorldCom on October 31, 2000.
Had these transactions occurred in fiscal year 1998, convertible preferred
stock and selected components of shareholders' equity at October 31, 1998
would have been as follows (in thousands):
UNAUDITED
AS REPORTED PRO FORMA
----------- ---------
Convertible Preferred Stock $11,325 $ 2,477
Additional paid-in capital 40,564 41,873
Retained deficit (5,698) (18,945)
Total shareholders' equity 40,217 28,279
Additionally, had the transaction occurred in fiscal year 1998, basic earnings
per share would have been reduced by $1.95 per common share.
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 statements of operations and cash flows of
the Network Technologies Division of MFS Network Technologies, Inc. for each of
the three years in the period ended December 31, 1997. 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 results of the Network Technologies Division of MFS
Network Technologies, Inc.'s operations and its cash flows for each of the three
years in the period ended December 31, 1997, 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.
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS PERIODS ENDED JULY 2, 1998, JUNE 30, 1997,
AND THE YEARS ENDED 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-45
<PAGE>
NETWORK TECHNOLOGIES DIVISION OF
MFS NETWORK TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS PERIODS ENDED JULY 2, 1998, JUNE 30, 1997,
AND THE YEARS ENDED 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-46
<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 revenues and expenses. 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-47
<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, and $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.
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
3. 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,
was approximately $860,800, $896,700, $1,800,000, $1,429,700 and
$862,000, respectively.
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
4. 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.
5. 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.
6. 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.
7. 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.
Subsequent to December 31, 1997, Able Telcom Holdings Corp. 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-50
<PAGE>
INDEX TO PRO FORMA CONDENSED COMBINED UNAUDITED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
ABLE TELCOM HOLDING CORP.
<S> <C>
Introduction to Pro Forma Condensed Combined
Unaudited Financial Statements .......................................... P-2
Pro Forma Condensed Combined Unaudited Statements of Operations Data--
Theee months ended January 31, 1998 ..................................... P-3
Pro Forma Condensed Combined Unaudited Statements of Operations Data--
Year ended October 31, 1998 ............................................. P-5
Notes to Pro Forma Condensed Combined Unaudited Financial Statements .... P-7
</TABLE>
P-1
<PAGE>
INTRODUCTION TO PRO FORMA CONDENSED COMBINED UNAUDITED FINANCIAL STATEMENTS
The following pro forma condensed combined unaudited financial statements
(the "Pro Forma Unaudited Financial Statements") of Able Telcom Holding Corp.
(the "Company") give effect to the acquisition of the Network construction and
transportation systems businesses of MFS Network Technologies, Inc. (MFSNT) and
the acquisition of Patton Management Corporation ("Patton"). The consolidated
balance sheet of the Company as of October 31, 1998 includes the acquisitions
which are described in the notes to the Pro Forma Unaudited Financial
Statements, and, as such, no pro forma balance sheet is required or included
herein. The consolidated financial statements of the Company for the three
months ended January 31, 1999 reflect the acquisitions of MFSNT and Patton for
the entire period, and, therefore no pro forma financial statements for such
period are required or included herein. The Pro Forma Unaudited Financial
Statements should be read in conjunction with the historical financial
statements, including the notes thereto, of the Company and MFSNT, 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 Pro Forma Unaudited Financial Statements
for operating or synergistic benefits that may be realized through the
acquisitions of MFSNT or Patton. In addition, the Pro Forma Unaudited Financial
Statements do not reflect any of the initial, non-recurring costs associated
with the acquisitions of MFSNT and Patton, which costs cannot currently be
estimated.
The acquisitions of MFSNT and Patton were accounted for using the purchase
method of accounting. The allocation of purchase price to identifiable assets
and liabilities acquired is based upon preliminary estimates. The Company is in
the process of obtaining additional information necessary to finalize the
allocation of purchase price. The effect of the final allocation is not expected
to be significant.
In management's opinion, all material adjustments necessary to reflect the
effects of these transactions have been made. The following Pro Forma Unaudited
Financial Statements 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.
P-2
<PAGE>
ABLE TELCOM HOLDING CORP.
PRO FORMA CONDENSED COMBINED UNAUDITED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JANUARY 31, 1998
<TABLE>
<CAPTION>
1/31/96
ABLE PRO FORMA
HISTORICAL MFSNT PATTON ADJUSTMENTS TOTAL
----------- -------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues .................................................... $ 22,268 $ 84,178 $ 5,706 $ -- $ 112,152
Costs of revenues ........................................... 19,010 91,880 5,202 -- 116,092
General and administrative .................................. 3,196 2,303 509 -- 6,008
Depreciation and amortization ............................... 1,240 894 298 (206)(1) 2,638
Charges and transaction/translation losses related...........
to Latin America Operations................................ (15) -- -- -- (15)
----------- -------- ------- -------- ----------
Total Costs and Expenses ................................. 23,431 95,077 6,009 206 124,723
----------- -------- ------- -------- ----------
Income (loss) from operations ............................... (1,163) (10,899) (303) (206) (12,571)
Other (income) expense, net:
Interest expense ........................................... 276 -- 159 863 (2) 1,298
Interest and dividend income ............................... (74) -- (24) -- (98)
Other (income) expense ..................................... (28) -- (136) -- (164)
----------- -------- ------- -------- ----------
Total other (income) expense, net ........................ 174 -- (1) 863 1,036
Income (loss) before income taxes ........................... (1,337) (10,899) (302) (1,069) (13,607)
----------- -------- ------- -------- ----------
Provision (benefit) for income taxes......................... (522) -- 11 511 (3) --
Income (loss) before minority interest ...................... (815) (10,899) (313) (1,580) (13,607)
----------- -------- ------- -------- ----------
Minority interest ........................................... 111 -- -- -- 111
Net income (loss) ........................................... (926) (10,899) (313) (1,580) (13,718)
----------- -------- ------- -------- ----------
Preferred stock dividends ................................... (49) -- -- (200) (4) (249)
Beneficial conversion privilege of preferred stock .......... (105) -- -- -- (105)
----------- -------- ------- -------- ----------
Net income (loss) applicable to common stock ................ $ (1,080) $(10,899) $ (313) $ (1,780) $ (14,072)
=========== ======== ======= ======== ==========
Earnings per common share--basic and diluted ................ $ (0.12) $ (1.61)
=========== ======== ======= ======== ==========
Basic and diluted weighted average shares ................... 8,759,300 8,759,300
=========== ======== ======= ======== ==========
</TABLE>
P-3
<PAGE>
NOTES:
(1) Incremental depreciation and amortization attributable to recording acquired
property and equipment at fair value and goodwill, respectively.
(2) Interest expense on the Note to WorldCom for the acquisition of MFSNT based
on a rate of 11.5% per annum.
(3) Income tax benefit associated with the Pro Forma losses of MFSNT and Patton.
(4) Dividends on Series B Preferred Stock.
P-4
<PAGE>
ABLE TELCOM HOLDING CORP.
PRO FORMA CONDENSED COMBINED UNAUDITED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1998
<TABLE>
<CAPTION>
10/31/98
ABLE PRO FORMA
HISTORICAL MFSNT PATTON ADJUSTMENTS TOTAL
----------- -------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenues ........................................................ $ 217,481 $165,226 $ 9,339 -- $ 392,046
Costs of revenues ............................................... 179,505 176,941 8,825 -- 365,271
General and administrative ...................................... 18,692 11,066 911 -- 30,669
Depreciation and amortization ................................... 7,600 2,026 501 550 (1) 10,677
Charges and transaction/translation losses related
to Latin America Operations .................................. 275 -- -- -- 275
----------- -------- ------- ----------- ----------
Total Costs and Expenses ..................................... 206,072 190,033 10,237 550 406,892
----------- -------- ------- ----------- ----------
Income (loss) from operations ................................... 11,409 (24,807) (898) (550) (14,846)
Other (income) expenses, net:
Interest expense ............................................... 5,534 -- 517 2,300 (2) 8,351
Interest and dividend income ................................... (342) -- (125) -- (467)
Other (income) expense ......................................... (320) -- (205) -- (525)
----------- -------- ------- ----------- ----------
Total other (income) expense, net ............................ 4,872 -- 187 2,300 7,359
Income (loss) before income taxes ............................... 6,537 (24,807) (1,085) (2,850)(3) (22,205)
----------- -------- ------- ----------- ----------
Provision (benefit) for income taxes ............................ 3,405 -- (141) (3,264) --
Income (loss) before minority interest .......................... 3,132 (24,807) (944) 414 (22,205)
----------- -------- ------- ----------- ----------
Minority interest ............................................... 618 -- -- -- 618
Net income (loss) ............................................... 2,514 (24,807) (944) 414 (22,823)
----------- -------- ------- ----------- ----------
Preferred stock dividends ....................................... (341) -- -- (533)(4) (874)
Beneficial conversion privilege of preferred stock .............. (8,013) -- -- -- (8,013)
----------- -------- ------- ----------- ----------
Net income (loss) applicable to common stock .................... $ (5,840) $(24,807) $ (944) $ (119) $ (31,710)
=========== ======== ======= =========== ==========
Earnings per common share--basic and diluted .................... $ (0.59) $ (3.20)
=========== ==========
Basic and diluted weighted average shares ....................... 9,907,060 9,907,060
=========== ==========
</TABLE>
P-5
<PAGE>
NOTES:
(1) Incremental depreciation and amortization attributable to recording acquired
property and equipment at fair value and goodwill, respectively.
(2) Interest expense on the Note to WorldCom for the acquisition of MFSNT based
on a rate of 11.5% per annum.
(3) Income tax benefit associated with the Pro Forma losses of MFSNT and Patton.
(4) Dividends on Series B Preferred Stock.
P-6
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
On July 2, 1998, the Company acquired the network construction and
transportation systems business of MFS Network Technologies, Inc. (MFSNT) from
WorldCom, Inc. ("WorldCom") pursuant to a merger agreement dated April 26, 1998
("Plan of Merger"). On September 9, 1998, the Company and WorldCom finalized the
terms of the Plan of Merger through the execution of an amended agreement. The
acquisition of MFSNT was accounted for using the purchase method of accounting
at a total price of approximately $67.5 million, as described below.
In conjunction with the acquisition of MFSNT, the Company granted an option to
WorldCom (the "WorldCom Option") to purchase up to 2,000,000 shares of the
Company's common stock, at an exercise price of $7.00 per share, but subject to
a 1,817,941 share maximum limitation, and the right to receive upon satisfaction
of certain conditions phantom stock awards (the "Phantom Stock Awards")
equivalent to 600,000 shares of common stock, payable in cash, stock, or a
combination of both at the Company's option. The WorldCom Phantom Stock Awards
are 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 in no event shall the
maximum payment exceed $25.00 per share. The fair values of the WorldCom Option
and Phantom Stock Awards were estimated at the date of grant at $3.5 million and
$0.6 million, respectively, and are included as a component of the total
consideration paid for the acquisition of MFSNT.
Subsequent to October 31, 1998, the Company and WorldCom agreed to convert the
WorldCom Option to stock appreciation rights with similar terms and provisions,
except that the stock appreciation rights provide for the payment of cash to
WorldCom based upon the appreciation of the Company's common stock over a base
price of $7.00 per share. The stock appreciation rights may revert back to the
Option if certain shareholder approvals are received.
The purchase price for MFSNT was determined as follows (in millions):
Contract price(1) $58.8
Transaction related costs 4.6
WorldCom Option 3.5
WorldCom Phantom Stock Awards .6
-----
Total Purchase Price $67.5
=====
- ---------------
(1) As of October 31, 1998, $28.8 million of the contract price was paid and
the remainder is subject to a note to WorldCom.
The Company allocated the purchase price to the assets acquired and the
liabilities assumed based on the fair value of those assets and liabilities as
follows (in millions):
Cash and accounts receivable $47.0
Costs and profits in excess of billings on
uncompleted contracts 93.7
Assets held for sale 38.8
Prepaid expenses 1.0
Property 5.7
Goodwill(1) 16.5
Accounts payable (13.7)
Billings in excess of costs and profits
on uncompleted contracts (56.6)
Reserve for losses on uncompleted contracts (40.5)
Accrued restructuring costs(2) (2.0)
Property taxes payable (15.0)
Other accrued liabilities(3) (7.4)
-----
Total allocated purchase price $67.5
=====
- -------------
(1) Goodwill is being amortized on a straight-line basis over 20 years.
(2) Accrued restructuring costs related primarily to severance and benefit costs
associated with the involuntary termination of employees pursuant to an
approved restructuring plan. During the fiscal year ended October 31, 1998,
approximately $1.7 million was charged against this reserve.
(3) Includes allowances for costs related to litigation and claims of $5.0
million which, according to the Plan of Merger, is payable to WorldCom in
the event specified litigation costs and claims are not paid by the Company.
P-7
<PAGE>
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
In conjunction with the acquisition of MFSNT, the Company entered into a
five-year agreement with WorldCom to provide telecommunications infrastructure
services to WorldCom (the "WorldCom Master Services Agreement") 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 percent of reimbursable
costs under the agreement ("Aggregate Sum"). 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. During the fiscal year ended October 31, 1998, the Company recognized
revenues of approximately $30.3 million from the WorldCom Master Services
Agreement.
PATTON MANAGEMENT CORPORATION
On April 1, 1998, the Company purchased all of the outstanding common stock
of Patton Management Corporation ("Patton") for a total purchse price of
approximately $4.0 million. The acquisition was accounted for using the purcahse
method of accounting. Goodwill of approximately $2.8 million was recorded and is
being amortized on a straight-line basis over 20 years.
P-8
<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 .......... 115,000.00 *
Legal Fees and Expenses ............... 120,000.00 *
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.
EXHIBIT
NO. DESCRIPTION
- ------- ------------
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 an 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)
2.5.1.3 Agreement between WorldCom Network Services, Inc. and Able
Telcom Holding Corp. dated January 26, 1999 (12)
2.5.2 Promissory Note of Able Telcom Holding Corp. dated July 2,
1998 to MFS Communications Company, Inc. (10)
2.5.2.1 11.5% Promissory Note between Able Telcom Holding Corp., and
WorldCom Network Services, Inc. dated as of September 1, 1998
(12)
II-4
<PAGE>
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 Communcations, 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)
2.5.7 Modification to Stock Option Agreement between the Company and
WorldCom, Inc. dated January 8, 1999 (12)
2.5.8 Agreement to Enter Into Stock Appreciation Rights Agreement
between the Company and WorldCom, Inc. dated January 8, 1999
(12)
2.5.9 Financing Agreement between WorldCom Network Services, Inc.
and Able Telcom Holding Corp. dated February 16, 1999 (12)
3.1 Articles of Incorporation of 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 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)
II-5
<PAGE>
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)
4.13 Preferred Stock Purchase Agreement by and among Able Telcom
Holding Corp., RGC International Investors, LDC, and Cotton
Communications, Inc. dated February 17, 1999 (12)
4.14 Warrant Amendment between Able Telcom Holding Corp., and
Purchasers (as defined) dated February 17, 1999 (12)
4.15 Securities Purchase Agreement by and between the Sellers (as
defined) and Cotton Communications, Inc. dated February 17,
1999 (12)
5.1 Opinion regarding Legality of Common Stock
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 J. 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)
II-6
<PAGE>
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)
10.32.1 Amendment and Amended and Restated Limited Waiver to June 11,
1998 Credit Agreement among Able Telecom Holding Corp.,
NationsBank N.A., and the Several Lenders from Time to Time
Parties thereto, dated as of June 30, 1998
10.33 Employment Agreement with Billy V Ray, Jr., dated October 1,
1998 (12)
10.34 Employment Agreement with Curtis A. "Butch" Dale, dated August
17, 1998 (14)
10.35 Financial Advisor and Placement Engagement Letter, dated April
3, 1998, between Washington Equity Partners and Able Telcom
Holding Corp. (14)
10.36 Employment Agreement with G. Vance Cartee, dated January 4,
1999 (12)
10.37 Employment Agreement with Edward Pollock, dated January 1,
1999 (12)
10.38 Employment Agreement with Frazier L. Gaines, dated November
12, 1998 (12)
10.39 Employment Agreement with Gideon D. Taylor, dated December 7,
1998 (12)
10.40 Employment Agreement with Rick Boyle, dated April 1, 1998 (12)
10.41 Financing Agreement between Able Telcom Holding Corp. and
Cotton Communications, Inc. dated February 17, 1999 (without
exhibits) (12)
10.41.1 Termination Agreement between Able Telecom Holding Corp. and
Cotton Communications, Inc. dated March 22, 1999
10.42 11.5% Non-Recourse Promissory Note between Cotton
Communications, Inc. and Able Telcom Holding Corp. dated
February 17, 1999 (12)
10.43 Stock Pledge Agreement between Able Telcom Holding Corp. and
Cotton Communications, Inc. dated February 17, 1999 (12)
10.44 Employment Agreement with Michael Arp, dated January 1, 1999
10.45 Consulting Agreement and Employment Agreement with James E.
Brandon, dated March 15, 1999
11 Computation of Per Share Earnings (7)
16.1 Letter regarding change in certifying accountants(15)
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 Counsel (included with Exhibit 5.1)
27 Financial Data Schedule
II-7
<PAGE>
- -------------------
(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 April 14, 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 10-K/A, as filed with the
commission on March 20, 1998.
(7) Incorporated by reference from Note 5 to the Condensed
Consolidated Financial Statements (Unaudited) filed herewith.
(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 from an exhibit to the Company's
Annual Report on Form 10-K/A (File No. 0-21986), for the
fiscal year ended October 31, 1998, as filed with the
Commission on March 1, 1999.
II-8
<PAGE>
(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.
(14) Incorporated by reference to an exhibit to the Company's Form
S-1 (File No. 333-65991), as filed with the Commission on
October 22, 1998.
(15) Incorporated by reference from an Exhibit 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.
(b) Reports on Form 8-K
None
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-9
<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-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the 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 8th day of April, 1999.
ABLE TELCOM HOLDING CORP.
By: /S/ BILLY V. RAY, JR.
-------------------------------------
Billy V. Ray, Jr.
President and Chief Executive Officer
and Acting Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the 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/ Billy V Ray, Jr. President and Chief Executive Officer April 8, 1999
- -------------------------------- and Director, and Acting Chief
Billy V. Ray, Jr. Financial Officer
(Principal Executive Officer
and Acting Principal Financial Officer)
/s/ Michael A. Arp Chief Financial Vice President April 8, 1999
- -------------------------------- (Principal Accounting Officer)
Michael A. Arp
/s/ Carl Franklin Swartz Chairman of the Board April 8, 1999
- --------------------------------
Carl Franklin Swartz
/s/ Alec McLarty Director April 8, 1999
- --------------------------------
Alec McLarty
/s/ Jonathan A. Bratt Director April 8, 1999
- --------------------------------
Jonathan A. Bratt
/s/ Thomas M. Davidson Director April 8, 1999
- --------------------------------
Thomas M. Davidson
/s/ Robert H. Young Director April 8, 1999
- --------------------------------
Robert H. Young
- -------------------------------- Director April _, 1999
Gerald Pye
</TABLE>
II-11
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- ------------
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 an 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)
2.5.1.3 Agreement between WorldCom Network Services, Inc. and Able
Telcom Holding Corp. dated January 26, 1999 (12)
2.5.2 Promissory Note of Able Telcom Holding Corp. dated July 2,
1998 to MFS Communications Company, Inc. (10)
2.5.2.1 11.5% Promissory Note between Able Telcom Holding Corp., and
WorldCom Network Services, Inc. dated as of September 1, 1998
(12)
<PAGE>
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 Communcations, 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)
2.5.7 Modification to Stock Option Agreement between the Company and
WorldCom, Inc. dated January 8, 1999 (12)
2.5.8 Agreement to Enter Into Stock Appreciation Rights Agreement
between the Company and WorldCom, Inc. dated January 8, 1999
(12)
2.5.9 Financing Agreement between WorldCom Network Services, Inc.
and Able Telcom Holding Corp. dated February 16, 1999 (12)
3.1 Articles of Incorporation of 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 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)
<PAGE>
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)
4.13 Preferred Stock Purchase Agreement by and among Able Telcom
Holding Corp., RGC International Investors, LDC, and Cotton
Communications, Inc. dated February 17, 1999 (12)
4.14 Warrant Amendment between Able Telcom Holding Corp., and
Purchasers (as defined) dated February 17, 1999 (12)
4.15 Securities Purchase Agreement by and between the Sellers (as
defined) and Cotton Communications, Inc. dated February 17,
1999 (12)
5.1 Opinion regarding Legality of Common Stock
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 J. 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)
<PAGE>
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)
10.32.1 Amendment and Amended and Restated Limited Waiver to June 11,
1998 Credit Agreement among Able Telecom Holding Corp.,
NationsBank N.A., and the Several Lenders from Time to Time
Parties thereto, dated as of June 30, 1998
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 (12)
10.34 Employment Agreement with Curtis A. "Butch" Dale, dated August
17, 1998 (14)
10.35 Financial Advisor and Placement Engagement Letter, dated April
3, 1998, between Washington Equity Partners and Able Telcom
Holding Corp. (14)
10.36 Employment Agreement with G. Vance Cartee, dated January 4,
1999 (12)
10.37 Employment Agreement with Edward Pollock, dated January 1,
1999 (12)
10.38 Employment Agreement with Frazier L. Gaines, dated November
12, 1998 (12)
10.39 Employment Agreement with Gideon D. Taylor, dated December 7,
1998 (12)
10.40 Employment Agreement with Rick Boyle, dated April 1, 1998 (12)
10.41 Financing Agreement between Able Telcom Holding Corp. and
Cotton Communications, Inc. dated February 17, 1999 (without
exhibits) (12)
10.41.1 Termination Agreement between Able Telcom Holding Corp. and
Cotton Communications, Inc. dated March 22, 1999
10.42 11.5% Non-Recourse Promissory Note between Cotton
Communications, Inc. and Able Telcom Holding Corp. dated
February 17, 1999 (12)
10.43 Stock Pledge Agreement between Able Telcom Holding Corp. and
Cotton Communications, Inc. dated February 17, 1999 (12)
10.44 Employment Agreement with Michael Arp, dated January 1, 1999
10.45 Consulting Agreement and Employment Agreement with James E.
Brandon, dated March 15, 1999
11 Computation of Per Share Earnings (7)
16.1 Letter regarding change in certifying accountants(15)
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 Counsel (included with Exhibit 5.1)
27 Financial Data Schedule
- -------------------
(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 April 14, 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 10-K/A, as filed with the
commission on March 20, 1998.
(7) Incorporated by reference from Note 5 to the Condensed
Consolidated Financial Statements (Unaudited) filed herewith.
(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 from an exhibit to the Company's
Annual Report on Form 10-K/A (File No. 0-21986), for the
fiscal year ended October 31, 1998, as filed with the
Commission on March 1, 1999.
<PAGE>
(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.
(14) Incorporated by reference to an exhibit to the Company's Form
S-1 (File No. 333-65991), as filed with the Commission on
October 22, 1998.
(15) Incorporated by reference from an Exhibit 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.
(b) Reports on Form 8-K
None
EXHIBIT 10.32.1
AMENDMENT AND AMENDED AND RESTATED LIMITED WAIVER
THIS AMENDMENT AND AMENDED AND RESTATED LIMITED WAIVER
(this "Amendment"), dated as of March 5, 1999, and effective as to ARTICLE I,
SECTION 2 as of October 31, 1998, and as to ARTICLE II as of January 1, 1999, is
entered into by and among Able Telcom Holding Corp., a Florida corporation
("BORROWER"), NationsBank, N.A., as Administrative Agent (in such capacity, the
"ADMINISTRATIVE AGENT") and as a Lender and CIBC INC. as Documentation Agent (in
such capacity, the "DOCUMENTATION AGENT") and as a Lender, with reference to the
hereinafter described Credit Agreement. Capitalized terms used and not otherwise
defined herein shall have the meanings ascribed to them in such Credit
Agreement.
RECITALS
A. The Borrower, the Administrative Agent and the several
Lenders from time to time parties thereto entered into that certain Credit
Agreement dated June 11, 1998 (as amended, modified, restated, supplemented,
renewed, extended, rearranged or substituted from time to time, the "CREDIT
AGREEMENT").
B. The Credit Agreement, among other things, requires that the
Borrower comply with certain financial covenants (including without limitation
those contained in SECTIONS 8.1(D) of the Credit Agreement.
C. On the October 31, 1998 (the "WAIVER DATE"), the Current
Ratio of the Borrower and its Restricted Subsidiaries was less than 2.5 to 1.00,
as required by Section 8.1(d) of the Credit Agreement.
D. The Borrower, the Administrative Agent, and the
Documentation Agent entered into that certain Limited Waiver dated as of
February 23, 1999 (the "PRIOR LIMITED WAIVER").
E. The Borrower, the Administrative Agent and the
Documentation Agent wish to clarify and amend the Prior Limited Waiver and to
amend the Credit Agreement, as provided herein.
NOW, THEREFORE, in consideration of these premises and in
reliance on the representations and warranties of the Borrower hereinafter set
forth, subject to the terms and conditions hereinafter set forth, the parties
hereto enter into this Amendment as follows:
<PAGE>
I. LIMITED WAIVER
SECTION 1.
The Prior Limited Waiver is hereby superseded and replaced in
its entirety with this Amendment.
SECTION 2.
In reliance upon, and subject to, the representations,
warranties and covenants of the Borrower set forth in ARTICLE III and V of this
Amendment, and in reliance upon the Amendment to the Credit Agreement set forth
in ARTICLE IV, the undersigned Lenders (constituting not less than the Majority
Lenders) hereby waive any Event of Default under the Credit Agreement that may
have arisen or which may arise during the period beginning on October 31, 1998
and ending on November 1, 1999, by means of the Borrower's failure to comply
with the requirement under SECTION 8.1(D) of the Credit Agreement that the
Borrower and its Restricted Subsidiaries have a Current Ratio of not less than
2.50 to 1.00.
II. AMENDMENT
SECTION 1.
The Credit Agreement shall be amended by adding the following
language as a new Section 8.1(e):
"(e) QUICK RATIO. Permit the Quick Ratio of the Borrower and
its Restricted Subsidiaries at the end of any fiscal quarter
of the Borrower to be less than 0.45 to 1.00."
SECTION 2.
The Credit Agreement shall be amended by adding the following
definition to SECTION 1.1:
"Quick Ratio" shall mean the ratio of Quick Assets to Current
Liabilities.
"Quick Assets" means unrestricted cash, marketable and freely
tradeable securities and accounts receivable, net of a reserve
for doubtful accounts as shown on the
2
<PAGE>
most recent balance sheet of the Borrower and its Restricted
Subsidiaries delivered in accordance with Section 7.1."
III. REPRESENTATIONS AND WARRANTIES
The Borrower hereby represents and warrants to the
Administrative Agent, the Documentation Agent and the Lenders that the following
statements are true and correct in all material respects on and as of the date
hereof:
(a) INCORPORATION OF CREDIT AGREEMENT REPRESENTATIONS AND
WARRANTIES. The representations and warranties contained in SECTION 5 of the
Credit Agreement are true and correct on and as of the date hereof.
(b) USE OF PROCEEDS. None of the proceeds of any Revolving
Credit Loan will be advanced or transferred by the Borrower to any entity other
than a Restricted Subsidiary (as defined in the Credit Agreement).
(c) COMPLIANCE CERTIFICATE. The Compliance Certificate as
attached hereto, and all numbers included therein are true and correct for the
date herein stated.
IV. MISCELLANEOUS
(a) RATIFICATION AND CONFIRMATION OF LOAN DOCUMENTS. Except
for the specific waivers provided for herein, the Credit Agreement as amended
hereby and other Loan Documents remain in full force and effect and are hereby
ratified and confirmed by the Borrower, and the execution and delivery of this
Limited Waiver shall not, except as expressly provided herein, operate as a
waiver of any right, power or remedy of the Administrative Agent or the
Documentation Agent or the Lenders under the Credit Agreement or any other Loan
Document. Without limiting the generality of the foregoing, the waiver set forth
in ARTICLE I above shall be limited precisely as set forth above, and nothing in
this Amendment shall be deemed (i) to constitute a waiver of compliance by the
Borrower or any of other Loan Party with respect to any other provision or
condition of the Credit Agreement or any other Loan Document, (ii) to prejudice
any right or remedy that the Administrative Agent or the Documentation Agent or
the Lenders may now have or may have in the future under or in connection with
the Credit Agreement or any other Loan Document or (iii) to constitute a waiver
of compliance by the Borrower or any of other Loan Party with respect to the
Credit Agreement or any other Loan Documents other than as specifically set
forth herein.
(b) FEES AND EXPENSES. The Borrower agrees to pay on demand
all reasonable costs and expenses of the Administrative Agent in connection with
the preparation, reproduction, execution, and delivery of this Amendment and the
other Loan Documents prepared in connection
3
<PAGE>
herewith, including, without limitation, the reasonable fees, charges and
disbursements and out-of-pocket expenses of counsel for the Administrative Agent
charged or incurred.
(c) HEADINGS. Article and Section headings in this Amendment
are included herein for convenience of reference only and shall not constitute a
part of this Limited Waiver for any other purpose or be given any substantive
effect.
(d) APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
SHALL BE CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
TEXAS, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.
(e) COUNTERPARTS. This Amendment may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
(f) FINAL AGREEMENT. THIS AMENDMENT, TOGETHER WITH THE CREDIT
AGREEMENT AND OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Limited Waiver to be duly executed and delivered by their proper and duly
authorized officers as of the day and year first above written.
ABLE TELCOM HOLDING CORP.
By: /s/ Billy V. Ray, Jr.
-----------------------------------
Name: Billy V. Ray, Jr.
Title: CEO & President
NATIONSBANK, N.A.,
as Administrative Agent and as a Lender
By: /s/ Roselyn Drake
-----------------------------------
Roselyn Drake
Vice President
CIBC INC.,
as a Lender
By: /s/Ihor Zaluckyj
-----------------------------------
Ihor Zaluckyj
Executive Director,
CIBC Oppenheimer Corp.,
An Agent for CIBC, Inc.
5
EXHIBIT 10.41.1
TERMINATION AGREEMENT
This Termination Agreement (this "Agreement") is entered into as of
March 22, 1999 by and between ABLE TELECOM HOLDING CORP., a Florida corporation,
("Able") and COTTON COMMUNICATIONS, INC., a Georgia corporation, ("Cotton").
WHEREAS, the parties are parties to a Financing Agreement dated
February 17, 1999, a Stock Pledge Agreement dated February 17, 1999 and a
$32,000,000 11.5% Non-Recourse Promissory Note payable by Able in favor of
Cotton dated February 17, 1999 (copies of which are attached hereto as Exhibits
A, B and C respectively) (the "Terminating Agreements");
WHEREAS, pursuant to the Terminating Agreements, Able loaned Cotton
$32,000,000 which Cotton used to purchase all the Senior Notes, as defined in
the Financing Agreement, and an aggregate of 2,785 shares of Series B Preferred
Stock, as defined in the Financing Agreement; and,
WHEREAS, the premises upon which the Terminating Agreements were
entered into have changed and in connection therewith the parties have agreed to
terminate the Terminating Agreements;
NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual promises set forth in this Agreement and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
1. TERMINATION OF OBLIGATIONS. The parties agree that the Terminating
Agreements are hereby terminated as of the date hereof.
2. ASSUMPTION OF OBLIGATIONS. Able hereby assumes and agrees to perform
any and all obligations of Cotton arising in connection with any and all of the
Terminating Agreements, and in connection with any of the agreements attached to
the Terminating Agreements as Exhibits.
3. ASSIGNMENT AND CANCELLATION OF SENIOR NOTES AND SERIES B PREFERRED
STOCK.
Without recourse:
(a) Cotton hereby assigns and transfers to Able all of
Cotton's right, title and interest in and to the Senior Notes and in 2,785
shares of the Series B Preferred Stock
<PAGE>
and hereby appoints Able or any of its officers as its attorney-in-fact to do
all acts and execute and deliver all documents necessary to effect such
transfer. This appointment of a power and attorney-in-fact is coupled with an
interest and is irrevocable.
(b) Able agrees to cancel and mark "paid" the Senior Notes and
redeem and cancel 2,785 shares of the Series B Preferred Stock.
4. INDEMNIFICATION. In the event that Cotton, or its shareholders,
directors, officers or agents (collectively and individually, the "Indemnified
Parties"), become involved in any action, proceeding or investigation in
connection with any matter contemplated by any of the Terminating Agreements,
and any agreement attached as an Exhibit to any Terminating Agreement, Able
shall reimburse the Indemnified Parties for their reasonable legal and other
expenses (including cost of any investigation and preparation) as they are
incurred by the Indemnified Parties.
Able shall also indemnify and hold harmless the Indemnified Parties
from and against any and all losses, claims, damages and liabilities, joint or
several, related to or arising out of any matters contemplated by any of the
Terminating Agreements and any agreement attached as an Exhibit to any
Terminating Agreement, unless and to the extent that it shall finally be
judicially determined that such losses, claims, damages or liabilities resulted
from the negligence or willful misconduct of the applicable Indemnified Party.
5. EFFECTIVE DATE. This Agreement shall be effective as of March 22,
1999.
6. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns.
7. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to the
principles of conflicts of law.
8. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall constitute an original and all of which, taken together, shall
constitute one and the same instrument.
9. SECTIONS AND HEADINGS. The division of this Agreement into sections
and the insertion of headings are for reference purposes only and shall not
affect the interpretation of this Agreement.
[SIGNATURE PAGE FOLLOWS]
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
ABLE TELECOM HOLDING CORP.
By: ________________________________
Name:
Title:
COTTON COMMUNICATIONS, INC.
By: ________________________________
Name:
Title:
3
<PAGE>
EXHIBIT A
Financing Agreement by and between Able Telecom Holding Corp. and
Cotton Communications, Inc. dated February 17, 1999.
4
<PAGE>
EXHIBIT B
$32,000,000 11.5% Non-Recourse Promissory Note by and between Able
Telecom Holding Corp. and Cotton Communications, Inc. dated February 17, 1999.
5
<PAGE>
EXHIBIT C
Stock Pledge Agreement by and between Able Telecom Holding Corp. and
Cotton Communications, Inc. dated February 17, 1999.
6
EXHIBIT 10.44
EMPLOYMENT AGREEMENT
Agreement dated this 1st day of January, 1999, by and between Able Telcom
Holding Corp., with its address at 1601 Forum Place, Suite 110, West Palm Beach,
Florida, 33401, ("Employer"), and Michael Arp of 15429 Pondwood Drive E, Tampa,
FL 33618.
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; and
WHEREAS, Employer desires to employ Employee as its Financial Vice President;
and
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; and
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
Employee shall devote his full time to the performance of services as Financial
Vice President or to such other services as may from time to time be designated
by the Company's President or Board of Directors. Employee agrees to perform
Employee's services well and faithfully and to the best of Employee's ability to
carry out the policies and directives of the Company.
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 hereunder shall be for a term of two (2) years to commence
on the date hereof. 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 paragraph 5 of
this agreement titled " Termination without Cause". At the end of the two- year
period, the Employee may sign a consulting agreement. The terms of this
Agreement will be negotiated not later than the 21st month of this Agreement.
<PAGE>
4. TERMINATION FOR CAUSE
Notwithstanding 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 or, c) breach of any
material provision of this Agreement.
5. TERMINATION WITHOUT CAUSE
Termination without cause can only be effected by an action of the CEO. In the
event of the termination without cause, the Employee will be paid severance pay
equal to the term remaining in this agreement plus regular company fringe
benefits for the remaining term of the contract. Severance will be paid on the
day of termination of $100,000 with the remainder divided into 3 equal monthly
payments starting 60 days after termination.
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
of $12,500 monthly.
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) AUTOMOBILE ALLOWANCE. Employer shall provide Employee with an automobile
allowance of five hundred dollars ($500) per month.
iv) HOUSING ALLOWANCE: Employer shall provide employee with a housing allowance
in the amount of $1,000 per month.
7. OPTIONS
Employee will receive as at January 1, 1999 an option to purchase 40, 000 shares
of common stock with a strike price equal to the NASDAQ price at the close of
business on December 31, 1998. Said option will vest as follows:
Immediately 20,000
December 31, 1999 15,000
December 31, 2000 10,000
In the event of a change in control/ownership these options will vest
immediately, however, said option must be exercised by December 31, 2001.
<PAGE>
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 three (3) 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 three (3) years following termination of employment, to the
extent such information is proprietary and not generally available to the public
or sources outside the company.
10. 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 Employee, directly or indirectly, without the express
written consent of Employee, except as required by law or regulation
11. 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 enforced 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 so expressed herein.
12. ENTIRE AGREEMENT: MODIFICATION
All prior agreements (prior to January1, 1999) with respect to the subject
matter hereof between the parties are hereby cancelled. 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.
13. 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.
<PAGE>
14. 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.
15. GOVERNING LAW
This Agreement shall be construed and governed by the laws of the State of
Florida.
16. ARBITRATION
Any controversy or claim arising under, out of, or in connection with this
Agreement or any breach or claimed breach hereof, 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.
17. 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 4th day of
January, 1999.
Witness: Employer: ABLE TELCOM HOLDING CORP.
By: __________________________ By: ______________________________
Billy V. Ray
Chief Executive Officer
Witness: Employee:
By: __________________________ By: ______________________________
Michael Arp
EXHIBIT 10.45
CONSULTING AGREEMENT
AND
EMPLOYMENT AGREEMENT
Agreement dated this 15th day of March, 1999, by and between Able Telcom Holding
Corp. ("ATHC") with its address at 1601 Forum Place, Suite 1110, West Palm
Beach, Florida, 33401, and James E. Brands ("BRANDS") of 4330 Bancoff Valley
Alpharetta, Georgia 30022.
WITNESSETH:
WHEREAS, Able Telcom Holding Corp. is engaged in the telephone and
telecommunication installation and service, and manufacture, sale and
installation of highway signs and traffic control products; and
WHEREAS, Able Telcom Holding Corp. desires to employ Brands as its Senior
Executive Vice President; and
WHEREAS, Able Telcom Holding Corp. desires to avail itself of the services of
Brands in order that his knowledge and ability may be utilized in the conduct
and development of the business and affairs of Able Telcom Holding Corp.; and
WHEREAS, Brands has evidenced his willingness to enter into an employment
agreement with respect to his employment by Able Telcom Holding Corp., 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. CONSULTING
For the period commencing March 15, 1999-April 2, 1999 Brands will serve as a
consultant to Able Telcom Holding Corp. Brands shall be compensated twenty
thousand ($20,000) dollars payable as follows: $10,000 on April 15, 1999
$10,000 on May 15, 1999
2. EMPLOYMENT: DUTIES
Brands shall devote his full time to the performance of services as Senior
Executive Vice President or to such other services as may from time to time be
designated by the Able Telcom Holding Corp.'s Chief Executive Officer or Board
of Directors. Brands agrees to perform Able Telcom Holding Corp.'s services well
and faithfully and to the best of Brands's ability to carry out the policies and
directives of the Company.
3. FULL TIME EMPLOYMENT
Brands hereby accepts employment by Able Telcom Holding Corp. upon the terms and
conditions contained herein and agrees that during the term of this Agreement,
Brands shall devote all of his business time, attention and energies to the
business of Able Telcom Holding Corp; provided, however, the parties agree that
Brands may devote a limited amount of time to serving as a director of other
companies and during the inception of this agreement , in transition from other
business responsibilities.
<PAGE>
4. TERM
Brands employment hereunder shall be for a term of one (1) year to commence on
April 5, 1999. This Agreement may be extended for an additional two (2) years
term after the initial term of one (1) year. Either party must give a minimum of
ninety (90) days prior written notice to the other party that either party
elects to have the Agreement terminate effective at the end of any term. If Able
Telcom Holding Corp. violates a major provision of this Agreement, Brands may
terminate this Agreement and receive an amount equal to the provisions under
paragraph 6 of this agreement titled " Termination without Cause". At the end of
the initial one year period, Brands may sign a consulting agreement. The terms
of that Agreement will be negotiated not later than January 5, 2000.
5. TERMINATION FOR CAUSE
Notwithstanding any other provision of this Agreement, Brands 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 Able
Telcom Holding Corp. property or funds; b) conviction of a felony or, c) breach
of any material provision of this Agreement.
6. TERMINATION WITHOUT CAUSE
Termination without cause can only be effected by an action of the Board of
Directors. In the event of the termination without cause, Brands will be paid
severance pay equal to the term remaining in this agreement plus regular company
fringe benefits for the remaining term of the contract. Severance of $50,000
will be paid on the day of termination with the balance, if any, paid bi-weekly
over the next 3 months. Fringe benefits will continue to be paid for the term
remaining.
7. COMPENSATION
As full compensation for the performance of his duties as Senior Executive Vice
President on behalf of Able Telcom Holding Corp., Brands shall be compensated as
follows:
i) BASE SALARY. Employer during the term hereof shall pay Employee a base
salary as follows:
April 2, 1999-April 30, 1999 $5,750
May 1, 1999-May 31, 1999 $2,500
June 1, 1999-May 31, 2000 $12,500 monthly
However if another executive or management employee other than a Chief Executive
Officer is hired during the initial term of this agreement at a compensation
rate greater than $12,500 per month, that compensation rate shall immediately
become the compensation rate for Brands for the remainder of the term.
ii) REIMBURSEMENT OF EXPENSES. Able Telcom Holding Corp. shall reimburse Brands
for the expenses incurred by Brands in connection with his duties hereunder,
including travel and entertainment, such reimbursement to be made in accordance
with regular Able Telcom Holding Corp. policy and upon presentation by Brands of
the details of, and vouchers for, such expenses.
iii) AUTOMOBILE ALLOWANCE. Able Telcom Holding Corp. shall provide Brands with
an automobile allowance of five hundred dollars ($500) per month. As its option
Able Telcom Holding Corp. may provide Brands with a late model Lincoln Town Car
and reimbursement of its operating costs.
<PAGE>
iv) HOUSING ALLOWANCE. Able Telcom Holding Corp. shall provide Brands with a
housing allowance of fifteen hundred ($1,500) dollars per month effective August
1, 1999. During the period of April 2, 1999-July 31, 1999 Brands will be
reimbursed for actual expenses incurred.
8. OPTIONS
Brands will receive as at March 21, 1999 an option to purchase 100, 000 shares
of common stock with a strike price equal to the NASDAQ price at the close of
business on the last business day prior to April 5, 1999.
VESTING DATE
------------
April 5, 1999 75,000
June 21, 2000 25,000 (Subject to divestiture if Brands is not an
Able Telcom Holding Corp. employee on
April 5, 2000).
In the event of a change in control/ownership these options will vest
immediately. Said options must be exercised within 2 years of each vesting date.
9. FRINGE BENEFITS
During the term of this Agreement, Able Telcom Holding Corp. shall provide at
its sole expense to Brands hospitalization, major medical, life insurance and
other fringe benefits on the same terms and conditions as it shall afford other
management employees.
10. UPON TERMINATION OF EMPLOYMENT
Subsequent to the termination of the employment of Brands, Brands will not
interfere with or disrupt or attempt to disrupt Able Telcom Holding Corp.'s
business relationship with its customers or suppliers. Further, Brands will not
solicit any of the employees of Able Telcom Holding Corp. to leave the Able
Telcom Holding Corp. for a period of three (3) years following such termination.
In addition, Employee agrees that all information received from principals and
agents of Able Telcom Holding Corp. will be held in total confidence for a
period of three (3) years following termination of employment, to the extent
such information is proprietary and not generally available to the public or
sources outside the company.
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. Able Telcom Holding Corp., or its management, directors,
representatives, employees or affiliates will not make any public announcements
or any other information related to Brands, directly or indirectly, without the
express written consent of Brands, except as required by law or regulation
<PAGE>
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 enforced 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 so expressed herein.
13. ENTIRE AGREEMENT: MODIFICATION
All prior agreements with respect to the subject matter hereof between the
parties are hereby cancelled. 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 Able Telcom Holding Corp., its successors and
assigns, and upon the Brands and his legal representatives, heirs and legatees.
This Agreement constitutes a personal service agreement, and the performance of
Brands's obligations hereunder may not be transferred or assigned by Brands.
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 hereof, 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.
<PAGE>
18. 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 15th day of
March, 1999.
Witness: Employer: ABLE TELCOM HOLDING CORP.
By: __________________________ By: /s/ BILLY V. RAY
--------------------------------
Billy V. Ray
Chief Executive Officer
Witness: Employee:
By: __________________________ By: /s/ JAMES E. BRANDS
--------------------------------
James E. Brands
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 19, 1998, with respect to the financial
statements of Able Telcom Holding Corp. included in Amendment No. 1 to the
Registration Statement (Form S-1 No. 333-65991) and related Prospectus of Able
Telcom Holding Corp. for the Registration of 6,472,366 shares of its common
stock.
West Palm Beach, Florida Ernst & Young LLP
April 6, 1999
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
Registration Statement.
ARTHUR ANDERSEN LLP
Omaha, Nebraska,
April 7, 1999
