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SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. __)
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Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, For Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
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ABLE TELCOM HOLDING CORP.
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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ABLE TELCOM HOLDING CORP.
1000 HOLCOMB WOODS PARKWAY, SUITE 440
ROSWELL, GA 30076
[DATE]
You are cordially invited to attend the 2000 Annual Meeting of Shareholders of
Able Telcom Holding Corp. We will hold the meeting on _________ __, 2000, at
___________________ at _____ a.m. __________. The Proxy Statement describes the
business that we will conduct at the Annual Meeting which includes seeking your
approval for the following:
1. To elect four Directors to serve until our next annual meeting or until
their respective successors are elected and qualified;
2. To ratify and approve amending our Articles of Incorporation to increase
the number of authorized shares of:
a. Common Stock from 25 million to 100 million, and
b. Preferred Stock from one million to five million;
3. To ratify and approve amending our Articles of Incorporation to change our
corporate name from "Able Telcom Holding Corp." to "The Adesta Group,
Inc.";
4. To amend our 1995 Stock Option Plan, as previously amended, to:
a. Increase the number of shares authorized for issuance under the Stock
Option Plan from 1,300,000 to 5,500,000, and
b. Modify certain terms of the grants of options to Non-Affiliate
Directors which include
i. increasing the number of options granted to Non-Affiliate
Directors from 5,000 (initially) to 10,000 (annually),
ii. granting additional options on an annual basis to Non-Affiliate
Directors who serve as our Chairman of the Board, or as Chairman
and/or as a member of a Board committee, and
iii. extending the exercise period of the options to Non-Affiliate
Directors to the earlier of (A) September 19, 2005, or (B) the
date which is two years after the date that such Non-Affiliate
Director is no longer serving in such capacity;
5. To ratify and approve the grant of stock options to certain of our
Officers and Directors;
6. To approve possibly issuing more than 1,875,960 shares of Common Stock
upon the exercise of certain options and stock appreciation rights we
granted to WorldCom, Inc., which share amount represents at least 20% of
our outstanding Common Stock determined immediately prior to the MFSNT
Agreement dated April 26, 1998 (this Proposal and all other Proposals,
including Proposal No. 7 are independent of each other);
7. To approve possibly issuing more than 1,875,960 shares of Common Stock
upon exercising certain Series B Warrants we issued to the Series B
Investors, which share amount represents at least 20% of the outstanding
Common Stock determined immediately prior to the MFSNT Agreement dated
April 26, 1998 (this Proposal and all other proposals, including Proposal
No. 6 are independent of each other);
8. To approve possibly issuing more than 3,128,500 shares of our Common Stock
upon converting shares of our Series C Convertible Preferred Stock and
exercising certain of our Series C Warrants issued in our Series C
Offering, which share amount represents at least 20% of the outstanding
Common Stock determined immediately prior to the closing of the Series C
Offering dated February 4, 2000;
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9. To ratify appointing Arthur Andersen LLP as our independent accountants
for the fiscal years ended October 31, 1999 and October 31, 2000; and
10. To transact any other business that may properly be presented at the 2000
Annual Meeting of Shareholders or any adjournments or postponements of the
Annual Meeting.
Attending our Annual Meeting is limited to those who were our shareholders as
of the record date of _______ __, 2000 (or their authorized representatives),
and to our guests. If your shares are registered in your name and you plan to
attend the Annual Meeting, please mark the appropriate box on the enclosed
Proxy Card and you will be pre-registered for the Annual Meeting (if your
shares are held of record by a broker, bank or other nominee and you plan to
attend the meeting, you must also pre-register by returning the registration
card forwarded to you by your bank or broker).
The Notice of the Annual Meeting and Proxy Statement on the following pages
contain information concerning the business to be considered at the Annual
Meeting. Please give these Proxy Materials your careful attention. It is
important that your shares be represented and voted at the Annual Meeting,
regardless of the size of your holdings. Your vote is important. Whether you
plan to attend the Annual Meeting or not, please complete, date, sign and
return the enclosed Proxy Card promptly. If you attend the Annual Meeting and
prefer to vote in person, you may do so.
The continuing interest of our Shareholders is gratefully acknowledged. We look
forward to seeing you at the Annual Meeting.
BILLY V. RAY, JR.
Chairman of the Board
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ABLE TELCOM HOLDING CORP.
NOTICE OF 2000 ANNUAL MEETING OF SHAREHOLDERS
The 2000 Annual Meeting of the Shareholders of Able Telcom Holding Corp., a
Florida corporation will be held at______________________ on ________, 2000 at
____ a.m. ____________ for the following purposes:
At the 2000 Annual Meeting of Shareholders, we will ask you to vote on the
following:
1. To elect four Directors to serve until our next annual meeting of
Shareholders or until their respective successors are elected and
qualified;
2. To ratify and approve amending our Articles of Incorporation to increase
the number of authorized shares of:
a. Common Stock from 25 million to 100 million, and
b. Preferred Stock from one million to five million;
3. To ratify and approve amending our Articles of Incorporation to change our
name from "Able Telcom Holding Corp." to "The Adesta Group, Inc.";
4. To amend our 1995 Stock Option Plan, as previously amended, to:
a. Increase the number of shares authorized for issuance under the Stock
Option Plan from 1,300,000 to 5,500,000, and
b. Modify certain terms of the grants of options to Non-Affiliate
Directors which include
i. increasing the number of options granted to Non-Affiliate
Directors from 5,000 (initially) to 10,000 (annually),
ii. granting additional options on an annual basis to Non-Affiliate
Directors who serve as our Chairman of the Board, or as Chairman
and/or as a member of a Board committee, and
iii. extending the exercise period of the options to Non-Affiliate
Directors to the earlier of (A) September 19, 2005, or (B) the
date which is two years after the date that such Non-Affiliate
Director is no longer serving in such capacity;
5. To ratify and approve the grant of stock options to certain of our
Officers and Directors;
6. To approve possibly issuing more than 1,875,960 shares of Common Stock
upon the exercise of certain options and stock appreciation rights we
granted to WorldCom, Inc., which share amount represents at least 20% of
our outstanding Common Stock determined immediately prior to the MFSNT
Agreement dated April 26, 1998 (this Proposal and all other Proposals,
including Proposal No. 7 are independent of each other);
7. To approve possibly issuing more than 1,875,960 shares of our Common Stock
upon exercising certain Series B Warrants we issued to the Series B
investors, which share amount represents at least 20% of the outstanding
Common Stock determined immediately prior to the MFSNT Agreement dated
April 26, 1998 (this Proposal and all other Proposals, including Proposal
No. 6 are independent of each other);
8. To approve possibly issuing more than 3,128,500 shares of Common Stock
upon converting shares of our Series C Convertible Preferred Stock and
exercising certain Series C Warrants issued in our Series C Offering,
which share amount represents at least 20% of the outstanding Common Stock
determined immediately prior to the closing of the Series C Offering dated
February 4, 2000;
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9. To ratify appointing Arthur Andersen LLP as our independent accountants
for the fiscal years ended October 31, 1999 and October 31, 2000; and
10. To transact any other business that may properly be presented at the 2000
Annual Meeting of Shareholders or any adjournments or postponements of the
Annual Meeting.
Our Board of Directors has fixed the close of business on _______ __, 2000 as
the Record Date for determining the number of Able shareholders entitled to
notice of and to vote at our Annual Meeting. A list of the Shareholders
entitled to vote at the Annual Meeting may be examined by any of our
Shareholders at our corporate offices at 1000 Holcomb Woods Parkway, Suite 440,
Roswell, GA 30076.
The enclosed proxy is solicited by our Board of Directors. Please refer to the
accompanying Proxy Materials for further information with respect to the
business to be transacted at the Annual Meeting. Our Board of Directors
requests that you complete, sign, date and return the enclosed Proxy Card
promptly. You are cordially invited to attend the Annual Meeting in person. The
return of the enclosed proxy card will not affect your right to revoke your
proxy or to vote in person if you do attend the Annual Meeting.
By Order of the Board of Directors
Roswell, GA BILLY V. RAY, JR.
____________, 2000 Chairman of the Board
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, DATE
AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE
IN ORDER TO ASSURE THAT YOUR SHARES ARE REPRESENTED. NO POSTAGE IS NEEDED IF
THE PROXY CARD IS MAILED IN THE UNITED STATES. IF YOU EXECUTE A PROXY CARD, YOU
MAY STILL ATTEND THE MEETING, REVOKE YOUR PROXY AND VOTE YOUR SHARES IN PERSON.
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2000 ANNUAL MEETING OF SHAREHOLDERS
OF
ABLE TELCOM HOLDING CORP.
-------------------------
PROXY STATEMENT FOR THE ANNUAL MEETING
-------------------------
The 2000 Annual Meeting of Shareholders of Able Telcom Holding Corp. will be
held at ____________________ at _____ a.m., on _________, 2000, or at any
adjournments or postponements of our Annual Meeting.
We will begin sending these Proxy Materials, which include the Proxy Statement,
the attached Notice of Annual Meeting and the enclosed Proxy Card on _________,
2000 to all Shareholders entitled to vote. Our only class of voting stock is
our Common Stock. Shareholders who owned Common Stock at the close of business
on _______ __, 2000, our Record Date, are entitled to vote. On the Record Date,
________ shares of our Common Stock were outstanding. Our principal executive
offices are located at 1000 Holcomb Woods Parkway, Suite 440, Roswell, GA
30076, and our telephone number is (770) 993-1570.
WHY WERE THESE PROXY MATERIALS SENT?
These Proxy Materials were sent to you because our Board of Directors is
soliciting proxies from Shareholders of our Common Stock, par value $.001, to
vote at our Annual Meeting. This Proxy Statement summarizes the information you
need to know to vote intelligently at our Annual Meeting. However, you do not
need to attend the Annual Meeting to vote your shares. Instead, you may simply
complete, date, sign and return the enclosed Proxy Card.
WHY DIDN'T WE HOLD A 1999 ANNUAL MEETING?
In connection with our 1999 Annual Meeting, we filed our initial preliminary
proxy materials with the Securities and Exchange Commission in March 1999.
However, it was not until May 2000 that we were able to resolve questions by
the Commission staff regarding certain accounting and other disclosures made by
us in connection with the MFSNT acquisition from WorldCom effective July 2,
1998 and that were incorporated into our preliminary proxy materials for our
1999 Annual Shareholders Meeting. As a result, the proposals we are submitting
for Shareholder approval include those we initially intended to address at our
1999 Annual Shareholder Meeting and that are still relevant, as well as new
proposals.
WHAT IS BEING VOTED ON?
The following proposals are being voted on at the Annual Meeting:
- To elect four Directors to serve until the next annual meeting of
Shareholders or until their respective successors are elected and
qualified;
- To ratify and approve amending our Articles of Incorporation to increase
the number of authorized shares of:
a. Common Stock from 25 million to 100 million, and
b. Preferred Stock from one million to five million;
- To ratify and approve amending our Articles of Incorporation to change
our corporate name from "Able Telcom Holding Corp." to "The Adesta Group,
Inc.";
- To amend our 1995 Stock Option Plan, as previously amended, to:
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a. Increase the number of shares authorized for issuance under the
Stock Option Plan from 1,300,000 to 5,500,000, and
b. Modify certain terms of the grants of options to Non-Affiliate
Directors which include
i. increasing the number of options granted to Non-Affiliate
Directors from 5,000 (initially) to 10,000 (annually),
ii. granting additional options on an annual basis to
Non-Affiliate Directors who serve as Chairman of the Board,
or as Chairman and/or as a member of a Board committee, and
iii. extending the exercise period of the date of grants to
Non-Affiliate Directors to the earlier of (A) September 19,
2005, or (B) the date which is two years after the date
that such Non-Affiliate Director is no longer serving in
such capacity;
- To ratify and approve the grant of stock options to certain of our
Officers and Directors;
- To approve possibly issuing more than 1,875,960 shares of Common Stock,
which we refer to as the MFSNT 20% Share Limitation, upon the exercise of
certain options and stock appreciation rights granted to WorldCom, Inc.,
which MFSNT 20% Share Limitation represents at least 20% of our
outstanding Common Stock determined immediately prior to the MFSNT
Agreement dated April 26, 1998 (this Proposal and all other Proposals
including the Proposal immediately below, are each independent of the
other);
- To approve possibly issuing more than the MFSNT 20% Share Limitation
upon the exercise of certain Series B Warrants to the Series B Investors,
which MFSNT 20% Share Limitation represents at least 20% of our outstanding
Common Stock determined immediately prior to the MFSNT Agreement dated
April 26, 1998 (this Proposal and all other Proposals, including the
Proposal immediately above, are each independent of the other);
- To approve possibly issuing more than 3,128,500 shares of our Common
Stock, which we refer to as the Series C 20% Share Limitation, upon
converting our Series C Convertible Preferred Stock and exercise of
certain Series C Warrants issued in our Series C Offering, which share
amount represents at least 20% of the outstanding Common Stock determined
immediately prior to the closing of the Series C Offering dated February
4, 2000;
- To ratify appointing Arthur Andersen LLP as our independent accountants
for the fiscal years ended October 31, 1999 and October 31, 2000; and
- To transact any other business that may properly be presented at the
Annual Meeting or any adjournments or postponements of the Annual Meeting.
WHO MAY VOTE?
Shareholders who owned Common Stock at the close of business on _______ __,
2000, our Record Date, are entitled to vote at our 2000 Annual Shareholders
Meeting. On the Record Date, __________ shares of our Common Stock were
outstanding. Our Common Stock is our only class of voting stock.
HOW MANY VOTES DO I HAVE?
Each share of Common Stock that you own entitles you to one vote.
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HOW MANY VOTES ARE NEEDED FOR A QUORUM?
As of May 11, 2000, 16,308,532 shares of Common Stock were issued and
outstanding. The Annual Meeting will be held if a majority of our outstanding
Common Stock entitled to vote is represented at our Annual Meeting. This means
that 8,154,267 shares are required for a quorum. If you have returned the Proxy
or attend the Annual Meeting in person, your shares of Common Stock will be
counted for the purpose of determining whether a quorum exists, even if you
wish to abstain from voting on some or all matters introduced at the annual
meeting. "Broker non-votes" also count for quorum purposes. If you hold your
Common Stock through a broker, bank, or other nominee, generally the nominee
may only vote the Common Stock which it holds for you in accordance with your
instructions.
If a quorum is not present or represented at the Annual Meeting, the
Shareholders who do attend the Annual Meeting in person or who are represented
by Proxy have the power to adjourn the Annual Meeting until a quorum is present
or represented. At any adjournment of the Annual Meeting at which a quorum is
present or represented, any business may be transacted that might have been
transacted at the original Annual Meeting.
HOW DOES A SHAREHOLDER VOTE BY PROXY?
Whether you plan to attend the Annual Meeting or not, we urge you to complete,
sign and date the enclosed Proxy Card and return it promptly in the envelope
provided. No postage is needed if the Proxy Card is mailed in the United
States. Returning the Proxy Card will not affect your right to attend the
Annual Meeting and vote. If you properly fill in your Proxy Card and send it to
us in time to vote, your "Proxy" (one of the individuals named on your Proxy
Card) will vote your shares as you have directed. If you sign the Proxy Card
but do not make specific choices, your Proxy will vote your shares as
recommended by our Board of Directors as follows:
- "FOR" electing the slate of Board of Directors proposed by us;
- "FOR" ratifying and amending our Articles of Incorporation to increase
the number of authorized shares of:
a. Common Stock from 25 million to 100 million, and
b. Preferred Stock from one million to five million;
- "FOR" ratifying and amending our Articles of Incorporation to change our
corporate name from "Able Telcom Holding Corp." to "The Adesta Group,
Inc.";
- "FOR" amending our 1995 Stock Option Plan, as previously amended, to:
a. Increase the number of shares authorized for issuance under the
Plan from 1,300,000 to 5,500,000, and
b. Modify certain terms of the grants of options to Non-Affiliate
Directors which include
i. increasing the number of options granted to Non-Affiliate
Directors from 5,000 (initially) to 10,000 (annually),
ii. granting additional options on an annual basis to
Non-Affiliate Directors who serve as Chairman of the Board,
or as Chairman and/or as member of a Board committee, and
iii. extending the exercise period of the options to
Non-Affiliate Directors to the earlier of (A) September 19,
2005, or (B) the date which is two years after the date
that such Non-Affiliate Director is no longer serving in
such capacity.
- "FOR" ratifying and approving the grant of stock options to certain of
our Officers and Directors;
- "FOR" approving our possibly issuing more than the MFSNT 20% Share
Limitation upon the exercise of certain options and stock appreciation
rights we granted to WorldCom, Inc., which MFSNT 20% Share Limitation
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represents at least 20% of our outstanding common stock determined
immediately prior to the MFSNT Agreement dated April 26, 1998, independent
of any other Proposals being submitted for Shareholder approval;
- "FOR" approving our possibly issuing more than the MFSNT 20% Share
Limitation upon exercising certain of the Warrants issued to the Series B
Investors, which MFSNT 20% Share Limitation represents at least 20% of our
outstanding Common Stock determined immediately prior to the MFSNT
Agreement dated April 26, 1998, independent of any other Proposals
submitted for Shareholder approval;
- "FOR" approving our possibly issuing more than 3,128,500 shares of our
Common Stock upon converting shares of Series C Convertible Preferred
Stock and exercising certain Series C Warrants issued in our Series C
Offering, which share amount represents at least 20% of the outstanding
Common Stock determined immediately prior to the closing of the Series C
Offering dated February 4, 2000;
- "FOR" ratifying our appointing Arthur Andersen LLP as our independent
accountants for the fiscal years ended October 31, 1999 and October 31,
2000.
If any other matter is presented, your Proxy will vote in accordance with his
best judgment. At the time this Proxy Statement went to press, we knew of no
matter which needed to be acted on at the Annual Meeting, other than those
discussed in this Proxy Statement.
MAY A PROXY BE REVOKED?
If you give a Proxy, you may revoke it at any time before it is exercised. You
may revoke your Proxy in one of three ways. First, you may send in another
Proxy Card with a later date. Second, you may notify Able's Secretary in
writing before the Annual Meeting that you have revoked the information on your
Proxy Card. Third, you may vote in person at the Annual Meeting.
HOW DOES A SHAREHOLDER VOTE IN PERSON?
If you plan to attend the Annual Meeting and vote in person, we will give you a
ballot when you arrive. However, if your shares are held in the name of your
broker, bank or other nominee, you must bring an account statement or letter
from the nominee indicating that you are the beneficial owner of the shares on
_______ __, 2000 (the Record Date).
WHAT VOTE IS REQUIRED TO APPROVE THE PROPOSALS?
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Proposal 1:
Electing Four Directors The four nominees for our Directors who receive the most votes will be
elected. If you do not vote for a particular nominee, or you indicate
"withhold authority to vote" for a particular nominee on your Proxy Card,
your vote will not count either "for" or "against" the nominee. A "broker
non-vote" will also have no effect on the outcome since only a plurality of
votes actually cast is required to elect a Director.
Proposal 2(A):
Approving our Amending our
Articles of Incorporation
to Increase the Number of
Authorized Shares
of Common Stock The affirmative vote of a majority of the votes cast at the Annual Meeting
is required to approve Proposal No. 2(A) to amend our Articles of
Incorporation to increase the authorized number of shares of our Common
Stock from 25 million shares to 100 million shares. If you "abstain" from
voting, it has the same effect as if you voted "against" this proposal.
Broker non-votes will have no effect on the vote.
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Proposal 2(B):
Approving our Amending our Articles to
Increase the Number of our Authorized
Shares of Preferred Stock The affirmative vote of a majority of the votes cast at the Annual Meeting
is required to approve Proposal No. 2(B) to amend the Articles to increase
the authorized number of shares of Preferred Stock from one million shares
to five million shares. If you "abstain" from voting, it has the same
effect as if you voted "against" this proposal. Broker non-votes will have
no effect on the vote.
Proposal 3:
Approving our Amending our
Articles of Incorporation to change
our name from
"Able Telcom Holding Corp." to
"The Adesta Group, Inc". The affirmative vote of a majority of the votes cast at the Annual Meeting
is required to approve Proposal No. 3 to amend our Articles to change our
corporate name from "Able Telcom Holding Corp" to "The Adesta Group Inc."
If you "abstain" from voting, it has the same effect as if you voted
"against" this proposal. Broker non-votes will have no effect on the vote.
Proposal 4(A):
Approving our Amending our Stock Option
Plan, as previously amended to increase
the number of shares The affirmative vote of a majority of the votes cast at the Annual Meeting
is required to approve Proposal No. 4(A) to increase the number of shares
authorized for issuance pursuant to our 1995 Stock Option Plan, as amended
(the "Plan"), from 1,300,000 to 5,500,000. If you "abstain" from voting, it
has the same effect as if you voted "against" this proposal. Broker
non-votes will have no effect on the vote.
Proposal 4(B):
Approving our Amending the Plan
modifying certain terms of grants
to Non-Affiliate Directors The affirmative vote of a majority of the votes cast at the Annual Meeting
is required to approve Proposal No. 4(B) to (i) increase the number of
options granted to Non-Affiliate Directors from 5,000 (initially), to
10,000 (annually), (ii) grant additional options on an annual basis to
Non-Affiliate Directors who serve as our Chairman of the Board or as
Chairman or as member of a Board committee, and (iii) extend the exercise
period of the options granted to Non-Affiliate Directors to the earlier of
(A) September 19, 2005, or (B) the date which is two years after the date
that such Non-Affiliate Director is no longer serving in such capacity. If
you "abstain" from voting, it has the same effect as if you voted "against"
this proposal. Broker non-votes will have no effect on the vote.
Proposal 5:
Ratifying and approving our
issuing stock options to
certain of our Officers and Directors The affirmative vote of a majority of the votes cast at the Annual Meeting
is required to ratify and approve the issuance of options to certain of our
Officers and Directors. If you "abstain" from voting, it has the same
effect as if you voted "against" this proposal. Broker non-votes will have
no effect on the vote.
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Proposal 6:
Approving our possibly issuing more than
1,875,960 shares to WorldCom, Inc. The affirmative vote of a majority of the votes cast at the Annual Meeting
is required to approve issuing more than the MFSNT 20% Share Limitation to
WorldCom upon exercise of certain derivative securities described in
Proposal No. 6 and held by WorldCom, which MFSNT 20% Share Limitation of
1,875,960 represents at least 20% of our outstanding Common Stock
determined immediately prior to the MFSNT Agreement dated April 26, 1998.
If you "abstain" from voting, it has the same effect as if you voted
"against" this proposal. Broker non-votes will have no effect on the vote.
A vote for Proposal No. 6 is independent of any other proposal, including
Proposal No. 7 below. If both Proposal No. 6 and Proposal No. 7 are
approved, the possible issuances would exceed the MFSNT 20% Share
Limitation and assuming full dilution as to the securities described in
Proposal Nos. 6 and 7, as of May 11, 2000 would represent approximately
25.8% of the outstanding Common Stock as of that date after (1) assumed
dilution (although certain of the securities are anti-dilutive, but are not
currently "in the money", as of May 11, 2000), and (2) giving effect to our
issuing shares of our common stock upon conversion or exchange of
outstanding convertible securities. See "The MFSNT Acquisition and Rule
4460(i)(1)(C)" for discussion concerning the MFSNT 20% Share Limitation.
Proposal 7:
Approve our possibly issuing more
than 1,875,960 shares to the Series B
Investors The affirmative vote of a majority of the votes cast at the Annual Meeting is
required to approve issuing more than the MFSNT 20% Share Limitation upon
exercise of certain Warrants held by the "RoseGlen Group" and the "Palladin
Group", as we describe in Proposal No. 7, which MFSNT Share Limitation of
1,875,960 represents at least 20% of our outstanding common stock determined
immediately prior to the MFSNT Agreement dated April 26, 1998. If you
"abstain" from voting, it has the same effect as if you voted "against" this
proposal. Broker non-votes will have no effect on the vote. A vote for
Proposal No. 7 is independent of any other proposal, including Proposal No. 6
above. If both Proposal No. 6 and Proposal No. 7 are approved, the possible
issuances would exceed the MFSNT 20% Share Limitation and assuming full
dilution as to the securities described in Proposal Nos. 6 and 7, as of May
11, 2000, would represent approximately 25.8% of our outstanding Common Stock
as of that date after (1) assumed dilution (although certain of the
securities are anti-dilutive because they are not currently "in the money" as of May
11, 2000), and (2) giving effect to our issuing shares of our common stock
upon conversion or exchange. See "The MFSNT Acquisition and Rule
4460(i)(1)(C)" for discussion concerning the MFSNT 20% Share Limitation.
Proposal 8:
Approve our possibly issuing more than
3,128,500 shares in connection with
the Series C Offering The affirmative vote of a majority of the votes cast at the Annual Meeting
is required to approve issuing more than the Series C 20% Share Limitation
upon converting the Series C Preferred Stock and Exercising the Series C
Warrants held by the Series C Investors, as described in Proposal No. 8,
which share amount of 3,128,500 represents at least 20%
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of our outstanding common stock determined immediately prior to the closing
of the Series C Offering. If you "abstain" from voting, it has the same
effect as if you voted "against" this proposal. Broker non-votes will have
no effect on the vote.
Proposal 9:
Ratify our Selecting our
Independent Accountants The affirmative vote of a majority of the votes cast at the Annual Meeting
is required to ratify and approve appointing Arthur Andersen LLP as our independent
accountants for the fiscal years ended October 31, 1999 and October 31, 2000. If you
"abstain" from voting, it has the same effect as if you voted "against" this proposal.
Broker non-votes will have no effect on the vote.
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IS VOTING CONFIDENTIAL?
Yes. Proxy Cards, ballots and voting tabulations that identify our individual
Shareholders are confidential. Only the inspectors of election and certain of
our employees and consultants associated with processing Proxy Cards and
counting the votes have access to your card. Additionally, all comments
directed to Able management (whether written on the Proxy Card or elsewhere)
remain confidential, unless you ask that your name be disclosed.
WHO PAYS THE COST OF SOLICITING THE PROXIES?
Able will pay the cost of this Proxy solicitation, which includes preparing,
assembling and mailing the Notice of Annual Meeting, the Proxy Statement and
the Proxy Card. In addition to soliciting proxies by mail, we expect that a
number of our employees will solicit Shareholders for the same type of Proxy,
personally and by telephone. None of these employees will receive any
additional or special compensation for doing this. We will, upon request,
reimburse brokers, banks and other nominees for their expenses in sending Proxy
material to their principals and obtaining their proxies.
HOW DOES A SHAREHOLDER OBTAIN A COPY OF OUR ANNUAL REPORT ON FORM 10-K?
IF YOU WOULD LIKE A COPY OF OUR ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED OCTOBER 31, 1999, FILED FEBRUARY 22, 2000, AS AMENDED MAY 26, 2000 AND/OR
OUR ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR ENDED OCTOBER 31, 1998, FILED
FEBRUARY 24, 1999, AS AMENDED MARCH 1, 1999, AND AS FURTHER AMENDED ON MAY 26,
2000, WE WILL SEND YOU COPIES OF EACH WITHOUT CHARGE. PLEASE WRITE TO:
THE FINANCIAL RELATIONS BOARD, INC.
675 THIRD AVENUE
NEW YORK, NEW YORK 10017
ATTN: BRIAN GILL
You may also obtain a copy of our Annual Report on Form 10-K for the fiscal
year ended October 31, 1999, filed February 22, 2000, as amended May 26, 2000,
and all other reports electronically filed by us via the Internet, by accessing
the Securities and Exchange Commission's EDGAR website at
www.sec.gov/edaux/searches.html.
7
<PAGE> 13
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows, as of May 11, 2000, the Common Stock owned
beneficially by (i) each of our Executive Officers, (ii) each of our current
Directors, (iii) all Executive Officers and Directors as a group, and (iv) each
person known by us to be the "beneficial owner" of more than five percent of
our Common Stock. "Beneficial ownership" is a technical term broadly defined by
the Securities and Exchange Commission ("SEC") to mean more than ownership in
the usual sense. For example, you "beneficially" own Common Stock not 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 Executive
Officers and Directors listed have sole voting and investment power over his
shares. As of May 11, 2000, there were 16,308,582 shares of Common Stock issued
and outstanding and approximately 425 holders of record.
<TABLE>
<CAPTION>
SHARES PERCENTAGE
BENEFICIALLY BENEFICIALLY
NAME(1) CURRENT TITLE OWNED(2) OWNED
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Chief Executive Officer and
Billy V. Ray, Jr.(3)(4) Chairman of the Board of Directors 260,000 1.6%
Edwin D. Johnson(4)(6) President and Chief Financial Officer and a 157,000 *
Director
Former Chief Executive Officer and Current
Frazier L. Gaines(5) President - Able Telcom International 208,000 1.3%
Charles A. Maynard Chief Operating Officer 200,000 1.2%
James E. Brands(3) Senior Executive Vice President 100,000 *
Thomas Montgomery Executive Vice President of Finance 200,000 1.2%
G. Vance Cartee(3) Vice President of Business Development 100,000 *
Michael Brenner General Counsel and Executive Vice President 100,000 *
Edward Z. Pollock(3)(6) Counsel 66,000 *
Stacy Jenkins(7) Former President - Adesta Communications 125,000 *
Bob Sommerfeld President - Adesta Communications 35,000 *
Philip A. Kernan, Jr. President - Adesta Transportation 125,000 *
President - Transportation Safety Contractors,
J. Barry Hall(8) Inc. 102,472 *
Richard A. Boyle(3) President - Patton Management Corp. 65,000 *
C. Frank Swartz(3)(4) Director 30,000 *
Alec McLarty(9)(4) Director 11,610 *
Gerald Pye Director -0- *
All Executive Officers and Directors
as a Group (17 persons) 1,885,082 11.5%
Gideon D. Taylor(10) Former Director and Officer 946,638 5.7%
WorldCom(11) 3,050,000 18.7%
</TABLE>
----------------------------------------
*Less than 1%.
8
<PAGE> 14
(1) The address for each of Able's Directors and Executive Officers is
1000 Holcomb Woods Parkway, Suite 440, Roswell, GA 30076.
(2) All of the options granted to Officers and Directors since December
1998 are subject to shareholder approval, certain of these options
may not have vested. See Proposal No. 5 regarding all said options.
(3) These represent stock options that are immediately exercisable,
provided however, all Management and Director options are subject to
Shareholder approval.
(4) Standing for re-election for Director.
(5) Includes 80,000 shares underlying stock options, which are
immediately exercisable, and 128,000 shares held in a trust
controlled by Mr. Gaines. These do not include an aggregate of 9,000
shares held by Mr. Gaines as trustee to four minor children and for
which Mr. Gaines disclaims any beneficial ownership.
(6) Mr. Pollock owns 1,000 shares outright. Mr. Johnson owns 7,000 shares
outright.
(7) Includes 100,000 shares underlying options, which are immediately
exercisable. Mr. Jenkins resigned in March 2000.
(8) Mr. Hall owns 102,472 shares outright.
(9) Includes 10,000 shares underlying options, which are immediately
exercisable, and 1,610 owned by Mr. McLarty's wife.
(10) These include (i) 21,619 shares owned by Mr. Taylor's wife, and (ii)
220,000 shares underlying stock options, which are immediately
exercisable. Mr. Taylor's address is 265 Harper Road, Dry Fork, VA
24549.
(11) These shares were issued to WorldCom by converting debt into 3,050,000
shares at $8.375 per share on January 13, 2000. WorldCom's address is
515 East Amite St., Jackson, MS 39201.
PROPOSAL NO. 1:
TO ELECT FOUR DIRECTORS TO SERVE UNTIL THE NEXT ANNUAL MEETING OF SHAREHOLDERS
OR UNTIL THEIR RESPECTIVE SUCCESSORS ARE ELECTED AND QUALIFIED.
DIRECTORS
The following is a list of the persons nominated to be members of our Board of
Directors, their respective ages, the year in which each was elected a Director
and, where applicable, the office held by the Director. Each Director elected
will hold office until the next Annual Meeting of Shareholders, which is
expected to be held in May 2001, or until their respective successors have been
duly elected and qualified. In the election, the four persons who receive the
highest number of votes actually cast will be elected. The proxies named in the
Proxy Card intend to vote for the election of the nominees unless otherwise
instructed. If a holder does not wish his or her shares to be voted for a
particular nominee, the holder must identify the exception in the appropriate
space provided on the Proxy Card, in which event the shares will be voted for
the other listed nominees. If any nominee becomes unable to serve, the Proxies
may vote for another person designated by our Board of Directors (the "Board")
or the Board may reduce the number of Directors. We have no reason to believe
that any nominee will be unable or refuse to serve.
<TABLE>
<CAPTION>
NAME AGE SERVED AS A DIRECTOR SINCE
<S> <C> <C>
Billy V. Ray, Jr.
Chief Executive Officer and Chairman of the Board of Directors 42 1999
Edwin D. Johnson
President and Chief Financial Officer 43 2000
C. Frank Swartz 61 1998
Alec McLarty 49 1999
</TABLE>
All Directors are elected annually at our Annual Meeting of the Shareholders
and hold office following election until their successors are elected and
qualified. Once elected, the newly elected Directors will determine who will
serve as members of our Audit Committee, Compensation Committee, and Nominating
Committee. Other than Mr. Ray and Mr. Johnson, each of the proposed nominees
are deemed to be "Non-Affiliate Directors". Any member of our Board of
Directors who is (i) not an employee of us or any subsidiary, and (ii) does not
beneficially own, within the meaning of Rule 13d-2 of the Securities Exchange
Act of 1934, as amended, more than five percent (5%) of any class of our
outstanding capital stock is deemed to be a "Non-Affiliate Director"
("Non-Affiliate Director").
9
<PAGE> 15
The biographies of the persons nominated as Directors are as follows:
BILLY V. RAY, JR. has served as our Chief Executive Officer since December 1,
1998. From December 1, 1998 to May 2000, Mr. Ray also served as our President.
Mr. Ray has served as a Director since March 5, 1999 and was elected as
Chairman of the Board of Directors on May 12, 2000. Mr. Ray also served as
acting Chief Financial Officer from November 30, 1998 to February 2000. From
October 1, 1998 to November 30, 1998, Mr. Ray was our 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 us. Mr. Ray
served as our Chief Financial Officer 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 Tri-Duct 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.
EDWIN D. JOHNSON joined the Company in May 2000 and serves as President, Chief
Financial Officer and a Director. From November 1998 to April 2000, Mr. Johnson
served as Executive Vice President and Chief Financial Officer of Mortgage.com,
an on-line banking and lending company. From March 1996 to June 1998, Mr.
Johnson served as Chief Financial Officer of MasTec, Inc., a telecommunications
infrastructure company. From January 1995 to March 1996, Mr. Johnson was a
private real estate consultant. From October 1984 to January 1995, Mr. Johnson
was worldwide Chief Financial Officer of Attwoods, plc, an international waste
services company.
C. FRANK SWARTZ has served as one of our Directors since August 1998 and as
Chairman of the Board from November 30, 1998 to May 2000. Mr. Swartz has been
retired since November 1994. For the five years prior to November 1994, Mr.
Swartz was employed by GTE as the Director of Internal Support, based in
Caracas, Venezuela.
ALEC MCLARTY is the founder of Clarion Resources Communications Corporation
("Clarion") and has served as the Chairman and Chief Executive Officer of
Clarion since January 1996. Clarion is a multi-faceted company in the domestic
and international telecommunications industry providing services ranging from
research and development to international long distance services. In 1987, Mr.
McLarty founded Resurgens West, a telecommunications company and served as its
President until January 1996.
There is no linkage between the resignation of three of our Directors as at the
following dates: Robert Young, May 1999; Thomas Davidson, January 2000;
Jonathan Bratt, February 2000.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
Our Board of Directors met fourteen times during the fiscal year ended October
31, 1998 and, during that time, never acted by unanimous written consent. Our
Board of Directors met twenty times during the fiscal year ended October 31,
1999 and, during that time, never acted by unanimous written consent.
Our Board has an Audit Committee, a Compensation Committee and a Nominating
Committee.
The Audit Committee reviews the scope of the accountants' engagement, including
the remuneration to be paid, and reviews the independence of the accountants.
The Audit Committee, with the assistance of our Chief Financial Officer and
other appropriate personnel, reviews our annual financial statements and the
independent auditor's report, including significant reporting and operational
issues, corporate policies and procedures as they relate to accounting and
financial reporting and financial controls, litigation in which we are a party
and use by our Executive Officers of expense accounts and other non-monetary
perquisites, if any. The Audit Committee may direct our legal counsel or
independent accountants to inquire into and report to it on any matter having
to do with our accounting or financial procedures or reporting. The Audit
Committee held two meetings during the fiscal year ended October 31, 1998 and
three meetings during the fiscal year ended October 31, 1999. During fiscal
year 1998, the members of the Audit Committee consisted of C. Frank Swartz, who
also served as its Chairman, and Thomas Davidson. During fiscal year
10
<PAGE> 16
1999, the members of the Audit Committee consisted of C. Frank Swartz, who also
served as its Chairman, Billy V. Ray, Jr. and Alec McLarty.
The Compensation Committee is responsible for setting and approving the
salaries, bonuses and other compensation for the Company's Executive Officers,
establishing compensation programs and determining the amounts and conditions
of all grants of awards under our Stock Option Plan, as amended (the "Plan"),
and grants of awards outside of the Plan. The Compensation Committee held two
meetings during the fiscal year ended October 31, 1998 and three meetings
during the fiscal year ended October 31, 1999. During the fiscal year ended
October 31, 1998, the Compensation Committee consisted of Thomas Davidson, who
served as its Chairman, C. Frank Swartz, and Gideon D. Taylor, who subsequently
resigned as one of our Directors on March 9, 1999. During the fiscal year ended
October 31, 1999, the Compensation Committee consisted of C. Frank Swartz, who
also served as its Chairman, Billy V. Ray, Jr. and Alec McLarty.
The Nominating Committee is responsible for selecting those individuals who
will stand for election to our Board of Directors. The Nominating Committee
will consider all reasonable comments from Shareholders regarding proposed
nominees for Directors, as well as nominations for Board members recommended by
Shareholders. To date, the Nominating Committee has no formal procedures for
submitting comments or recommendations and has accepted both written and oral
comments, as well as names of proposed nominees prior to the filing of a
definitive proxy statement. Typically, once a recommendation has been received,
the Committee will undertake due diligence, will discuss the comments on the
proposed nominee with the Shareholder submitting such proposal and, if
applicable, will meet with the proposed nominee before making a final
determination as to whether to recommend the proposed individual as a nominee
to the entire Board of Directors to stand for election to the Board of
Directors. The Nominating Committee held one meeting during the fiscal year
ended October 31, 1998 and two meetings during the fiscal year ended October
31, 1999. During the fiscal year ended October 31, 1998, the Nominating
Committee consisted of Frazier L. Gaines, who served as its Chairman, and C.
Frank Swartz. During the fiscal year ended October 31, 1999, the Nominating
Committee consisted of C. Frank Swartz, who served as its Chairman, Billy V.
Ray, Jr. and Alec McLarty.
With the exception of Gerald Pye, no Director attended fewer than 75% of the
meetings of the Board of Directors or any committee on which said Director
served during the fiscal years ended October 31, 1998 and October 31, 1999.
COMPENSATION OF DIRECTORS
Non-Affiliate Directors are currently 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 Plan, Non-Affiliate
Directors currently receive one-time automatic grants of options to purchase
5,000 shares of Common Stock as of the date such Non-Affiliate Director was
initially elected or appointed, at an exercise price equal to the fair market
value at the date of grant. In April 1998, we granted an option to purchase
10,000 shares of Common Stock to all Directors, which grants were outside the
Plan. Employee Directors receive no additional fees or remuneration for acting
in their capacity as one of our Directors.
On May 7, 1999 and as ratified on May 12, 2000, our Board of Directors voted to
increase the annual fees paid and to make additional grants of options under the
Plan (which grants to Directors under the Plan are subject to Shareholder
approval) to Non-Affiliate Directors, effective immediately upon the adjournment
of the 2000 Annual Meeting of Shareholders, as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTIONS
POSITION FEES (ANNUALLY)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Chairman of the Board $2,500 per month 15,000
Board Member (other than Chairman of the Board) $1,750 per month 10,000
Audit Committee Chairman $1,000 per meeting 2,000
Audit Committee Member $ 750 per meeting 1,000
Compensation Committee Chairman $1,000 per meeting 2,000
Compensation Committee Member $ 750 per meeting 1,000
Nominating Committee Chairman $1,000 per meeting 2,000
Nominating Committee Member $ 750 per meeting 1,000
</TABLE>
11
<PAGE> 17
The fees described above will be paid on a monthly basis; provided that, such
Non-Affiliate Director attends at least 65% of properly noticed meetings. Any
adjustments to such fee payments shall be done on a quarterly basis. See also
Proposal No. 4(B) for a description of the stock options to be granted to
Non-Affiliate Directors described above.
During fiscal 1998 and fiscal 1999, the following options were granted to our
Directors (certain of whom no longer serve in that capacity and will not stand
for re-election). The initial terms of these option grants are summarized
below.
<TABLE>
<CAPTION>
FAIR MARKET VALUE DATE
NUMBER INITIAL AT DATE OF INITIAL OF INITIAL EXPIRATION
DIRECTOR OF SHARES GRANT PRICE** GRANT(1) GRANT DATE(2)
<S> <C> <C> <C> <C> <C>
Billy V. Ray, Jr.(13) 110,000(3) $ 5.75 $ 5.75 12/31/98 7/3/04
50,000(3) $ 6.375 $ 6.375 5/7/99 5/7/03
100,000(3) $ 4.375 $ 4.375 2/21/00 2/21/05
Jonathan A. Bratt(10) 10,000(3) $ 6.20 $ 7.75 4/24/98 7/3/04
20,000(3) $11.9375 $ 7.9375 4/24/98 7/3/04
Thomas M. Davidson(11) 20,000(3) $11.9375 $ 7.625 8/18/98 7/3/04
10,000(3) $ 6.25 $ 6.25 5/7/99 5/8/01
John D. Foster(5) 10,000(3) $ 6.20 $ 7.75 4/24/98 7/3/04
20,000(3) $11.9375 $ 7.9375 4/24/98 7/3/04
Frazier L. Gaines(9) 10,000(4) $ 6.20 $ 7.75 4/24/98 7/3/04
20,000(4) $11.9375 $ 7.9375 4/24/98 7/3/04
80,000(4) $ 14.00 $ 14.00 7/8/98 12/31/00
100,000(4) $ 6.00 $11.1875 3/10/97 12/31/00
Robert C. Nelles(6) 10,000(4) $ 6.20 $ 7.75 4/24/98 7/3/04
20,000(4) $11.9375 $ 7.9375 4/24/98 7/3/04
15,000(4) $ 5.34 $ 8.50 2/19/98 9/19/05
Richard J. Sandulli(7) 10,000(3) $ 6.20 $ 7.75 4/24/98 7/3/04
20,000(3) $11.9375 $ 7.9375 4/24/98 7/3/04
C. Frank Swartz(13) 20,000(3) $11.9375 $ 7.625 8/18/98 7/3/04
10,000(3) $ 6.75 $ 6.75 6/9/99 6/9/02
Gideon D. Taylor(8) 10,000(4) $ 6.20 $ 7.75 4/24/98 7/3/04
20,000(4) $11.9375 $ 7.9375 4/24/98 7/3/04
120,000(4) $ 14.00 $ 14.00 7/8/98 12/31/00
70,000(4) $ 6.00 $11.1875 3/10/97 12/31/00
Robert H. Young(12) 10,000(3) $ 6.25 $ 6.25 5/7/99 5/8/01
Alec McLarty(13) 10,000(3) $ 8.75 $ 8.75 7/29/99 7/29/02
</TABLE>
** All grants to Directors and Officers are subject to shareholder
approval.
(1) On December 31, 1998, in an effort to clear up a large number of
ambiguities in the minutes of the Board of Directors' meetings, and
in order to maintain compliance with various debtor documents, as
well as to keep us in substantial compliance with certain rules of
the SEC and The Nasdaq Stock Market, Inc. ("Nasdaq"), our Board of
Directors rescinded all of the above option grants, with the
exception of the grant to Mr. Nelles for 15,000 shares, and reissued
new options in the amounts set forth above at the calculated fair
market value per share on December 31, 1998, which was $5.75.
(2) The initial expiration dates ranged from July 8, 2000 to April 24,
2005, prior to the reissuances.
(3) Issued outside our 1995 Stock Option Plan.
(4) Non-qualified stock options granted pursuant to our 1995 Stock Option
Plan.
12
<PAGE> 18
(5) Mr. Foster resigned from our Board of Directors on June 5, 1998.
(6) Mr. Nelles resigned from our Board of Directors on May 5, 1998
(7) Mr. Sandulli resigned from our Board of Directors on August 25, 1998.
(8) Mr. Taylor resigned from our Board of Directors on March 9, 1999.
(9) Mr. Gaines resigned from our Board of Directors on March 16, 1999, but
continues to be President of our subsidiary Able Telcom
International.
(10) Mr. Davidson resigned from our Board of Directors in January 2000.
(11) Mr. Bratt resigned from our Board of Directors in February 2000.
(12) Mr. Young resigned from our Board of Directors in May 1999.
(13) Mr. Ray, Mr. Swartz and Mr. McLarty are standing for re-election for
our Board of Directors.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16(a) ("Section 16") of the Securities Exchange Act of 1934, as
amended, requires our Executive Officers, Directors and 10% shareholders to
file reports regarding initial ownership and changes in ownership with the SEC
and the Nasdaq Stock Market, Inc. Executive Officers, Directors and 10%
shareholders are required by SEC regulations to furnish us with copies of all
Section 16 forms they file. Our information regarding compliance with Section
16 is based solely on a review of the copies of such reports furnished to us by
our Executive Officers, Directors and 10% shareholders. These forms include (i)
Form 3, which is the Initial Statement of Beneficial Ownership of Securities,
(ii) Form 4, which is a Statement of Changes in Beneficial Ownership, and (iii)
Form 5, which is an Annual Statement of Changes in Beneficial Ownership (all of
which, for fiscal year ended October 31, 1999, were inadvertently filed late
for each Section 16 individual required to file such Form 5).
It is our general counsel's intent to oversee the timely filing of the Section
16 forms.
All Section 16 forms appear to have been filed in a timely manner other than as
to the following individuals who were delinquent in filing certain forms or
failed to file certain forms during the fiscal years ended October 31, 1998 and
October 31, 1999:
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL POSITION DELINQUENCY OR FAILURE
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Billy V. Ray, Jr. Chief Executive Officer and Form 4's which should have been filed for the
Chairman of the Board of Directors months of November 1997, July 1998 and August 1998
were filed through a Form 5 for October 1998. The
Form 5, however, was not filed timely pursuant
Section 16.
Form 5 for the fiscal year ended October 31, 1999,
should have been filed by December 15, 1999, but
was not filed until January 21, 2000.
Frazier L. Gaines Former Chief Executive Officer and A Form 4 for the month of September was not filed
President - Able Telcom International in a timely manner pursuant to Section 16. Form 4s
which should have been filed for the months of April
and July 1998 were filed through a Form 5 for
October 1998. However, the Form 5 was not filed
timely pursuant to Section 16. Form 5 for the fiscal
year ended October 31, 1999, should have been
filed December 15, 1999, but was not filed until
January 21, 2000.
James E. Brands Senior Executive Vice President Form 5 for the fiscal year ended October 31, 1999,
should have been filed by December 15, 1999, but
was not filed until January 21, 2000.
G. Vance Cartee Vice President of Business Development Form 5 for the fiscal year ended October 31, 1999,
should have been filed by December 15, 1999, but
was not filed until January 21, 2000.
Edward Z. Pollock Counsel Form 5 for the fiscal year ended October 31, 1999,
should have been filed by December 15, 1999, but
was not filed until January 21, 2000.
</TABLE>
13
<PAGE> 19
<TABLE>
<S> <C> <C>
Stacy Jenkins Former President - Adesta Form 5 for the fiscal year ended October 31, 1999, should
have filed by December 15, 1999, but was not filed
until January 21, 2000.
Communications
Richard A. Boyle President - Patton Management Corp. A Form 3 which should have been filed no later
than April 10, 1998 was filed through a Form 5 in
October 1998. However, the Form 5 was not filed
timely pursuant to Section 16. Form 5 for the fiscal year
ended October 31, 1999, should have filed by
December 15, 1999, but was not filed until
January 21, 2000.
C. Frank Swartz Director A Form 4 which should have been filed in August 1998 was
filed through a Form 5 for October 1998. However,
the Form 5 was not filed timely pursuant to Section 16.
Form 5 for the fiscal year ended October 31, 1999, should
have filed by December 15, 1999, but was not filed
until January 21, 2000.
Alec McLarty Director Form 4 for the month of May, 1999 was filed on Form 5 for
fiscal year 1999.
Form 5 for the fiscal year ended October 31, 1999, should
have filed by December 15, 1999, but was not filed
until January 27, 2000.
Gerald Pye Director Form 5 for the fiscal year ended October 31,
1999 has not yet been filed.
Jonathan A. Bratt(1) Director A Form 4 which should have been filed for the month of April
1998 was filed through a Form 5 in October 1998. The
Form 5, however, was not filed timely pursuant to Section 16.
Form 5 for the fiscal year ended October 31, 1999, should
have been filed by December 15, 1999, but was not filed
until January 24, 2000.
Thomas M. Davidson(2) Director A Form 4 which should have been filed in August 1998, was
filed through a Form 5 for October 1998. However,
the Form 5 was not filed timely pursuant to Section 16.
Form 5 for the fiscal year ended October 31, 1999, should have
been filed by December 15, 1999, but was not filed until
January 24, 2000.
</TABLE>
--------------------------
(1) Mr. Bratt resigned from our Board of Directors in February 2000.
(2) Mr. Davidson resigned from our Board of Directors in January 2000.
EXECUTIVE OFFICERS
Biographical information concerning our Executive Officers is presented below.
<TABLE>
<CAPTION>
OFFICER'S NAME AGE OFFICE
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Billy V. Ray, Jr. 42 Chief Executive Officer and Chairman of the Board of Directors
Edwin D. Johnson 43 President and Chief Financial Officer
Frazier L. Gaines 60 Former Chief Executive Officer, now President - Able Telcom
International
Charles C. Maynard 56 Chief Operating Officer
James E. Brands 62 Senior Executive Vice President
Thomas Montgomery 49 Executive Vice President of Finance
G. Vance Cartee 57 Vice President of Business Development
Michael Brenner 52 General Counsel and Executive Vice President
Edward Z. Pollock 61 Counsel
Stacy Jenkins 43 Former President - Adesta Communications
Bob Sommerfeld 50 President - Adesta Communications
Philip A. Kernan, Jr. 49 President - Adesta Transportation
J. Barry Hall 50 President - Transportation Safety Contractors, Inc.
Richard A. Boyle 46 President - Patton Management Corp.
</TABLE>
14
<PAGE> 20
For a biography of Billy V. Ray, Jr., and of Edwin D. Johnson, see "Directors".
FRAZIER L. GAINES was one of our Directors from August 1992 through March 19,
1999 and has served as President of Able Telcom International, Inc., one of our
wholly owned subsidiaries, since June 1994. Mr. Gaines served as our Interim
President and Chief Executive Officer from March 1998 to November 1998. From
1992 to 1994, Mr. Gaines was our Chief Operating Officer. 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.
CHARLES C. MAYNARD was named Chief Operating Officer of the Company in February
2000. From July 1999 to January 2000, Mr. Maynard was an independent consultant.
From July 1997 to June 1999, Mr. Maynard served as the Chief Executive Officer
of International Satellite Group (INSAT), a satellite telephone sales and rental
company. From October 1996 to June 1997, Mr. Maynard was an independent
consultant. From October 1992 to September 1996, Mr. Maynard served as the
Managing Director, U.S. Business Development, of TeleDiffusion de France (TDF),
a division of French Telecom, which was established to develop an international
messaging network for the worldwide logistic industry.
JAMES E. BRANDS has served as our Senior Executive Vice President since March
1999. From November 1997 to March 1999, Mr. Brands was the CFO of Wilson Pest
Control, Inc., a pest control services company. From July 1997 to November 1997.
Mr. Brands served as the Executive Vice President and a Director of KBAS, Inc.,
an employee leasing company and from February 1997 to July 1997, he was the CFO
of Arrow Exterminators, which provides pest control services. From January 1993
to March 1995, Mr. Brands served as Chairman, CEO and a Director of Marquest
Medical Products, Inc. (NASDAQ:MMPI), which manufactures disposable products for
respiratory, pulmonary and related medical segments and also served as Vice
Chairman, CFO and a director of Scherer Healthcare, Inc. (Nasdaq:SCHR), which
was involved in disposable medical products, pharmaceutical development and
medical waste management. From January 1985 to February 1995, Mr. Brands was the
Executive Vice President and a director of RPS Investments, Inc., a private
investment company involved in real estate, manufacturing and services
companies, and which was a control entity of Sherer Healthcare, Inc. Since
1981, Mr. Brands has been the owner of Brands & Co., which provides financial
and business consulting services.
THOMAS MONTGOMERY was named Executive Vice President of Finance of the Company
in February 2000. From January 1991 to January 2000, Mr. Montgomery served as
the President and Chief Executive Officer of the TRG Group, Inc., a holding
company that provided a variety of financial services to both public and private
clients.
G. VANCE CARTEE became the Vice President of Business Development March 1, 2000.
Mr. Cartee served as the President of Adesta Transportation, Inc., formerly MFS
Transportation Systems, from January 1999 to February 2000. From June 1998 to
December 1998, Mr. Cartee served as a telecommunications consultant, including
performing consulting services for us. 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.
MICHAEL BRENNER joined the Company in May 2000 and serves as General Counsel and
Executive Vice President. From November 1998 to April 2000, Mr. Brenner served
as General Counsel to Mortgage.com, an on-line mortgage and lending company.
From July 1995 to November 1998, Mr. Brenner served as deputy city attorney for
West Palm Beach, Florida.
EDWARD Z. POLLOCK has been our General Counsel since November 1998. From 1963 to
1998, Mr. Pollock was a sole practitioner at the law firm of Edward Z. Pollock.
15
<PAGE> 21
BOB SOMMERFELD was named President of Adesta Communications, Inc. in April 2000.
From August 1998 to April 2000, Mr. Sommerfeld served as Vice President of
Business Development for Adesta Communications, Inc., formerly MFS Network
Technologies, Inc. ("MFSNT"). Prior to our purchase, Mr. Sommerfeld served MFSNT
as project manager since its inception in 1988, which was formed as a subsidiary
of Peter Kiewit Sons', Inc.
PHILIP A. KERNAN, JR. joined the company in February 2000 as President of Adesta
Transportation, Inc. From July 1997 to June 1999, Mr. Kernan served as President
and Chief Financial Officer of Skysite Communications, Inc, a satellite
communications company. From January 1994 to June 1997, Mr. Kernan served as
Vice President of David Werner International, an executive placement firm.
J. BARRY HALL serves as President of Transportation Safety Contractors, Inc.
("TSCI"). From October 1996 to October 1999, Mr. Hall served both as President
of TSCI and Georgia Electric Company. 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., one of our
subsidiaries since March 1996. From May 1991 to March 1996, Mr. Boyle was Vice
President and General Manager of Wright & Lopez, Inc., a telecommunications
contractor. 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.
The Chief Executive Officer is elected by and serves at the discretion of our
Board of Directors. All other executive officers are appointed by the Chief
Executive Officer.
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 our Chief Executive Officer during the 1999 fiscal
year, (ii) the other four of our most highly compensated Executive Officers who
were serving as such at October 31, 1999, and (iii) up to two additional
individuals who had served as one of our Executive Officers during the 1999
fiscal year but who were not Executive Officers at October 31, 1999, except that
persons referred to in clauses (ii) and (iii) above generally are not included
in the table if they received total annual salary and bonus of $100,000 or less
for the 1999 fiscal year end. The persons named in this table shall be
collectively referred to as the "Named Executive Officers".
SUMMARY COMPENSATION TABLE
FOR THE FISCAL YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
Other Securities
Annual Underlying All other
Name and Compen- Options(6)/ Compen-
Principal Position Year Salary($) Bonus($) sation ($) SARs (#) sation ($)
<S> <C> <C> <C> <C> <C> <C>
Billy V. Ray, Jr.(1) 1999 203,792 200,000 24,000 -- --
Chief Executive Officer and 1998 48,462 40,000 -- 35,000 110,818
Chairman of the Board of Directors 1997 34,615 -- -- -- 56,961
Frazier L. Gaines(2) 1999 201,138 -- 2,500 -- --
Former Chief Executive Officer and 1998 153,986 -- -- 210,000 4,609
President- Able Telcom International 1997 110,000 -- -- 5,000 1,024,375
Stacy Jenkins (4) 1999 207,304 55,000 4,000 -- --
Former President of
Adesta Communications
Michael Arp (3) 1999 149,565 30,000 24,000 28,500 --
Former Acting President -
GEC and TSCI
</TABLE>
16
<PAGE> 22
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
J. Barry Hall (5) 1999 240,000 150,000 -- -- --
President - TSCI 1998 209,173 75,000 -- 27,500 33,906
1997 161,538 -- -- -- --
Richard Boyle (7) 1999 159,000 70,000 19,200 65,000 --
President - Patton Management Corp.
</TABLE>
(1) Mr. Ray has served as our Chief Executive Officer since
December 1, 1998. From December 1, 1998 to May 2000, Mr. Ray
also served as President. Prior to that date he had served as
our Chief Financial Officer and as Vice President. For 1999,
other compensation includes auto allowance of $6,000 and
housing allowance of $18,000. In 1998, other compensation
included 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 our Chief Financial Officer, and
a travel and housing allowance.
(2) Mr. Gaines served as our President and Chief Executive Officer
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 1999, other
compensation includes an auto allowance of $2,500. For 1998,
other compensation includes an automobile allowance of $4,500
and health insurance premiums paid by us 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.
(3) Mr. Arp is no longer employed by us but will receive severance
pay in the amount of 15,000 monthly through December 2000. Mr.
Arp joined us in January 1999. In 1999, Mr. Arp's other
compensation included a $1,500 monthly housing allowance and a
$5,000 auto allowance. Mr. Arp served as Acting President of
Georgia Electric Company and Transportation Safety
Contractors, Inc. from November 1999 to March 2000.
(4) Mr. Jenkins' other compensation includes $4,000 for automobile
allowance. Mr. Jenkins resigned from the Company in March
2000.
(5) In 1998, other compensation includes a housing allowance of
$24,000, an automobile allowance of $7,800 and contributions
to our 401K plan.
(6) Includes options that have not yet been approved by
shareholders.
(7) Mr. Boyle's other compensation includes a housing allowance of
$14,400 plus an automobile allowance of $4,800.
THE ABLE TELCOM HOLDING CORP. 1995 STOCK OPTION PLAN, AS AMENDED
We 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,
our shareholders approved amending the Plan to increase the number of shares
outstanding under the Plan to 1,300,000. We intend to amend our registration
statement on Form S-8 to register the additional 750,000 shares of Common Stock
reserved for issuance under the Plan.
We may grant stock options (both Non-Qualified 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 one of our
Non-Affiliate Directors, of Non-Qualified Stock Options to purchase 5,000 shares
of Common Stock at an exercise price per share equal to 100% of the fair market
value of the shares on the date of grant.
With respect to the grant of awards under the Plan to persons other than
Non-Affiliate Directors, the Board of Directors, or a committee appointed by our
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
Non-Qualified Stock Options may be granted under the Plan. An Incentive Option
is intended to qualify as an incentive stock option within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). Any
Incentive Stock Option granted under the Plan will have an exercise price of not
less than 100% of the fair market value of the shares on the date on which such
option is granted. With respect to an Incentive Stock Option granted to a
Participant who owns more than 10% of our total combined voting stock or any
parent or subsidiary of us, the exercise price for such option
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<PAGE> 23
must be at least 110% of the fair market value of the shares subject to the
option on the date the option is granted. A Non-Qualified Stock Option granted
under the Plan (i.e., an option to purchase the Common Stock that does not meet
the Code's requirements for Incentive Options) shall be as determined by the
Plan Administrators.
Subject to the terms of the Plan, the Plan Administrators may award shares of
restricted stock to the Participants. Generally, a restricted stock award will
not require the payment of any option price by the Participant but will call for
the transfer of shares to the Participant subject to forfeiture, without payment
of any consideration by us; 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.
Amendments to the Plan have been submitted for Shareholder approval to (i)
increase the number of shares of Common Stock which may be issued pursuant to
awards granted from 1,300,000 to 5,500,000, (ii) increase the number of options
granted to Non-Affiliate Directors from 5,000 (initially) to 10,000 (in some
cases the amount may exceed 10,000, see "Compensation for Directors"), (iii)
grant additional options, on an annual basis, to Non-Affiliate Directors who
serve as Chairman of our Board; and as Chairman and/or as a member of a Board
committee, and (iv) extend the exercise period of the date of grants to
Non-Affiliate Directors to the earlier of (A) September 19, 2005, or (B) the
date which is two years after the date that such Non-Affiliate Director is no
longer serving in such capacity. The proposed amendments and the features of the
Stock Option Plan are described in more detail under "Proposal No. 4--Amendments
to the Stock Option Plan" elsewhere in this Proxy Statement.
STOCK OPTIONS GRANTED OUTSIDE THE PLAN DURING FISCAL YEARS 1998 AND 1999
OPTION GRANTS TO EXECUTIVE OFFICERS THROUGH MAY 11, 2000
During the fiscal year ended October 31, 1998, we issued options to purchase an
aggregate of 892,000 shares of Common Stock to employees, our Officers and
Directors and our subsidiaries at exercise prices ranging from $6.20 to $14.00
per share. On December 31, 1998, all of these options were rescinded.
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 our 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 892,000 options granted in the
fiscal year ended October 31, 1998, all were immediately vested as of December
31, 1998. During fiscal year 1999, we issued options to purchase an aggregate of
approximately 1.8 million shares of common stock to employees, consultants and
certain individuals who will be participating in an advisory capacity. The
expiration and vesting schedules vary from immediate to June 30, 2004. No
options were issued at less than market value. ALL OPTIONS ISSUED OUTSIDE THE
PLAN ARE SUBJECT TO SHAREHOLDER APPROVAL as described in more detail under
"Proposal No. 5--Ratifying and Approving Stock Options Granted to Certain
Officers and Directors" elsewhere in this Proxy Statement.
ADDITIONAL OPTION GRANTS THROUGH MAY 11, 2000
The following table shows all additional grants during the fiscal year ended
October 31, 1999 and through May 11, 2000 of stock options to the Named
Executive Officers, as well as certain other executive officers.
<TABLE>
<CAPTION>
FAIR MARKET
VALUE AT
OFFICER NUMBER OF INITIAL DATE OF DATE OF EXPIRATION
SHARES(1) GRANT PRICE INITIAL INITIAL DATE
GRANT GRANT
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Edwin Johnson
President, Chief Financial Officer and 150,000 $2.44 $2.44 5/8/00 5/3/10
a Director
Charles Maynard (2)
Chief Operations Officer 200,000 $6.00 $6.00 2/21/00 2/21/05
James E. Brands
Senior Executive Vice President 100,000 $6.375 $6.375 4/5/00 6/21/03
Thomas Montgomery (2)
</TABLE>
18
<PAGE> 24
<TABLE>
<S> <C> <C> <C> <C> <C>
Executive Vice President of Finance 200,000 $6.00 $6.00 2/21/00 5/21/05
G. Vance Cartee
Vice President of Business Development 100,000 $5.75 $5.75 12/31/99 7/6/02
Michael Brenner 100,000 $2.68 $2.68 5/3/00 5/3/10
General Counsel and Executive
Vice President
Edward Pollock
Counsel 65,000 $5.75 $5.74 12/31/99 13/31/04
Michael Summers
Chief Accounting Officer 40,000 $7.63 $7.63 5/30/99 5/30/04
Philip Kernan (2)
President - Adesta Transportation 125,000 $6.00 $6.00 2/21/00 2/21/05
</TABLE>
(1) All of the specified options granted to officers and directors
are subject to shareholder approval as described in more
detail under "Proposal No. 5 - Ratifying and Approving Stock
Options Granted to Certain Officers and Directors" elsewhere
in this Proxy Statement.
(2) The exercise price increases annually to a top price of $9.50
per share on the second anniversary.
OPTION EXERCISES AND PERIOD-END VALUES
As at May 11, 2000, there are no "in-the-money" options.
EMPLOYMENT, CONSULTING AND CHANGE OF CONTROL AGREEMENTS AND ARRANGEMENTS
BILLY V. RAY, JR., Chief Executive Officer and Chairman of the Board of
Directors, is party to an employment agreement, dated February 21, 2000 with us
(the "Ray Employment Agreement"). The Ray Employment Agreement terminates on
February 20, 2003, and provides that Mr. Ray is to be paid a salary of $350,000
per year, plus a housing allowance of $1,500 per month and an automobile
allowance of $500 per month, as well as health insurance and other benefits. The
Ray Employment Agreement may be extended from year to year thereafter. The Ray
Employment Agreement also contains a covenant by Mr. Ray not to compete with us
for a period of three years following termination of his employment. The Ray
Employment Agreement also provides that if Mr. Ray's employment is terminated
with cause, Mr. Ray will be entitled to 90 days prior notice. However, should
Mr. Ray's employment be terminated without cause, Mr. Ray will be paid out the
full remainder of his contract without any rights of mitigation. In addition,
the Ray Employment Agreement provides for the grant of options to purchase
100,000 shares of Common Stock on February 21, 2000, as approved by our Board of
Directors, which were fully vested upon grant, subject to shareholder approval.
EDWIN D. JOHNSON, President and Chief Financial Officer is a party to an
employment agreement, dated May 8, 2000 with us (the "Johnson Employment
Agreement"). The Johnson Employment Agreement terminates on May 7, 2003 and
provides that Mr. Johnson is to be paid a salary of $300,000 per year, plus
health and life insurance benefits for the term of the agreement. The Johnson
Employment Agreement also provides for a minimum bonus of $150,000 annually, an
automobile provided by us and stock options for 150,000 shares which were fully
vested upon grant and are exercisable at $2.44 per share, fair market value at
date of grant. These options expire on May 7, 2010 and are subject to
shareholder approval. Mr. Johnson will be paid out the full remainder of his
contract without any rights of mitigation.
FRAZIER L. GAINES, President of Able Telcom International, Inc., is party to an
employment agreement, dated November 12, 1998 with us (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, plus health and life insurance and
a monthly automobile allowance of $500. The Gaines Employment Agreement also
provides that we will pay all health and life insurance benefits plus $60,000
per year for the number of years equal to Mr. Gaines' years of service and
payable beginning at Mr. Gaines' termination date. The Gaines Employment
Agreement also contains a covenant by Mr. Gaines not to compete with us for a
period of three years following termination of his employment. The Gaines
Employment Agreement also provides that if Mr. Gaines' employment is terminated
with cause Mr. Gaines will be entitled to 30 days prior notice. However, should
Mr. Gaines' employment be terminated without cause, Mr. Gaines
19
<PAGE> 25
will be paid one-year's severance plus regular Company health and insurance
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 Common Stock, subject to approval by our Board of
Directors, which vest over a three year period, or immediately upon either a
change in control or ownership of us. To date, these options have not been
approved by our Board of Directors.
CHARLES C. MAYNARD, Chief Operations Officer, is a party to an employment
agreement dated February 21, 2000 with us (the "Maynard Employment Agreement").
The Maynard Employment Agreement terminates on February 20, 2003 and provides
that Mr. Maynard is to be paid a salary of $240,000 per year, plus insurance and
other benefits. The Maynard Employment Agreement also provides that if Mr.
Maynard's employment is terminated with cause, that Mr. Maynard will be entitled
to 90 days prior notice. However, if Mr. Maynard`s employment is terminated
without cause, Mr. Maynard will be paid out the remainder of his contract plus
fringe benefits without any rights of mitigation. In addition, the Maynard
Employment Agreement provides for the grant of options to purchase 200,000
shares of Common Stock, subject to approval of our Shareholders, which will vest
over a two-year period at prices ranging from $6.00 to $9.50 per share.
JAMES E. BRANDS, Senior Executive Vice President, is party to a consulting and
employment agreement, dated March 15, 1999 with us (the "Brands Employment
Agreement"). The Brands Employment Agreement terminates on April 5, 2001, and
may be extended for an additional one-year period. The Brands Employment
Agreement provides that Mr. Brands was paid (i) a consulting fee of $20,000 for
the period commencing March 15, 1999 and ending May 15, 1999, and (ii) a salary
of (A) $5,750 for the period between April 2, 1999 to April 30, 1999, (B) $2,500
for the period between May 1, 1999 to May 31, 1999 and (C) $12,500 per month
from June 1, 1999 through April 5, 2001; provided that if another executive or
management employee other than a CEO is hired during the initial term of the
Brands Employment Agreement at a rate of more than $12,500 per month, Mr.
Brands' monthly rate shall immediately become the same as such employee. Mr.
Brands is also entitled to an automobile allowance of $500 per month or at our
option, we may provide Mr. Brands with a late model Lincoln Town Car and
reimbursement of its operating costs, a housing allowance of $1,500 per month
effective August 1, 1999 (and during April 2, 1999 to July 31, 1999, Mr. Brands
will be reimbursed for actual expenses incurred), plus health and life insurance
benefits. However, no housing allowance has been paid to Mr. Brands. In
addition, the Brands Employment Agreement provides for the grant of options to
purchase 100,000 shares of Common Stock at $6.375 per share, of which 75,000
vested as of April 5, 1999 and 25,000 will vest on June 21, 2000 (which options
are subject to divestiture if Mr. Brands is not a Company employee on April 5,
2000). In the event of a change of control or ownership of us, the options will
vest immediately. The exercise period terminates two years from each vesting
date. Mr. Brands was granted a salary increase to $175,000 per year as of
January 1, 2000.
THOMAS MONTGOMERY, Executive Vice President of Finance, is a party to an
employment agreement dated February 21, 2000 with us (the "Montgomery Employment
Agreement"). The Montgomery Employment Agreement terminates on February 20, 2003
and provides that Mr. Montgomery is to be paid a salary of $228,000 per year,
plus insurance and other benefits. The Montgomery Employment Agreement also
provides that if Mr. Montgomery's employment is terminated with cause, that Mr.
Montgomery will be entitled to 90 days prior notice. However, if Mr.
Montgomery`s employment is terminated without cause, Mr. Montgomery will be paid
out the remainder of his contract plus fringe benefits without any rights of
mitigation. In addition, the Montgomery Employment Agreement provides for the
grant of options to purchase 200,000 shares of Common Stock, subject to approval
of our Shareholders, which will vest over a two-year period at prices ranging
from $6.00 to $9.50 per share.
G. VANCE CARTEE, President of Adesta Transportation, is party to an employment
agreement, dated January 4, 1999 with us (the "Cartee Employment Agreement").
The Cartee Employment Agreement terminates on January 2, 2001, and provides that
Mr. Cartee is to be paid a salary of $150,000 per year, plus insurance and other
benefits. The Cartee Employment Agreement also contains a covenant by Mr. Cartee
not to compete with us for a period of one-year following termination of his
employment. The Cartee Employment Agreement also provides that if Mr. Cartee's
employment is terminated with cause that Mr. Cartee will be entitled to 90 days
prior notice. However, should Mr. Cartee's employment be terminated without
cause, Mr. Cartee will be paid out the remainder of his contract, or for 180
days, whichever is greater. In addition, the Cartee Employment Agreement
provides for the grant of options to purchase 40,000 shares of Common Stock, as
approved by our Board of Directors, which vest on the earlier of January 1,
2000, or immediately upon either a change in control or ownership of us or at
such time as Mr. Cartee's employment is terminated without cause. Effective May
7, 1999, Mr. Cartee's base salary increased to $162,000 per year and he was also
granted
20
<PAGE> 26
options to purchase 25,000 shares of Common Stock at $6.375 per share,
one-third of which vested as of May 7, 1999, one-third vested on May 7, 2000 and
one-third vest on May 7, 2001. The exercise period for the options granted on
May 7, 1999 to Mr. Cartee commences as of the date of vesting and continues
through the earlier of (i) September 19, 2005 or (ii) two years from the date
Mr. Cartee no longer is an employee of us. Mr. Cartee was granted a salary
increase to $182,000 effective January 1, 2000. In February of 2000, Mr. Cartee
left as President of Adesta Transportation to become our Vice President of
Business Development.
MICHAEL BRENNER, General Counsel and Executive Vice President, is party to an
employment agreement, dated May 3, 2000 with us (the "Brenner Employment
Agreement"). The Brenner Employment Agreement terminates on May 2, 2003 and
provides that Mr. Brenner is to be paid a salary of $200,000 per year, plus
health and life insurance benefits. The Brenner Employment Agreement also calls
for a minimum bonus of $50,000 annually, a non-accountable automobile allowance
of $12,000 annually and stock options for 100,000 shares which vest immediately
and are exercisable at $2.69 per share, fair market value at date of grant.
These options expire on May 2, 2010 and are subject to shareholder approval. Mr.
Brenner will be paid out the full remainder of his contract without any rights
of mitigation.
EDWARD POLLOCK, Counsel, is party to an employment agreement, dated January 1,
1999 with us (the "Pollock Employment Agreement"). The Pollock Employment
Agreement terminates on December 31, 2000 and provides that Mr. Pollock is to be
paid an initial salary of $10,000 per month for the period from January 1, 1999
to June 30, 1999, increased to $11,000 per month for the period from July 1,
1999 to December 31, 1999, increased to $12,000 monthly for the period from
January 1, 2000 to June 30, 2000, and increased to $12,500 monthly for the
period from July 1, 2000 to December 31, 2000. In addition, the Pollock
Employment Agreement provides an automobile allowance of $300 per month, plus
health insurance and other benefits. The Pollock Employment Agreement may be
extended for an additional two-year period. The Pollock Employment Agreement
also contains a covenant by Mr. Pollock not to compete with us for a period of
three years following termination of his employment. The Pollock Employment
Agreement also provides that if Mr. Pollock's employment is terminated with
cause, Mr. Pollock will be entitled to 90 days prior notice. However, should Mr.
Pollock's employment be terminated without cause, Mr. Pollock will be paid out
the remainder of his contract. In addition, the Pollock Employment Agreement
provides for the grant of options to purchase 40,000 shares of Common Stock, as
approved by our Board of Directors, which vest over a three year period (20,000
options vested on January 1, 1999, 10,000 options will vest on January 1, 2000
and 10,000 options will vest on January 2, 2001), unless there is a change in
control or ownership of us. Effective May 7, 1999, Mr. Pollock's salary
increased to $150,000 per year and he was granted options to purchase 25,000
shares at $6.375 per share, one-third of which vested as of May 7, 1999,
one-third vested on May 7, 2000 and one-third vest on May 7, 2001. The exercise
period for the options granted on May 7, 1999 to Mr. Pollock commences as of the
date of vesting and continues through the earlier of (i) September 19, 2005 or
(ii) two years from the date Mr. Pollock no longer is an employee of us.
STACY JENKINS, Former President of Adesta Communications, is party to an
employment agreement, dated July 16, 1998 with us (the "Jenkins Employment
Agreement"). The Jenkins Employment Agreement terminates on July 15, 2001, and
provides that Mr. Jenkins is to be paid a salary of $200,000 per year, an
automobile allowance of $500 per month, plus health insurance and other
benefits. The Jenkins Employment Agreement also contains a covenant by Mr.
Jenkins not to compete with us for a period of two years following termination
of his employment. The Jenkins Employment
21
<PAGE> 27
Agreement also provides that if Mr. Jenkins' employment is terminated with cause
that Mr. Jenkins will be entitled to 30 days prior notice. However, should Mr.
Jenkins' employment be terminated without cause, Mr. Jenkins will be paid out
the remainder of his annual salary contract rate, or for 90 days, whichever is
greater. In addition, the Jenkins Employment Agreement provides for the grant of
options to purchase 100,000 shares of Common Stock, as approved by our Board of
Directors, which vest after one year of employment, or immediately upon either a
change in control or ownership of us or if Mr. Jenkins is terminated without
cause. On December 31, 1998, our Board of Directors rescinded the above grant of
options and issued new options to purchase 100,000 shares at $5.75 per share
through December 31, 2000 or 90 days after termination of employment, whichever
is earlier. Effective May 7, 1999, Mr. Jenkins' base salary increased to
$216,000 per year and he was granted options to purchase 25,000 shares of Common
Stock at $6.375 per share, one-third of which vested as of May 7, 1999,
one-third vested on May 7, 2000 and one-third vest on May 7, 2001. The exercise
period for the options granted on May 7, 1999 to Mr. Jenkins commences as of the
date of vesting and continues through the earlier of (i) September 19, 2005 or
(ii) two years from the date Mr. Jenkins no longer is an employee of us. Mr.
Jenkins was granted a salary increase to $240,000 effective January 1, 2000. Mr.
Jenkins resigned from the Company March 21, 2000.
PHILIP A. KERNAN, JR., President of Adesta Transportation, is a party to an
employment agreement dated February 21, 2000 with us (the "Kernan Employment
Agreement"). The Kernan Employment Agreement terminates on February 20, 2003 and
provides that Mr. Kernan is to be paid a salary of $182,000 per year, plus
insurance and other benefits. The Kernan Employment Agreement also provides that
if Mr. Kernan's employment is terminated with cause, that Mr. Kernan will be
entitled to 90 days prior notice. However, if Mr. Kernan`s employment is
terminated without cause, Mr. Kernan will be paid out the remainder of his
contract plus fringe benefits without any rights of mitigation. In addition, the
Kernan Employment Agreement provides for the grant of options to purchase
125,000 shares of Common Stock, subject to approval of our Shareholders, which
will vest over a two-year period at prices ranging from $6.00 to $9.50 per
share.
J. BARRY HALL, President of the Georgia Electric Company and Transportation
Safety Contractors, Inc. ("TSCI"), 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 us for a period of two years following termination of his
employment, unless we terminate 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 us up to one year in exchange for additional compensation).
Effective May 7, 1999, Mr. Hall received a cash bonus of $100,000, based upon
compensation that has been assigned to Mr. Hall from Gerry Hall, a former Chief
Executive Officer of us.
RICHARD A. BOYLE, President of the Patton Management Group, is party to an
employment agreement, dated April 1, 1998 with us (the "Boyle Employment
Agreement"). The Boyle Employment Agreement terminates on March 31, 2000, and
provides that Mr. Boyle is to be paid a salary of $159,000 per year, plus
insurance and other benefits. The Boyle Employment Agreement also contains a
covenant by Mr. Boyle not to compete with us for a period of two years following
termination of his employment. Also, pursuant to the terms of the Patton
Management Corporation acquisition documents, Mr. Boyle's non-competition
agreement has been extended for one additional year. The Boyle Employment
Agreement also provides that if Mr. Boyle is terminated with cause, Mr. Boyle
will not be entitled to any notice. Effective May 7, 1999, Mr. Boyle was granted
options to purchase 65,000 shares of Common Stock at $6.375 per share, one-third
of which vested as of May 7, 1999, one-third vested on May 7, 2000 and one-third
vest on May 7, 2001. The exercise period for the options granted on May 7, 1999
to Mr. Boyle commences as of the date of vesting and continues through the
earlier of (i) September 19, 2005 or (ii) two years from the date Mr. Boyle is
no longer an employee of us.
On March 31, 2000, the Board of Directors of Able approved certain supplemental
compensation arrangements for designated members of management, in addition to
the compensation benefits set out in the contracts described above. These
arrangements provide for payment of an amount, as described below, to the
designated officers upon (i) an entity or group of related entities obtaining
control of 51% or more of our common stock (a "Change of Control") or (ii) the
termination of an officer's employment without cause, whether or not related to
a change of control. The amount payable upon either event, is equal to the
product of such officer's share equivalent units, as listed below, multiplied by
the greatest of:
- $10.00 per unit,
- the per-share tender price in the event of a Change of Control
structured as a cash acquisition,
- the per-share equivalent value in the event of a stock-for-stock
acquisition, based upon the closing quoted market price of a share
of acquirer stock received in exchange for the tendered Company
stock on the day immediately preceding the closing of such
acquisition, or
- the prior-day closing per-share market price of our common stock.
The share equivalent units as approved on March 31, 2000, are as follows for
each named officer:
<TABLE>
<CAPTION>
Share Equivalent Minimum
Officer Units Dollar Value
---------------------------------------------------------------------------------------------
<S> <C> <C>
Billy V. Ray
Chief Executive Officer 100,000 $1,000,000
James Brands
Senior Executive Vice President 87,500 875,000
Thomas Montgomery
Vice President of Finance 75,000 750,000
Charles Maynard
Chief Operations Officer 75,000 750,000
Philip Kernan
President - Adesta Transportation 50,000 500,000
Robert Sommerfeld
President - Adesta Communications 87,500 875,000
</TABLE>
In all events payment of the amount owed will be made in cash in a lump sum at
the earlier of the time of a Change of Control or the officer's termination of
employment and shall be in addition to any other severance payment provided
in an officer's employment agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended October 31, 1999, compensation for our Executive
Officers was determined by our Compensation Committee, consisting of Messrs. C.
Frank Swartz, Alec McLarty and Billy V. Ray, Jr. Mr. Swartz is Chairman of the
Committee and he and Alec McLarty are the two non-employee members of the
Compensation Committee. In addition to being a Director of Able, Mr. Ray is our
Chief Executive Officer. Mr. Ray excused himself from all discussions and
abstained from voting on any issues relating to the compensation and bonuses to
be paid to Mr. Ray as Chief Executive Officer.
22
<PAGE> 28
In April 1998, we engaged Washington Equity Partners ("WEP") as an advisor in
connection with the MFSNT Acquisition, including the financing thereof. At the
time of the engagement, Mr. Thomas A. Davidson, a member of our Board of
Directors and a former member of the Compensation Committee who resigned as a
Director in January 2000, was Managing Director of WEP. In connection with the
engagement, we agreed to pay WEP a fee if we consummated the financing of the
MFSNT Acquisition through an investor contacted by WEP. Such fee equaled 2% of
the gross proceeds of any senior indebtedness issued by us, 3% of the gross
proceeds of any subordinated indebtedness issued by us, and 4% of the gross
proceeds of any equity securities issued by us. In addition, we agreed to pay
WEP, upon the consummation of the MFSNT Acquisition, a fee of 2% of the
aggregate purchase price paid by us for this acquisition up to $50.0 million,
and 1-1/2% of the aggregate purchase price in excess of $50.0 million. We 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, we agreed to indemnify WEP and its
permitted assigns against all losses and expenses, including reasonable counsel
fees and expenses, arising out of the MFSNT Acquisition or the financing, except
any losses or expenses found in a final judgment by a court of competent
jurisdiction to have resulted from WEP's bad faith, gross negligence or breach
of its agreement with us. 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 one of our Directors in June 1998. On
October 21, 1998, we and Mr. Davidson executed a letter agreement pursuant to
which we agreed to pay Mr. Davidson $1,332,000 in satisfaction of amounts owing
under the agreement with WEP with respect to the MFSNT Acquisition and the
related financing. During the 1999 fiscal year, Mr. Davidson was paid $350,000
and on April 30, 1999, Mr. Davidson converted the remaining amount due totaling
$828,002 to 118,286 shares of common stock at the then market price of $7.00 per
share.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
On October 12, 1996, we 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 our board of directors, and on June 12,
1997, was elected our President and Chief Executive Officer. Gerry Hall resigned
as President, Chief Executive Officer and a director on March 2, 1998. The
purchase price for the GEC acquisition was $3 million in cash, plus the issuance
at the end of each of the next five fiscal years of a number of shares of Common
Stock to be determined pursuant to a formula contained in the acquisition
agreement by dividing a dollar figure derived from GEC's actual pre-tax profits
and operating margins compared with target profits and margins for each such
fiscal year by a discounted per share price. In the event that GEC is sold by us
prior to the end of fiscal year 2001, we are obligated to issue to Gerry Hall
and Barry Hall a number of shares of Common Stock having a market value (as
determined in accordance with the contract) of $1 million for each year that
earn-out consideration remains payable. The GEC acquisition agreement was
amended in February 1998 to increase the percentage discount applicable to the
price of the Common Stock for purposes of determining the number of shares to be
issued with respect to each fiscal year and to limit the total market value of
the shares of Common Stock which could be issued under the agreement. The shares
issued to the Halls for fiscal year 1998 totaled 508,398 and for fiscal year
1999 totaled 204,944.
We entered into a consulting agreement with Tyler Dixon dated January 1, 1999
and effective as of April 1, 1999, whereby Mr. Dixon will serve as legal
consultant to us, will provide us with a minimum of 80 hours of legal services
per month commencing April 1, 1999 and continuing through May 31, 2000, and will
be compensated at a minimum rate of $16,000 per month. Mr. Dixon also received
options to purchase 40,000 shares of Common Stock at $6.375 per share, which
exercise period commenced on April 1, 1999 and will terminate two years from the
expiration of the consulting agreement or any extensions or renewals thereof
(whichever occurs last). Mr. Dixon is a partner in the law firm of Raiford,
Dixon & Thackston, LLP, which, during fiscal 1999 and 1998, received
approximately $300,00 and $100,000 in legal fees from us. Mr. Dixon was also the
sole officer, director and shareholder of Cotton Communications, Inc.
("Cotton").
On February 17, 1999, in order to facilitate the purchase of (i) 2,785 shares of
Series B Preferred Stock, par value $.001 from the Palladin Group and the
RoseGlen Group acquired in connection with the Series B Offering, and (ii) the
outstanding $10.0 million principal amount of Senior Notes, we advanced Cotton
approximately $32.0 million ("Company Advance"), which advance accrued interest
at 11.5% and was to mature on November 30, 2000. Immediately thereafter, Cotton
purchased 2,785 shares of Series B Preferred Stock (1,425 shares from the
RoseGlen Group for $11.0 million and 1,360 shares from the Palladin Group for
$7.85 million), as well as the Senior Notes.
23
<PAGE> 29
On March 22, 1999, we entered into a termination agreement with Cotton whereby
we redeemed the Senior Notes held by Cotton, as well as the 2,785 shares of
Series B Preferred Stock from Cotton in exchange for the cancellation of the
Company Advance made to Cotton on February 17, 1999. We also assumed Cotton's
obligation to acquire 630,000 of the Series B Warrants at a price of $3.00 per
Series B Warrant. The Senior Notes have since been canceled and the 2,785 shares
of Series B Preferred Stock have been retired. Additionally, the 630,000 Series
B Warrants were purchased by us and retired.
See also "Compensation Committee Interlocks and Insider Participation" regarding
certain related party transactions between members of our Compensation Committee
and with Mr. Thomas Davidson, one of our former Directors.
Notwithstanding anything to the contrary set forth in any of our previous
filings under the Securities Act of 1933 or the Securities Exchange Act of 1934
that might incorporate future filings, including the Proxy Materials, in whole
or in part, the following Report on Executive Compensation and the Performance
Graph shall not be incorporated by reference into any such filings.
REPORT ON EXECUTIVE COMPENSATION
During the fiscal year ended October 31, 1999, the Compensation Committee was
responsible for setting and approving the salaries, bonuses and other
compensation for our Executive Officers, establishing compensation programs, and
determining the amounts and conditions of all grants of awards under the Plan.
Compensation Objectives. The Compensation Committee believes that the objectives
of executive compensation are to attract, motivate and retain highly qualified
executives, to align the interests of these executives with those of the
Shareholders and to motivate Company executives to increase shareholder value by
improving corporate performance and profitability. To meet these objectives, our
Board of Directors seeks to provide competitive salary levels and compensation
incentives that attract and retain qualified executives, to recognize individual
performance and achievements, as well as our performance relative to our peers
and to encourage ownership of Company stock.
Executive Salaries. Base salaries for executives are determined initially by
evaluating the responsibilities of the position, the experience of the
individual, internal comparability considerations, as appropriate, the
competition in the marketplace for management talent and the compensation
practices among public companies the size of, or in businesses similar to, our
Company. Salary adjustments are determined and normally made at twelve-month
intervals.
Annual Bonuses. We have historically paid bonuses to executives whom the Board
of Directors determines have contributed materially to our success during the
most recently completed fiscal year. The bonuses are intended to enable our
executives to participate in our success, as well as provide incentives for
future performance. Bonus compensation has typically been determined as a
percentage of the executive's salary based upon our pre-tax net income as a
whole or the pre-tax net income of the subsidiary which employs the executive.
Compensation Of The Chief Executive Officer. The compensation of Billy V. Ray,
our Chief Executive Officer, was adjusted during the year to better reflect the
accomplishments of Mr. Ray. The increases were based upon arm-length
negotiations between Mr. Ray and the remaining members of our Board of
Directors. In agreeing to increase Mr. Ray's compensation, the Board of
Directors sought to provide an appropriate incentive to Mr. Ray. The Board of
Directors believes that Mr. Ray's salary was appropriate for the chief executive
officer of a public company the size of our Company. See "Summary Compensation
Table" for information concerning Mr. Ray's compensation. The Board of Directors
approved the payment of a bonus to Mr. Ray of $200,000, based upon our operating
results and strategic accomplishments during fiscal year 1999. Mr. Ray did not
participate nor did he vote on any issues relating to his compensation.
Frazier Gaines served as our Chief Executive Officer from March 1998 through
November 1998 (excluding August 19-31, 1998) when he resigned to direct his
energies into Able Telcom International. During the fiscal year ended October
31, 1999, Mr. Gaines was paid $15,000 as Chief Executive Officer for the period
of November 1 to November 30, 1998 thereupon Mr. Gaines resumed his position as
President of Able Telcom International. Mr. Gaines received other compensation
that is more fully presented in the "Summary of Compensation" above.
24
<PAGE> 30
Stock Options. The Board of Directors may grant to certain of our employees
long-term incentives consisting of non-qualified stock options and incentive
stock options and stock options outside the Plan. In order to vary the types of
awards that may be offered, our Board of Directors approved the Plan Amendments,
which will increase the number of shares of stock available for grant under the
Stock Option Plan and will allow for the grant of shares of Common Stock subject
to restrictions. During fiscal year 1999, our Board of Directors approved grants
of stock options to all Executive Officers. See "Executive Compensation--Option
Grants During the Fiscal Year Ended October 31, 1999".
Respectfully Submitted,
C. Frank Swartz, Chairman
Billy V. Ray, Jr.
Alec McLarty
STOCK PERFORMANCE
The following performance graph compares the cumulative total return on our
Common Stock with the cumulative total return of the companies in the Standard
and Poor's 500 index, the Nasdaq Telecommunications Stocks Index and a
self-determined peer group consisting of Advanced Communications Systems, Inc.,
AmeriLink Corp.; ANTEC Corporation; C-Cor Electronics, Inc.; Comtech
Telecommunications Corp.; Dycom Industries, Inc.; Eltrax Systems, Inc.; Internet
Communications Corp.; IPC Information Systems, Inc.; IWL Communications, Inc.;
Lockheed Martin; MasTec, Inc.; NumereX Corp.; Porta Systems Corp.; Tollgrade
Communications Corp.; View Tech, Inc.; and World Access, Inc. The cumulative
total return for each of the periods shown in the performance graph is measured
assuming an initial investment of $100 on October 31, 1994 and assuming dividend
reinvestment. No dividends have been paid on the Common Stock.
COMPARISON OF THE 12-MONTH CUMULATIVE TOTAL RETURN AMONG ABLE TELCOM HOLDING
CORP., THE S&P 500 INDEX, SELF-DETERMINED PEER GROUPS AND THE NASDAQ
TELECOMMUNICATIONS STOCKS INDEX
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Able Telcom Holding Corp. 100 75 120 110 100 125
Peer Group 100 145 200 220 250 130
S&P 500 100 125 155 205 250 320
Nasdaq Telecommunications 100 110 120 175 235 430
</TABLE>
EFFECT OF MANAGEMENT VOTE ON PROPOSAL NO. 1.
SINCE OUR DIRECTORS AND OFFICERS OWN BENEFICIALLY 1,885,082 SHARES OF COMMON
STOCK, OR 11.5% OF THE OUTSTANDING VOTING SHARES, THEIR VOTES ARE NOT LIKELY TO
HAVE A MATERIAL IMPACT ON WHETHER THIS PROPOSAL IS ADOPTED. THE NUMBER OF SHARES
HELD BY OUR DIRECTORS AND OFFICERS THAT HAVE ACTUAL VOTING RIGHTS IS 240,082,
WHICH IS 1.5% OF THE OUTSTANDING SHARES.
THE BOARD OF DIRECTORS VOTES "FOR" ELECTING THE SLATE OF FOUR DIRECTORS TO
SERVE UNTIL THE NEXT ANNUAL MEETING OF SHAREHOLDERS OR UNTIL THEIR
RESPECTIVE SUCCESSORS ARE ELECTED AND QUALIFIED
25
<PAGE> 31
PROPOSAL NO. 2:
TO RATIFY AND APPROVE AMENDMENTS TO OUR ARTICLES OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF
(A) COMMON STOCK FROM 25 MILLION TO 100 MILLION
(B) PREFERRED STOCK FROM ONE MILLION TO FIVE MILLION
Background
On March 4, 1999, and as ratified on May 12, 2000, our Board of Directors
unanimously adopted a resolution setting forth proposed amendments to our
Articles of Incorporation:
1. Authorizing amendments to the first paragraph of Article III of our
Articles to increase the number of authorized shares of
- Common Stock, par value $.001, from 25 million shares to 100
million shares;
- Preferred Stock, par value $.10 ("Preferred Stock") from one
million shares to five million shares; and
2. Directing that the Amendments be submitted to the Shareholders for
their review, adoption and approval at our 2000 Annual Meeting of
Shareholders.
As of May 11, 2000, there were
- 25 million shares of Common Stock authorized, of which
16,308,582 shares of Common Stock were issued and outstanding,
and
- one million shares of Preferred Stock authorized, of which
- 1,200 shares have been designated as Series A
Convertible Preferred Stock ("Series A Preferred
Stock"), of which no shares remain issued and
outstanding,
- 4,000 shares have been designated as Series B
Convertible Preferred Stock ("Series B Preferred
Stock"), of which no shares remain issued and
outstanding, and
- 5,000 shares have been designated as Series C
Convertible Preferred Stock ("Series C Preferred
Stock"), of which 5,000 shares are issued and
outstanding.
The Common Stock
Holders of our Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of our Shareholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of our Common
Stock, whom are 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 our liquidation,
dissolution or winding up, the holders of Common Stock are entitled to receive
ratably our net assets 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 pre-emptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, when issued and
paid for, fully paid and non-assessable. 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 we may
designate and issue in the future.
26
<PAGE> 32
The Preferred Stock
Currently, our Board of Directors has the authority, without further action of
our Shareholders, to issue up to an aggregate of one million 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.
Our 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. Issuing Preferred Stock may have the effect of
delaying, deferring or preventing a change in control. For a description of the
terms of the Series C Preferred Stock, see Proposal No. 8.
Effect of the Increase in Authorized Shares
Each of the additional authorized shares of Common Stock will have the same
rights and privileges as the currently authorized Common Stock. The additional
authorized Preferred Stock may be issued by resolutions of a majority of our
Board of Directors in one or more series with such designations, powers,
preferences and rights, including without limitation, dividend rights,
conversion rights, voting rights, redemption terms and liquidation preferences
and such qualifications and limitations as the Board of Directors shall
determine. Assuming the Amendments are approved, no further Shareholder approval
is required for the issuance of authorized Common Stock or Preferred Stock,
unless required by the rules of the Nasdaq Stock Market, including Rule 4460(i),
described in this Proxy Statement.
Reasons for Increasing the Number of Authorized Shares
Of the 25 million shares of Common Stock currently authorized for issuance under
the Articles, as of May 11, 2000 there were 16,308,538 shares of Common Stock
issued and outstanding and approximately 8,670,000 additional shares which
should be reserved. These additional shares are comprised of the following (as
if exercised or converted, as the case may be, as of May 11, 2000), of
approximately:
- 5,050,000 shares underlying outstanding stock options,
- 2,000,000 shares underlying the WorldCom Option described in
Proposal No. 6 (assuming Shareholder approval of Proposal No.
6),
- 600,000 shares underlying the WorldCom Equity Award described
in Proposal No. 6 (assuming Shareholder approval of Proposal
No. 6, assuming the maximum number of shares that may be
exercised, although neither the WorldCom Option nor the
WorldCom Equity Award are currently "in-the-money"),
- 62,200 shares underlying warrants issued in connection with
our Series A Preferred Stock (the Series A Preferred Stock has
all been converted and none remain outstanding),
- 954,639 shares of Common Stock underlying warrants issued in
connection with the Series B Offering (which represents 150%
of the shares of Common Stock underlying the remaining
outstanding warrants issued in connection with the Series B
Offering).
Additionally shares must be set aside related to the Series C Offering as
follows:
- 7,500,000 shares of Common Stock described in Proposal No. 8
(which represents 200% of the shares underlying the Series C
Preferred Stock, as required under the terms of the Series C
Preferred Stock or 3,750,000 shares that would be issued,
based upon a current floor exercise price of $4.00 per share,
and assuming Shareholder approval of Proposal No. 8),
- 300,000 shares of Common Stock described in Proposal No. 8
(which represents 150% of the shares of Common Stock
underlying the outstanding warrants issued in connection with
the Series C Offering described in Proposal No. 8 or 200,000
shares).
27
<PAGE> 33
Increasing the number of authorized shares of Common Stock, as well as Preferred
Stock, will allow our Board of Directors to have the flexibility to act promptly
to meet future business needs as such needs arise. Sufficient shares should be
readily available for general corporate purposes, including for maintaining our
financial and capital raising flexibility, in the event of stock splits or stock
dividends, for acquisitions and mergers, in connection with employee benefit
plans and for other proper business purposes. Additionally, by increasing the
number of authorized shares of Common Stock from 25 million to 100 million, we
will have more than a sufficient number of shares in the event that the Common
Stock price drops to approximately $4.00 per share or less and all derivative
securities are converted or exercised, as well as to meet our contractual
obligations to the holders of the Series B Securities and Series C Securities.
The Amendments will also authorize an increase in the number of authorized
shares of Preferred Stock from one million shares to five million shares, on
terms which may be fixed by the Board of Directors without further Shareholder
action. The Articles currently authorize 1,000,000 shares of Preferred Stock. As
of the Record Date,
- 1,200 shares have been designated as Series A Preferred Stock,
none of which remain issued or outstanding,
- 4,000 shares have been designated as Series B Preferred Stock,
none of which remain issued or outstanding;
- 5,000 shares have been designated as Series C Preferred Stock,
of which 5,000 shares are currently issued and outstanding.
The terms of any series of Preferred Stock, which may include priority claims to
assets and dividends and special voting rights, could adversely affect the
rights of holders of the Common Stock. We have no present plans to issue any
additional shares of Preferred Stock.
Furthermore, by having additional shares readily available, our Board of
Directors will be able to act expeditiously without spending the time and
incurring the expense of soliciting proxies and holding additional special
Shareholders' meetings. The Board, however, may issue additional shares of
Common Stock and Preferred Stock without action on the part of the Shareholders
only if the action is permissible under Florida law, and only if the rules of
the exchange on which the Common Stock is listed (currently the Nasdaq National
Market System) permit such issuances. There are no additional costs or expenses
due to the State of Florida, where we are incorporated, as a result of the
increase in authorized shares, other than the costs associated with the filing
of an Amendment to our Articles of Incorporation.
Moreover, the additional authorized shares of Common Stock and Preferred Stock
may be used to discourage persons from attempting to gain control of us by
diluting the voting power of shares then outstanding or increasing the voting
power of persons who would support our Board of Directors in opposing a takeover
bid or a solicitation in opposition to management. These shares could also be
used by our Board of Directors in a public or a private sale, merger or similar
transaction by increasing the number of outstanding shares and thereby diluting
the equity interest and voting power of a party attempting to obtain control of
Able. We are not currently aware of any effort to obtain control of Able and
have no plans to use the new shares for purposes of discouraging any such
effort. Similarly, we have no definitive present plans, agreements, commitments
or understandings to issue or use these proposed additional shares of Common
Stock or Preferred Stock in connection with any acquisitions, financing
transactions or other corporate transactions, however, we may do so in the
foreseeable future. The Shareholders may vote separately to increase the number
of authorized shares of (i) Common Stock and (ii) Preferred Stock.
If only Proposal 2(A) described in this Proposal is approved, the first
paragraph of Article III of the Articles of Incorporation will read as follows:
ARTICLE III
The number of shares of stock that this Corporation is
authorized to have outstanding at any one time is:
ONE HUNDRED AND ONE MILLION (101,000,000) SHARES CONSISTING OF
ONE HUNDRED MILLION (100,000,000) SHARES OF COMMON STOCK
HAVING A PAR VALUE OF ONE TENTH OF A CENT ($.001) PER SHARE
AND ONE MILLION (1,000,000) SHARES OF PREFERRED STOCK HAVING A
PAR VALUE OF TEN CENTS ($.10) PER SHARE.
28
<PAGE> 34
If only Proposal 2(B) described in this Proposal is approved, the first
paragraph of Article III of the Articles of Incorporation will read as follows:
ARTICLE III
The number of shares of stock that this Corporation is
authorized to have outstanding at any one time is:
THIRTY MILLION (30,000,000) SHARES CONSISTING OF TWENTY FIVE
MILLION (25,000,000) SHARES OF COMMON STOCK HAVING A PAR VALUE
OF ONE TENTH OF A CENT ($.001) PER SHARE AND FIVE MILLION
(5,000,000) SHARES OF PREFERRED STOCK HAVING A PAR VALUE OF
TEN CENTS ($.10) PER SHARE.
If Shareholder approval is obtained for either Proposal 2(A) or Proposal 2(B) or
for both Proposals, the Amendments become effective once the Amendment is filed
with the Secretary of State of the State of Florida, which is expected to occur
as soon as practicable after the Shareholders approve the Amendment.
EFFECT OF MANAGEMENT VOTE ON PROPOSAL NOS. 2(A) AND 2(B).
SINCE OUR DIRECTORS AND OFFICERS OWN BENEFICIALLY 1,885,082 SHARES OF COMMON
STOCK, OR 11.5% OF THE OUTSTANDING VOTING SHARES, THEIR VOTES ARE NOT LIKELY TO
HAVE A MATERIAL IMPACT ON WHETHER THIS PROPOSAL IS ADOPTED. THE NUMBER OF SHARES
HELD BY OUR DIRECTORS AND OFFICERS THAT HAVE ACTUAL VOTING RIGHTS IS 240,082,
WHICH IS 1.5% OF THE OUTSTANDING SHARES.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR"
APPROVING AMENDMENTS TO OUR ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF
(A) COMMON STOCK FROM 25 MILLION TO 100 MILLION
(B) PREFERRED STOCK FROM ONE MILLION TO FIVE MILLION
PROPOSAL NO. 3:
TO AMEND OUR ARTICLES OF INCORPORATION TO CHANGE OUR CORPORATE NAME FROM
"ABLE TELCOM HOLDING CORP". TO "THE ADESTA GROUP, INC".
Background
As part of our contractual agreements with WorldCom, we were permitted to use
the trade name "MFSNT" only during the 18-month transition period immediately
following the acquisition of MFSNT. As a result, effective February 2000, all of
our subsidiaries bearing "MFS" as part of their name were changed including:
- MFS Network Technologies, Inc. changed its name to Adesta
Communications, Inc.,
- MFS Transportation Systems, Inc. changed its name to Adesta
Transportation, Inc., and
- MFS TransTech, Inc. changed its name to TransTech, Inc.
Why "Adesta"?
The world "Adesta" is derived from the Latin word, adeo, which means to unite or
come together. Part of our mission is that through our subsidiaries, our
products and services are helping to unite the world through state-of-the-art
communications infrastructure. As such, we believe that the name "The Adesta
Group, Inc." better reflects our mission.
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The Proposed Name Change
In conjunction with these name changes, we are asking our Shareholders to
approve amending our Articles of Incorporation to change our corporate name from
"Able Telcom Holding Corp" to "The Adesta Group, Inc." To accomplish this name
change, our Board of Directors proposes that Article I of our Articles of
Incorporation be amended to read as follows:
ARTICLE I NAME
The name of the Corporation shall be:
THE ADESTA GROUP, INC.
If this Proposal is Approved, Must our Shareholders Take Any Actions?
It will not be necessary for you to surrender your share certificates upon
approval of the proposed name change. Rather, when share certificates are
presented for transfer, new share certificates bearing the name The Adesta
Group, Inc. will be issued. Additionally, we will continue to trade our Common
Stock under the symbol "ABTE".
Our Board of Directors' Recommendation
We recommend that our Shareholders vote "FOR" amending our corporate name.
However, if, in the opinion of our Board, completing our corporate name change
becomes inadvisable because
- a suit, proceeding or claim has been instituted, made or
threatened relating to the name change, or
- any other circumstance exists which, in the Board's judgment,
makes the name change inadvisable,
our Board may terminate this proposal to amend our Articles of Incorporation.
The termination of this proposal may be effective either before or after
approval of the name change by the shareholders.
EFFECT OF MANAGEMENT VOTE ON PROPOSAL NO. 3.
SINCE OUR DIRECTORS AND OFFICERS OWN BENEFICIALLY 1,885,082 SHARES OF COMMON
STOCK, OR 11.5% OF THE OUTSTANDING VOTING SHARES, THEIR VOTES ARE NOT LIKELY TO
HAVE A MATERIAL IMPACT ON WHETHER THIS PROPOSAL IS ADOPTED. THE NUMBER OF SHARES
HELD BY OUR DIRECTORS AND OFFICERS THAT HAVE ACTUAL VOTING RIGHTS IS 240,082,
WHICH IS 1.5% OF THE OUTSTANDING SHARES.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" APPROVING AMENDING
OUR ARTICLES OF INCORPORATION TO CHANGE OUR CORPORATE NAME FROM "ABLE
TELCOM HOLDING GROUP" TO "THE ADESTA GROUP, INC."
PROPOSAL NO 4:
TO AMEND ABLE'S 1995 STOCK OPTION PLAN TO:
(A) INCREASE THE NUMBER OF SHARES AUTHORIZED FOR ISSUANCE FROM 1,300,000 TO
5,500,000
(B) MODIFY CERTAIN TERMS OF THE GRANTS OF OPTIONS TO NON-AFFILIATE DIRECTORS
WHICH INCLUDE:
(I) INCREASING THE NUMBER OF OPTIONS GRANTED TO NON-AFFILIATE DIRECTORS
FROM 5,000 (INITIALLY) TO 10,000 (ANNUALLY),
(II) GRANTING ADDITIONAL OPTIONS ON AN ANNUAL BASIS TO NON-AFFILIATE
DIRECTORS WHO SERVE AS OUR CHAIRMAN OF THE BOARD, AND AS CHAIRMAN
AND/OR AS MEMBER OF A BOARD COMMITTEE, AND
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(III) EXTENDING THE EXERCISE PERIOD OF THE DATE OF GRANTS TO
NON-AFFILIATE DIRECTORS TO THE EARLIER OF (A) SEPTEMBER 19, 2005, OR
(B) THE DATE WHICH IS TWO YEARS AFTER THE DATE THAT SUCH NON-AFFILIATE
DIRECTOR IS NO LONGER SERVING IN SUCH CAPACITY.
Background
We are seeking Shareholder approval to amend Able's 1995 Stock Option Plan, as
previously amended (the "Plan"), to:
(A) Increase the maximum number of options and underlying shares
of Common Stock available for issuance under the Plan from
1,300,000 shares to 5,500,000 shares; and
(B) Modify certain of the terms of the initial grant of options to
Non-Affiliate Directors, which include:
(i) increasing the initial grant of non-qualified stock
options to Non-Affiliate Directors from 5,000 shares
of Common Stock to an annual grant of 10,000 shares
of Common Stock, whether or not such Non-Affiliate
Directors have previously been granted any other
option by us, and which options shall vest one year
from the date of such appointment, election or
re-election,
(ii) granting additional options to Non-Affiliate
Directors upon such Non-Affiliate Directors'
election, re-election or appointment, as the case may
be, who serve in the capacity described below:
<TABLE>
<CAPTION>
Position Number of Options
-------- -----------------
<S> <C>
Chairman of the Board of Directors 5,000
Audit Committee Chairman 2,000
Audit Committee Member 1,000
Compensation Committee Chairman 2,000
Compensation Committee Member 1,000
Nominating Committee Chairman 2,000
Nominating Committee Member 1,000
</TABLE>
which grant of options shall vest one year from the
date of grant so long as such Non-Affiliate Directors
are acting in such capacities as of such vesting
date(s),
(iii) extending the expiration of the term of such options
described in (A) and (B) above to the earlier of (I)
September 19, 2005, or (II) two years (as opposed to
the current 30 days) after the date such
Non-Affiliate Director no longer is serving in such
capacity described above.
The amendments described above were adopted by the Board on March 5, 1999 (as to
Proposal 4(A) and Proposal 4(B)(iii) described above) and on May 7, 1999 (as to
Proposal 4(B)(i) and 4(B)(ii) described above) and ratified on May 12, 2000.
Adoption of these amendments are subject to Shareholder approval at the Annual
Meeting. Below is a summary of all material information relating to Proposal
Nos. 4(A) and 4(B). Before deciding how to vote, Shareholders should review the
full text of the Plan, which is attached to these Proxy Materials as Appendix A.
The proposed amendments described in Proposal 4(A) are highlighted in Section 3
of the Plan and those proposed amendments described in Proposal 4(B) are
highlighted in Section 7 of the Plan.
For the year ended October 31, 1998, in addition to the options granted under
the Plan, we have also granted options outside the Plan to employees and
Non-Affiliate Directors totaling 160,000 options underlying the Common Stock, as
well as 150,000 options underlying the Common Stock for employees of our
subsidiaries acquired in connection with the MFSNT Acquisition. Subsequent to
October 31, 1998 through July 15, 1999, an additional 1,050,000 options (net of
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<PAGE> 37
December 31, 1998 rescissions) were reserved for employees of our subsidiaries
acquired in connection with the MFSNT Acquisition, substantially all of which
have been granted, an additional 648,000 options were granted (net of the
December 31, 1998 rescissions) to employees and Non-Affiliate Directors as of
September 1, 1999. Further, during the period of February 2000 to May 2000, an
additional 775,000 options were granted to new executive officers. All of these
options are subject to shareholder approval.
How Many Shares of Common Stock are Currently Available Under the Plan?
Under the Plan, stock options to purchase an aggregate of not more than
1,300,000 shares of Common Stock, subject to certain adjustments to reflect
changes in Able's corporate structure or shares of Able, may be granted from
time to time to employees of, and consultants and advisors to, Able and its
affiliates, and directors who are neither officers nor employees of Able or its
affiliates. In general, if stock options are for any reason canceled, or expire
or terminate unexercised, the shares covered by such options will again be
available for the grant of options. No options may be granted under the Plan
after September 19, 2005.
Who is Eligible to Participate in the Plan?
All employees, Non-Affiliate Directors who do not own more than 5% of any class
of Able's outstanding capital stock, consultants or advisors of Able and its
affiliates are eligible to participate in the Plan.
Who Administers the Plan?
Able's Board of Directors administers the Plan (the "Plan Administrators"). The
Plan Administrators select those persons who are eligible for awards, determine
the types of awards and the number of shares subject to the awards, and set
forth the terms and conditions of the awards. The Plan Administrators are also
authorized to interpret the Plan, establish, amend and rescind any rules and
regulations relating to the Plan, and make all other determinations which are
necessary for the administration of the Plan. The Board may amend, revise or
terminate the terms of the Plan or any part thereof without further action of
the Shareholders; provided however, that certain material modifications
affecting the Plan as described in Section 12 (Amendments) of the Plan must be
approved by the Shareholders. These modifications include:
- increasing the aggregate number of shares reserved for
issuance under the Plan,
- changing the class of individuals eligible to receive options
under the Plan,
- extending the maximum period during which any option may be
granted or exercised;
- reducing the option price per share below fair market value,
or
- extending the term of the Plan.
Additionally, any change in the Plan that may impair any option or deprive any
optionee of shares that may have been granted under the Plan requires the
consent of the optionee and is also subject to Shareholder approval.
Why are We Proposing to Increase the Number of Authorized Shares Under the Plan?
Of the 1,300,000 shares of Common Stock authorized for issuance under the Plan,
as of May 1, 2000, there were only 440,902 shares that remain unissued and
unreserved. The Board believes this number of shares is insufficient to
adequately serve the purposes and objectives of the Plan. The proposed
amendments increase the number of shares of Common Stock authorized for issuance
under the Plan by 4,200,000 shares to 5,500,000 shares. We believe that the
increase in the number of shares is necessary in order to ensure that Able will
have a sufficient reserve of Common Stock under the Plan to continue to attract,
retain and motivate key individuals essential to Able's long-term growth and
success. The availability of additional shares under the Plan also serves to
encourage qualified persons to seek and accept employment with Able.
Why are We Proposing to Increase the Number of Options Granted to Non-Affiliate
Directors Under the Plan?
The Board of Directors believes that in order to attract highly qualified,
well-respected Non-Affiliate Directors to its Board, it is necessary to grant
non-qualified stock options ("NQSO's") to purchase 10,000 shares of our Common
Stock
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<PAGE> 38
(an increase of 5,000 options currently granted pursuant to the Plan). As
a result, our Board of Directors has proposed modifying Section 7(a) of the Plan
from an initial grant of an NQSO to purchase 5,000 shares of Common Stock to an
annual grant to purchase 10,000 shares. Currently, the 5,000 options granted to
Non-Affiliate Directors under the Plan vest immediately. However, in order to
encourage Non-Affiliate Directors to remain as members of the Board once
appointed, elected or re-elected, as applicable, and to stand for re-election,
the options will now be granted on the date such Non-Affiliate Directors are
appointed, elected or re-elected, as the case may be, but the options will vest
one year from the date of grant (as opposed to immediately), so long as the
Non-Affiliate Directors serve in such capacity as of the vesting date.
The Board of Directors is also seeking Shareholder approval to grant, on an
annual basis, additional options to Non-Affiliate Directors under the Plan who
serve in the following capacities as (i) our Chairman of the Board of Directors
(5,000 options); (ii) Chairman of the Audit, Compensation and/or Nominating
Committee (2,000 options for each Chairman and membership so held), and/or (iii)
as members of the Audit, Compensation and/or Nominating Committee (1,000 options
for each membership so held, if not a Chairman). These options will be granted
on the date such Non-Affiliate Directors are appointed in such capacities, but
the options will vest one year from the date of grant, so long as the
Non-Affiliate Directors serve in such capacity as of the vesting date. The Board
of Directors believes that the grant of these options will encourage
Non-Affiliate Directors to take a leadership role with other Board members and
to actively participate as Board committee members on a constant basis.
Why are We Proposing to Extend the Expiration of the Exercise Period of Options
Granted to Non-Affiliate Directors Under the Plan?
The expiration of the option term is currently the earlier of (i) September 19,
2005, or (ii) the date which is 30 days after the date that such Non-Affiliate
Director shall no longer serve as a member of our Board, or as Chairman, or as a
Chairman or a member of a committee, as applicable. The Board of Directors is
proposing to extend the expiration of the option term to the earlier of (i)
September 19, 2005, or (ii) the date which is two years after the date that such
Non-Affiliate Director no longer serves in such capacity. By extending the term,
Non-Affiliate Directors will have more time to exercise their options, which in
turn, could result in additional cash to the Company upon such exercise(s).
What Type of Awards May Be Granted under the Plan?
The awards granted under the Plan may be either (i) stock options, which may be
either options which qualify as "incentive stock options" ("ISOs") designed to
meet the requirements of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or options which do not so qualify (NQSOs), or (ii)
restricted stock.
What Are the Details of the Stock Options Under the Plan?
Stock options intended to be ISOs may be granted to employees and options
intended to be NQSO's may be granted to employees, to directors who are neither
officers nor employees of our company, to consultants and to other persons who
provide services to Able and its affiliates. The Plan Administrators determine
the purchase price of each share of Common Stock purchasable under any ISO at
the date of grant, however, the purchase price cannot be less than 100% of the
fair market value of Common Stock on the date the option is granted. The
purchase price per share of Common Stock purchasable under any NQSO is
determined by the Plan Administrators.
Non-employee Directors may receive nondiscretionary grants of NQSOs under the
Stock Option Plan in accordance with the terms thereof. The Plan currently
provides that any non-employee Director receives a grant of an option to
purchase 5,000 shares of Common Stock as of the date he or she begins service as
a Director at an exercise price equal to 100% of the fair market value of Able's
Common Stock on the date the option is granted. Proposal No. 4(B) seeks to
change this provision such that each Director, at the completion of each year's
Annual Meeting, would receive an option to purchase 10,000 shares.
Options will vest and become exercisable only after a non-employee Director has
served as a Director of Able for at least one year provided however, that the
option will not vest if the non-employee Director fails to attend at least 60%
of all Board meetings and meetings of committees of which he or she is a member,
which take place between the date of grant and the first anniversary of the date
of grant.
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<PAGE> 39
Do Optionees Under the Plan Have Shareholder Rights?
Optionees have shareholder rights (e.g., right to vote and receive dividends)
only at such time as they exercise their options and receive shares of Common
Stock.
When Do the Stock Options Under the Plan Expire?
Each stock option expires and is no longer exercisable on such dates as the Plan
Administrators determine when the options are granted. Any NQSO granted to a
non-employee Director currently expires on the earlier of
- September 19, 2005, or
- 30 days after the optionee no longer serves as a member of the
Board. Stock options can also be terminated under certain
circumstances following a "Change of Control" (as set forth
below).
Approval of Proposal No. 4(B) would extend the 30 days to two (2) years.
What are the Details of Awards of Common Stock Under the Plan?
The Plan Administrators may grant awards to employees consisting of shares of
Common Stock, which may be subject to such restrictions and on such terms and
conditions as the Plan Administrators may determine, including the time period
over which such shares will become vested, the date or dates as of which the
risk of forfeiture of the shares will lapse, the establishment of conditions for
the lapse or termination of the risk of forfeiture other than the expiration of
the vesting period, and the circumstances under which vesting requirements will
be waived or accelerated.
Upon the award of Common Stock, the recipient has all rights of a Shareholder
with respect to the shares, including, without limitation, the right to receive
dividends, the right to vote such shares and, subject to and conditioned upon
the full vesting of the shares of restricted stock, the right to tender such
shares.
Are Awards Under the Plan Assignable?
Awards may not be sold, assigned, transferred, pledged or otherwise encumbered,
except by will or by the laws of descent and distribution. Each stock option is
exercisable during the optionee's lifetime and only by the optionee.
What Happens Under the Plan if There is a Change in Able's Corporate Structure?
If Able's corporate structure changes or if there is a change in Able's shares
(i.e., a recapitalization, stock split, reverse stock split, consolidation,
rights offering, stock dividend, reorganization or liquidation), the Plan
Administrators will make such substitution or adjustment in the number or class
of shares which may be distributed under the Plan and in the number, class and
option price or other price of shares subject to the outstanding awards under
the Plan in order to maintain the purpose of the original grant.
What Happens to the Options Under the Plan Upon a Change of Control of Able?
A Change of Control occurs from the dissolution or liquidation of Able, or a
reorganization, merger or consolidation of Able with one or more corporations
where Able is not the surviving entity, or a transfer of substantially all of
Able's property of more than 80% of Able's then outstanding shares to another
corporation not controlled by Able's Shareholders. Upon a Change of Control, the
Plan and any outstanding options will be terminated unless provision is made in
connection with such transaction for the assumption and continuation of the Plan
and the options or the substitution of new options covering the shares of a
successor corporation, and all vesting requirements, risks of forfeiture and
other restrictions shall lapse and terminate. If no such provision is made, Able
will give all option holders advance written notice of the Change of Control,
all options will become fully exercisable and the option holders will then have
30 days to exercise their options.
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<PAGE> 40
What are the Federal Income Tax Aspects of the Stock Options?
Incentive Stock Options ("ISOs").
The following is a summary of the federal income tax consequences generally
arising with respect to stock options granted and to be granted under the Plan.
The grant and exercise of an ISO generally results in no taxable income to the
participant and no income tax deduction for Able; it does not set forth any
state or local income tax or estate tax consequences that may be applicable. If
the participant holds the shares acquired upon exercise of an ISO for at least
two years from the date of the grant of the ISO and at least one year from the
date of exercise, the participant will recognize long-term capital gain or loss
upon a subsequent sale of the shares based upon the difference between the sale
proceeds and the fair market value of the shares on the exercise date and no
deduction would be allowed to Able for federal income tax purposes. If the
participant disposes of the shares acquired upon exercise of an ISO within
either of the holding periods described above, the participant will generally
recognize as ordinary income an amount equal to the lesser of
- the fair market value of Able's Common Stock on the date of exercise
over the exercise price, or
- the amount realized upon disposition over the exercise price.
In such event, Able generally will be entitled to an income tax deduction equal
to the amount recognized as ordinary income. Any gain in excess of such amount
realized by the participant as ordinary income would be taxed at the rates
applicable to short-term or long-term capital gains, depending on the holding
period.
Nonqualified Stock Options ("NQSOs").
The grant of an NQSO has no tax consequences to us or to the participant, unless
such option has a readily ascertainable fair market value (as determined under
applicable tax law at the time of grant). Upon exercise of an NQSO, however, the
participant generally will recognize ordinary income in the amount of the excess
of the fair market value on the date of exercise of the shares of Common Stock
acquired over the exercise price, and such amount will be deductible for federal
income tax purposes by Able. The holder of such shares will, upon a subsequent
disposition of the shares, recognize short-term or long-term capital gain or
loss, depending on the holding period of the shares.
All Stock Options
With regard to both ISOs and NQSOs, the following material federal income tax
consequences also apply:
- any Officers or Directors of Able subject to Section 16(b) of the
Exchange Act may be subject to special tax rules regarding the income
tax consequences concerning their NQSOs;
- any entitlement to a tax deduction on the part of Able is subject to
the applicable tax rules (including, without limitation, Section 162(m)
of the Code regarding a $1 million limitation on deductible
compensation);
- in the event that the exercisability or vesting of any award is
accelerated because of a Change of Control, payments relating to the
awards (or a portion thereof), either alone or together with certain
other payments, may constitute parachute payments under Section 280G of
the Code, which excess amounts may be subject to excise taxes; and
- the exercise of an ISO may have implications in the computation of
alternative minimum taxable income. In general, Section 162(m) of the
Code denies a publicly held corporation a deduction for federal income
tax purposes for compensation in excess of $1.0 million per year per
person to its chief executive officer and the four other officers whose
compensation is disclosed in its proxy statement, subject to certain
exceptions. Stock options will generally qualify under one of these if
they are granted under a plan that states the maximum number of shares
with respect to which options may be granted to any recipient during a
specified period and the exercise price is no less than fair market
value at the time of grant and the plan under which the options are
granted is approved by Shareholders and is administered by a
compensation committee comprised of outside directors. The Plan is not
intended to comply with Section 162(m) of the Code.
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<PAGE> 41
The Plan is not subject to any of the requirements of the Employee Retirement
Income Security Act of 1974, as amended. The Plan is not, nor is it intended to
be, qualified under Section 401(a) of the Code.
May Shareholders Vote Separately on Proposal No. 4(A) and Proposal No. 4(B)?
Yes, Shareholders may vote separately on Proposal No. 4(A) and Proposal No.
4(B).
What Benefit Will Non-Affiliate Directors Receive if Proposal Nos. 4(A) and 4(B)
are Approved?
On March 5, 1999 and on May 7, 1999, the members of our Board of Directors
adopted the amendments to the Plan described in Proposal No. 4(A) and Proposal
No. 4(B) and ratified said amendments on May 12, 2000. However, because C. Frank
Swartz, Chairman of the Board of Directors, Jonathan A. Bratt and Alec McLarty,
both Directors, were the only Non-Affiliate Directors at the time of such
meetings, each abstained from voting on any matters related to Proposal No. 4(A)
and Proposal No. 4(B) relating to Non-Affiliate Directors. While neither Mr.
McLarty, Mr. Bratt nor Mr. Swartz voted to adopt the amendments to the Plan
relating to Non-Affiliate Directors, because they are members of our Board of
Directors, which is recommending approval of Proposal No. 4(A) and Proposal No.
4(B), such recommendations in favor of these proposals may be deemed conflicts
of interest since Shareholder approval would result in a personal benefit to
each of them. However, none of the options proposed to be granted to any of the
Non-Affiliate Directors are on stated terms more favorable than stated terms
applicable to other participants (who are not Non-Affiliated Directors) in the
Plan. See also Proposal No. 5 - Benefits to Board Members if this Proposal is
approved - for a discussion concerning conflicts of interest of certain
Directors.
EFFECT OF MANAGEMENT VOTE ON PROPOSAL NOS. 4(A) AND 4(B).
SINCE OUR DIRECTORS AND OFFICERS OWN BENEFICIALLY 1,885,082 SHARES OF COMMON
STOCK, OR 11.5% OF THE OUTSTANDING VOTING SHARES, THEIR VOTES ARE NOT LIKELY TO
HAVE A MATERIAL IMPACT ON WHETHER THIS PROPOSAL IS ADOPTED. THE NUMBER OF SHARES
HELD BY OUR DIRECTORS AND OFFICERS THAT HAVE ACTUAL VOTING RIGHTS IS 240,082,
WHICH IS 1.5% OF THE OUTSTANDING SHARES.
What is our Board's Recommendation?
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" AMENDING OUR STOCK
OPTION PLAN TO
(A) INCREASE THE NUMBER OF SHARES AUTHORIZED FOR ISSUANCE FROM
1,300,000 TO 5,500,000
(B) MODIFY CERTAIN TERMS OF THE GRANTS OF OPTIONS TO NON-AFFILIATE
DIRECTORS WHICH INCLUDE:
(I) INCREASING THE NUMBER OF OPTIONS GRANTED TO NON-AFFILIATE
DIRECTORS FROM 5,000 (INITIALLY) TO 10,000 (ANNUALLY),
(II) GRANTING ADDITIONAL OPTIONS ON AN ANNUAL BASIS TO
NON-AFFILIATE DIRECTORS WHO SERVE AS OUR CHAIRMAN OF THE
BOARD, AND AS CHAIRMAN AND/OR AS MEMBER OF A BOARD COMMITTEE,
AND
(III) EXTENDING THE EXERCISE PERIOD OF THE DATE OF GRANTS TO
NON-AFFILIATE DIRECTORS TO THE EARLIER OF (A) SEPTEMBER 19,
2005, OR (B) THE DATE WHICH IS TWO YEARS AFTER THE DATE THAT
SUCH NON-AFFILIATE DIRECTOR IS NO LONGER SERVING IN SUCH
CAPACITY.
CERTAIN MEMBERS OF THE BOARD OF DIRECTORS RECOMMENDING SHAREHOLDER
APPROVAL MAY HAVE CONFLICTS OF INTEREST MAKING SUCH RECOMMENDATIONS AND
MAY PERSONALLY BENEFIT FROM APPROVAL OF PROPOSAL NO 4(A) AND PROPOSAL NO.
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<PAGE> 42
4(B). SEE "WHAT BENEFIT WILL NON-AFFILIATE DIRECTORS RECEIVE IF PROPOSAL NOS.
4(A) AND 4(B) ARE APPROVED?"
NASDAQ MARKETPLACE RULE 4460(I)
Proposal No. 5 through Proposal No. 8 below have been submitted for Shareholder
approval pursuant to certain rules and regulations, including Nasdaq Marketplace
Rule 4460(i) ("Rule 4460(i)"). Rule 4460(i) is one of several non-quantitative
designation criteria described in Rule 4460 and required of a Nasdaq National
Market ("NNM") issuer, such as Able. Rule 4460(i) sets forth the criteria when
Shareholder approval is required. The other non-quantitative designation
criteria for NNM issuers include, among other things,
- distributing annual and interim reports,
- making available copies of shareholder and financial reports,
- maintaining a minimum of three independent directors,
- establishing and maintaining an audit committee, all of which shall
be independent directors,
- holding an annual shareholders meeting,
- soliciting proxies and providing proxy statements for all shareholder
meetings,
- conducting an appropriate review of all related party transactions,
and
- being audited by an independent public accountant.
Each NNM issuer is required to obtain Shareholder approval pursuant to Rule
4460(i) in the following circumstances:
(A) when a stock option plan or other arrangement is made whereby stock may
be acquired by officers or directors, with certain exceptions including, among
others:
--for warrants or rights issued generally to security holders of a
company or broadly based plans or arrangements including other
employees such as Employee Stock Option Plans, or
--if the arrangement or plan does not exceed the lesser of (i) 1% of
the number of shares of Common Stock, (ii) 1% of the voting power
outstanding, or (iii) 25,000 shares.
(B) when the issuance will result in a change of control;
(C) in connection with acquiring stock or assets of another company if
where, due to the present or potential issuance of common stock, or securities
convertible into or exercisable for common stock, other than a public offering
for cash including, among other things:
--the common stock has or will have upon issuance voting power equal to
or in excess of 20% of the voting power outstanding before the issuance
of stock or securities convertible into or exercisable for common
stock; or
--the number of shares of common stock to be issued is or will 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.
(D) in connection with a transaction other than a public offering involving
the sale or issuance of common stock (or securities convertible into or
exercisable for common stock) either
--at a price less than the greater of book or market value, which
(together with the sales by officers, directors or substantial
shareholders of a company) equals 20% or more of common stock or 20% or
more of the voting power outstanding before the issuance; or
--equal to 20% or more of the common stock or 20% or more of the voting
power outstanding before the issuance for less than the greater of book
or market value of the stock.
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Shareholder approval is required prior to issuing designated securities under
paragraphs (B), (C), and (D) above.
- Proposal No. 5 below is being submitted for Shareholder approval
pursuant to paragraph (A) above,
- Proposal No. 6 is being submitted pursuant to paragraph (C) above,
and
- Proposal Nos. 7 and 8 are being submitted pursuant to paragraphs (C)
and (D) above and possibly, pursuant to paragraph (B) above.
As of May 11, 2000, assuming Shareholder approval of Proposal Nos. 6 and 7, if
- the WorldCom Option and WorldCom Equity Awards described in Proposal
No. 6 were exercised (for a total of 2,600,000 shares, assuming the
maximum number of shares that may be exercised, although neither the
WorldCom Option nor the WorldCom Equity Award are currently
"in-the-money"),
- the Series B Warrants were exercised for Common Stock (for an
aggregate of 636,246 shares), and
- taking into consideration 1,809,714 shares of Common Stock previously
issued to the holders of Series B Securities,
such securities would represent approximately 25.8% of our outstanding Common
Stock (based upon 16,308,582 shares of Common Stock outstanding as of May 11,
2000), which would not be deemed a change of control (assuming a change of
control would occur if 30% or more of our outstanding stock were acquired).
However, based upon the stock price of the Common Stock on May 11, 2000 of $2.50
per share, the remaining outstanding warrants issued in connection with the
Series B Offering described in Proposal No. 7 (for a total of 636,246 shares),
would not be exercised since none are currently "in the money."
Similarly, as of May 11, 2000, assuming Shareholder approval of Proposal No. 8,
if
- the Series C Preferred Stock were converted into Common Stock (for an
aggregate of 3,750,000 shares, assuming conversion at the current per
share floor exercise price of $4.00), and
- the Series C Warrants were converted into Common Stock (for an
aggregate of 200,000 shares),
such securities would represent approximately 19.5% of our outstanding Common
Stock (based upon 16,308,582 shares of Common Stock outstanding), which would
not be deemed a change of control (assuming a change of control would occur if
30% or more of our outstanding stock were acquired).
If we do not maintain the criteria (including, among others, the non-designation
criteria described above) required by Nasdaq or Shareholder approval is not
obtained, but we nonetheless undertake the grants of options and issue Common
Stock as described below in Proposal No. 5 through Proposal No. 8, our
securities could be delisted by Nasdaq. As a result of such an event, the Common
Stock would likely be traded in the Over-The-Counter market on the OTC
Electronic Bulletin Board. In such an event, the market price of our Common
Stock may be adversely impacted and a Shareholder may find it difficult to
dispose, or obtain accurate quotations as to the market value, of our Common
Stock.
PROPOSAL NO. 5
TO RATIFY AND APPROVE ISSUING STOCK OPTIONS GRANTED TO CERTAIN OF OUR
OFFICERS AND DIRECTORS
Background
During fiscal year 1998, we issued options to purchase an aggregate of 902,000
shares of Common Stock to our
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<PAGE> 44
employees, Officers and Directors at exercise prices ranging from $5.34 to
$14.00 per share. On December 31, 1998, 840,000 of these options were rescinded.
Immediately thereafter, the same number of options were issued on December 31,
1998 at an exercise price of $5.75 per share, which was the average of the
ten-day closing market price for the Common Stock for the period from December
16 through December 30, 1998. The expiration period for these options range from
December 31, 2000 to April 24, 2005 and all such options immediately vested on
December 31, 1998. On May 7, 1999, the Board of Directors voted to grant
additional options to purchase an aggregate of 395,000 shares, 180,000 of which
were retroactive to earlier dates, at exercise prices ranging between $5.75 and
$6.375 per share. The exercise period for the options granted to employees on
May 7, 1999 and dated May 7, 1999, commences as of the date of vesting and
continues through the earlier of (i) September 19, 2005, or (ii) two years from
the date the optionee is no longer an employee and/or a Director of us, as
applicable. Additionally, on May 7, 1999, our Board of Directors granted an
aggregate of 20,000 shares to two Directors at an exercise price of $6.25 per
share, which immediately vested, and for which the exercise period continues for
a period that is the earlier of (i) two years from the date such Director no
longer serves as one of our Directors, or (ii) May 8, 2001. Further, in July
1999 we issued 10,000 stock options to each of two non-employee directors and
35,000 stock options to G. Vance Cartee, our then President of Adesta
Transportation, all at market price. In February 2000, we granted 525,000 stock
options to three executive individuals. These options vest over a two-year
period. The initial exercise price is $6.00 per share (which was market on the
date of grant) and range upward to $8.50 per share on the final vesting date in
February 2002. In May 2000 we granted 250,000 stock options to two new executive
employees. These options vested immediately and are exercisable at $2.44 per
share and $2.69 per share (which was the market price on the date of grant).
The total number of shares of Common Stock underlying the options described in
this Proposal No. 5, and for which Shareholder approval is being sought is
1,675,000 shares.
These options were granted as an additional incentive to attract, retain and
award those persons who provide management services and upon whose efforts and
judgment our success and the success of our subsidiaries are largely dependent.
The Board of Directors also granted these options to continue encouraging stock
ownership in our company by such persons.
Nasdaq Marketplace Rule 4460(i)(1)(A)
Rule 4460(i)(1)(A) requires Shareholder approval of an arrangement where stock
may be acquired by officers or directors, except for warrants or rights issued
generally to security holders of a company or broadly based plans or
arrangements including other employees (e.g., ESOPs). Shareholder approval is
not necessary where the amount of securities which may be issued does not exceed
the lesser of:
- 1% of the number of shares of common stock,
- 1% of the voting power outstanding, or
- 25,000 shares.
Because the grant to certain of our Executive Officers and Directors exceeds the
de minimus limitations set forth in the Rule 4460(i)(1)(A), Shareholder approval
is being sought to ratify the issuances of the options described below, and our
Board of Directors is soliciting the enclosed Proxy Card as to that decision.
None of the options described in this Proposal No. 5 were granted under the
Plan.
A brief description of the material terms of the stock option grants and a table
summarizing the benefits to be conferred under the grants follow:
<TABLE>
<CAPTION>
Number of
Options Exercise
Name of Officer/Director Granted Price Date of Grant Exercise Period Through
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Billy V. Ray, Jr 100,000 $ 5.75 December 31, 1998 December 31, 2001
Chief Executive Officer and 50,000 $ 6.375 May 7, 1999 May 7, 2001 (1)
Chairman of the Board of Directors 100,000 $ 4.375 February 21, 2000 February 21, 2005
Edwin D. Johnson 150,000 $ 2.44 May 8, 2000 May 8, 2010
President, Chief Financial Officer and
</TABLE>
39
<PAGE> 45
<TABLE>
<S> <C> <C> <C> <C>
a Director
Charles A. Maynard 200,000 $6.00 to February 21, 2000 February 21, 2005 (9)
Chief Operating Officer $ 8.50
James Brands 100,000 $ 6.375 April 1, 1999 June 21, 2003 (2)
Senior Executive Vice President
Thomas Montgomery 200,000 $6.00 to February 21, 2000 May 21, 2005 (9)
Executive Vice President of Finance $ 8.50
G. Vance Cartee 40,000 $ 5.75 December 31, 1998 December 31, 2001
Vice President of Business Development 25,000 $ 6.375 May 7, 1999 May 7, 2001 (1)
35,000 $ 9.94 July 26, 1999 July 26, 2002 (10)
Michael Brenner 100,000 $ 2.68 May 3, 2000 May 3, 2010
General Counsel and Executive
Vice President
Edward Z. Pollock 40,000 $ 5.75 December 31, 1998 December 31, 2001
Counsel 25,000 $ 6.375 May 7, 1999 May 7, 2001 (1)
Michael A. Summers (3) 40,000 $ 7.625 June 1, 1999 June 1, 2002
Former Chief Accounting Officer
Stacy Jenkins (4) 100,000 $ 5.75 December 31, 1998 December 31, 2000 (5)
Former President - 25,000 $ 6.375 May 7, 1999 May 7, 2001 (1)
Adesta Communications
Philip Kernan 125,000 $6.00 to February 21, 2000 February 21, 2005 (9)
President - Adesta Transportation $ 8.50
Michael Arp 40,000 $ 5.75 December 31, 1998 December 31, 2001
Former Acting President - 25,000 $ 6.375 May 7, 1999 May 7, 2001 (1)
GEC and TSCI
Richard Boyle 65,000 $ 6.375 May 7, 1999 May 7, 2001 (1)
Patton Management Corp.
C. Frank Swartz 20,000 $ 5.75 December 31, 1998 July 3, 2004
Director 10,000 $ 6.75 June 9, 1999 July 3, 2004
Jonathan Bratt(6) 30,000 $ 5.75 December 31, 1998 July 3, 2004 (8)
Former Director
Thomas Davidson(7) 20,000 $ 5.75 December 31, 1998 December 31, 2004 (8)
Former Director 10,000 $ 6.25 May 8, 1999 May 8, 2004 (8)
</TABLE>
------------------
(1) One-third of the options vested as of May 7, 1999, one-third
vest on May 7, 2000 and one-third vest on May 7, 2001. The
exercise period for the options granted on May 7, 1999,
commences as of the date of vesting and continues through the
earlier of (i) September 19, 2005, or (ii) two years from the
date the optionee is no longer one of our employees and/or a
Director, as applicable.
(2) These options were effective April 5, 1999 and 75,000 are
vested, and 25,000 will vest on June 21, 2000. The options are
exercisable for two years from the date options become
exercisable.
(3) Mr. Summers resigned in May 2000; however, the options remain
outstanding.
(4) Mr. Jenkins resigned in March 2000; however, the options
remain outstanding.
(5) The expiration date is the earlier of December 31, 2000, or 90
days after termination of employment.
(6) Mr. Bratt resigned from our Board of Directors in February
2000; however, the options remain outstanding.
(7) Mr. Davidson resigned from our Board of Directors in January
2000; however, the options remain outstanding.
(8) The expiration date is two years after the date such Director
is no longer a Director of our company.
(9) These options vest over a two (2) year period.
(10) These options vest over a three (3) year period.
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<PAGE> 46
See Proposal No. 1 - "Employment and Consulting Agreements" for a discussion
concerning specific terms of the grants of options as to our current Executive
Officers listed above.
Administration
The Board of Directors administers the grant of options outside the Plan and
selects those Officers and Directors who are eligible for awards and the number
of shares subject to the awards, sets the terms and conditions of awards and
makes all other determinations which are necessary for the administration of the
grant of the stock options.
Type of Stock Option Grants
All grants described in Proposal No. 5 are non-qualified stock options (NQSOs).
See discussion above under Proposal No. 4 for a more detailed discussion
concerning NQSOs.
Accounting Considerations
For each option grant described in Proposal No. 5, the Company will calculate
compensation based upon any positive difference between the fair market value
of the Company's common stock and the exercise price of the option on the
measurement date, which is the date of shareholder approval. If the option is
fully vested on the measurement date, the calculated compensation will be
charged to expense immediately; otherwise, the calculated compensation will be
charged to expense ratably over the term of the option. Approximately 75
percent of the options described in Proposal No. 5 will be fully vested on the
measurement date.
Based upon the fair market value of the Company's common stock on May 31, 2000,
the Company would incur no compensation expense related to the options
described in Proposal No. 5.
The table presented below provides a range of possible compensation charges
based upon assumed market prices of the Company's common stock on the
measurement date.
<TABLE>
<CAPTION>
Fair Market Value of Company Common Stock on Measurement
Date
--------------------------------------------------------
$2.44 or less $3.00 $5.00 $6.00 $7.00
------------- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C>
Total Compensation Expense (in thousands) $-- $166 $677 $1,127 $2,305
</TABLE>
Tax Considerations
The following description addresses the federal income tax consequences of the
options granted to our Executive Officers and Directors and certain of our
subsidiaries, proposed to be ratified. Although we believe the following
statements are correct based on existing provisions of the Code and legislative
history and administrative and judicial interpretations thereof, no assurance
can be given that changes will not occur which would modify such statements.
The options proposed to be ratified will be treated as NQSOs for federal income
tax purposes. Under federal income tax law presently in effect, no income is
realized by the grantee of an NQSO until the option is exercised. When the NQSO
is exercised, the optionee will realize ordinary income, and we will generally
be entitled to a deduction, in the amount by which the fair market value of the
shares subject to the option at the time of exercise exceeds the exercise price.
Upon the sale of shares acquired upon exercise of a NQSO, the excess of the
amount realized from the sale over the fair market value of the shares on the
date of exercise will be taxable as a short-term or long-term capital gain or
loss, depending on the holding period of the shares.
Section 162(m) of the Code limits to $1 million per person the amount we may
deduct for compensation paid to our Chief Executive Officer and the four other
officers whose compensation is disclosed in the proxy statement, subject to
certain exceptions. Compensation received through the exercise of an option will
not be subject to the $1 million limit if the option and the plan pursuant to
which it is granted meets certain requirements. The applicable requirements are:
- the option be granted and administered by a compensation committee of
outside directors,
- the plan under which the option is granted states the maximum number
of shares with respect to which options may be granted to any recipient
during a specified period,
- the plan under which the option is granted is approved by the
shareholders, and
- the exercise price of the option be not less than the fair market
value of the Common Stock on the date of grant.
Accordingly, we believe compensation received on exercise of options granted
outside the Plan will be subject to the $1 million deduction limit.
Benefits to Board Members if this Proposal No. 5 is Approved
All of our current Directors, (who are all standing for re-election), will
personally benefit from Shareholder approval of this Proposal No. 5 since each
would receive options that are subject to the Shareholder approval requirement
as described in this Proposal. While each of these Directors abstained from
voting for any grant of options for which he would personally benefit, each is
recommending that the Shareholders vote for this Proposal. Such recommendations
would result in a personal benefit to
41
<PAGE> 47
each of them and is therefore deemed to be a conflict of interest. See also a
discussion concerning conflicts of interest under Proposal 4(B) - What Benefit
Will Non-Affiliate Directors Receive if This Proposal is Approved?
Reasons for Approval of Proposal No. 5 and our Board's Recommendation
Subject to Shareholder approval, our Board of Directors approved the grant of
stock options to certain Executive Officers and Directors. The Board of
Directors believes it would be in our best interest to allow for the issuance of
such stock options to the Executive Officers and Directors set forth above in
order to retain and motivate these key individuals who are essential to our
long-term growth and success. Assuming approval of Proposal No. 5, to the extent
that all of the options that are the subject of this Proposal were exercised
(determined as of May 11, 2000), 1,675,000 additional shares would be issued,
resulting in an additional 9.3% of the outstanding shares of Common Stock as of
May 11, 2000. The proceeds from the exercise of these options would be used for
general corporate and working capital purposes.
If Proposal No.5 is not ratified by the Shareholders, the Board of Directors
will rescind all the options described in Proposal No. 5.
EFFECT OF MANAGEMENT VOTE ON PROPOSAL NO.5.
SINCE OUR DIRECTORS AND OFFICERS OWN BENEFICIALLY 1,885,082 SHARES OF COMMON
STOCK, OR 11.5% OF THE OUTSTANDING VOTING SHARES, THEIR VOTES ARE NOT LIKELY TO
HAVE A MATERIAL IMPACT ON WHETHER THIS PROPOSAL IS ADOPTED. THE NUMBER OF SHARES
HELD BY OUR DIRECTORS AND OFFICERS THAT HAVE ACTUAL VOTING RIGHTS IS 240,082,
WHICH IS 1.5% OF THE OUTSTANDING SHARES.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" RATIFYING AND
APPROVING THE ISSUANCE OF STOCK OPTIONS GRANTED TO CERTAIN OF OUR OFFICERS
AND DIRECTORS
CERTAIN MEMBERS OF THE BOARD OF DIRECTORS RECOMMENDING SHAREHOLDER
APPROVAL MAY HAVE CONFLICTS OF INTEREST MAKING SUCH RECOMMENDATIONS.
THESE BOARD MEMBERS MAY PERSONALLY BENEFIT FROM APPROVAL OF PROPOSAL NO. 5.
SEE "WHAT BENEFIT WILL NON-AFFILIATE DIRECTORS RECEIVE IF THIS PROPOSAL NO. 5
IS APPROVED?"
THE MFSNT ACQUISITION AND RULE 4460(i)(1)(C)
Proposal Nos. 6 and 7 below have been submitted for Shareholder approval
pursuant to certain rules and regulations, including Nasdaq Marketplace Rule
4460(i)(1)(C) ("Rule 4460(i)(1)(C)").
Rule 4460(i)(1)(C) requires shareholder approval when stock of another company
is acquired if, due to the present or potential issuance of common stock or
securities convertible or exercisable for common stock (other than a public
offering for cash), the number of shares of common stock to be issued is or will
be equal to or be in excess of 20% of the number of shares of common stock
outstanding before the issuance of the securities. As a result of our
transaction with certain subsidiaries and divisions of WorldCom, Inc. (the
"MFSNT Acquisition"), and as part of the consideration paid by us, we issued
options and other derivative securities described below, and Rule 4460(i)(1)(C)
is applicable, as described below.
Nasdaq has notified us that it believes that the grant of the securities
described in Proposal Nos. 5 and 6 below (which securities include the "WorldCom
Option" and the "WorldCom Equity Award" described in Proposal No. 5) should be
integrated with the issuance of securities by us in connection with the Series B
Offering, (described in Proposal No. 6 below) and that all such securities
should be considered part of the MFSNT Acquisition. Nasdaq has raised no
objection to our submitting the transactions covered by Proposal No. 5 and
Proposal No. 6 as independent proposals by which Shareholders may separately
vote.
Immediately prior to the date of the MFSNT Acquisition agreement (the "MFSNT
Agreement") dated April 26, 1998, in connection with the MFSNT Acquisition,
there were 9,379,824 shares of Common Stock outstanding, of which approximately
1,875,960 shares (the "MFSNT 20% Share Limitation")
42
<PAGE> 48
represented just less than 20%. As a result, pursuant to Rule 4460(i)(1)(C), the
aggregate number of shares of Common Stock that may be issued in connection with
the MFSNT Acquisition without shareholder approval is the MFSNT 20% Share
Limitation. As such, the WorldCom Option and the WorldCom Equity Award as
described in Proposal No. 6, converting or exchanging any shares of Series B
Preferred Stock into or for Common Stock as described in Proposal No. 7, and the
exercise of any of the Series B Warrants, also described in Proposal No. 7, are
all in the aggregate, subject to the MFSNT 20% Share Limitation.
Proposal Nos. 6 and 7, however, are being submitted for Shareholder approval
independent of the other. As of May 11, 2000, if
- Proposal No. 6 only were approved, and
- if
--the WorldCom Options were exercised, (for a total of
2,000,000 shares) and
--the WorldCom Equity Awards were exercised (for a total of
600,000 shares, assuming the maximum),
then the exercise of such securities, although not currently "in-the-money",
would represent approximately 13.8% of our outstanding stock at May 11, 2000.
As of May 11, 2000, if
- Proposal No. 7 only was approved, and
- if
--we take into consideration the shares of our Common Stock
that we issued in exchange for or upon converting the Series B
Preferred Stock (for an aggregate of 1,809,714 shares), and
--the remaining outstanding Series B Warrants were exercised,
although antidilutive and not "in-the-money" as of May 11,
2000 (for a total of 636,246 shares), along with the shares of
Common Stock underlying the Series B Common Stock that was
previously converted or exchanged, then such securities would
represent approximately 13% of our outstanding Common Stock as
of May 11, 2000. If both Proposal Nos. 6 and 7 were approved
and all securities described in this paragraph were exercised
or converted, as the case may be, then the exercise or
conversion of such securities would represent approximately
25.8% of our outstanding Common Stock as of May 11, 2000.
As of May 11, 2000, we had issued an aggregate of 1,809,714 shares of our Common
Stock to the holders of our Series B Securities in connection with the Series B
Preferred Stock. None of the Series B Preferred Stock remains issued or
outstanding. No other securities issued in connection with the MFSNT Acquisition
have, as of the date of the mailing of these Proxy Materials, been exercised or
converted.
Under Rule 4460(i)(1)(C), only the difference between the MFSNT 20% Share
Limitation and the number of shares issued as of the date of the mailing of
these Proxy materials of 1,809,714 shares may be issued with regard to any
securities issued in connection with the MFSNT Acquisition without obtaining
Shareholder approval (an additional 66,246 shares). If our Shareholders do not
approve both Proposal No. 6 and Proposal No. 7, but only approve one of these
Proposals, the conversion or exercise of the securities described in the
Proposal not so approved will be subject to the MFSNT 20% Share Limitation. See
Proposal Nos. 6 and 7 for a discussion of the adverse impact on us if
Shareholder approval is not obtained.
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<PAGE> 49
PROPOSAL NO. 6:
APPROVING OUR POSSIBLY ISSUING MORE THAN 1,875,960 SHARES OF OUR COMMON STOCK
UPON THE EXERCISE OF CERTAIN OPTIONS AND STOCK APPRECIATION RIGHTS WE
GRANTED TO WORLDCOM, INC. IN CONNECTION WITH THE MFS NETWORK TECHNOLOGIES,
INC. ACQUISITION, WHICH SHARE AMOUNT OF 1,875,960 REPRESENTS AT LEAST 20% OF OUR
OUTSTANDING COMMON STOCK DETERMINED IMMEDIATELY PRIOR TO THE MFSNT
AGREEMENT DATED APRIL 26, 1998.
Proposal No. 6 is independent of any other proposal submitted for Shareholder
approval, including Proposal No. 7.
THE MFSNT TRANSACTION
Background
On July 2, 1998, we 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, Able
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.
In addition, the MFSNT acquisition agreements, as amended, provides that on or
before November 30, 2000, Able shall pay to WorldCom certain amounts, if
positive, equal to: (i) the difference between $12.0 million related to losses
on MFSNT projects in existence on March 31, 1998 and recorded by MFSNT as of
June 30, 1998, and the amount actually lost on such contracts through November
30, 2000, and (ii) the difference between $5.0 million and the aggregate costs
incurred by Able for defense of litigation, and payments made in settlement or
in payment of judgments which respect to preacquisition litigation. The range of
this contingent consideration potentially payable to WorldCom is from $0 to
$17.0 million. Presently, our management expects to pay no additional
consideration to WorldCom for these matters. The purchase price for MFSNT
included the following consideration (in millions):
<TABLE>
<S> <C>
Contract price $58.8
Transaction related costs 4.6
WorldCom Option 3.5
WorldCom Equity Award 0.6
-----------------------------------------
Total Purchase Price $67.5
=========================================
</TABLE>
In conjunction with the acquisition of MFSNT, we granted an option to WorldCom
(the "WorldCom Option") to purchase up to 2,000,000 shares of our common stock,
at an exercise price of $7.00 per share, but subject to a 1,817,941 share
maximum issuance limitation through "cashless" exercise, and the right to
receive upon satisfaction of certain conditions phantom stock awards (the
"WorldCom Equity Award") equivalent to 600,000 shares of common stock, payable
in cash, stock, or a combination of both at our option. The WorldCom Equity
Award is exercisable only on the following three days: July 1, 2000, July 2,
2001 or July 2, 2002. Upon exercise of the WorldCom Equity Award, 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 WorldCom Equity Award may be adjusted to be based on up to 700,000
shares and the base price may be increased, but the maximum aggregate payment
will not change. The fair values of the WorldCom Option and WorldCom Equity
Award were estimated at the date of grant at $3.5 million and $0.6 million,
respectively, and were included as a component of the total consideration paid
for the acquisition of MFSNT.
On January 8, 1999, Able and WorldCom agreed to convert the WorldCom Option into
stock appreciation rights ("SARs") with similar terms and provisions, except
that the SARs provide for the payment of cash to WorldCom based upon the
appreciation of our common stock over a base price of $7.00 per share. The SARs
may revert back to the WorldCom Option allowing for the exercise of all
2,000,000 shares (no longer subject to the 1,817,941 share limitation) if
required shareholder approval of the options is received. The conversion of the
WorldCom Option to SARs was treated as the reacquisition of the WorldCom Option
in exchange for a cash-settled obligation indexed to changes in the fair market
value of our stock. The intrinsic value of the SARs at the date of exchange of
approximately $1.9 million was charged to equity and reflected as a current
liability. The liability will be adjusted at each balance sheet date for
increases or decreases in the intrinsic value, with an offsetting charge or
credit to income, until the SARs are paid, or if approved by the shareholders,
converted back into an Option. The exercise period for the SARs granted
commenced on July 1, 1999, and ends on January 2, 2002. As of October 31, 1999,
the intrinsic value of the stock appreciation rights
44
<PAGE> 50
liability was $3.7 million. Changes in the valuation of the SARs have resulted
in non-cash charges of $1.8 million during the year ended October 31, 1999.
In conjunction with the acquisition of MFSNT, Able 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 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 years ended October 31, 1999 and 1998, we recognized revenues of
approximately $61.6 million and $30.0 million, respectively, from the WorldCom
Master Services Agreement.
We are a contractor for constructing and maintaining facilities-based
communications systems for both public and private sector customers in the
United States and South America. We have three operating groups:
- Network Services,
- Transportation Services, and
- Communications Development.
Through MFSNT, we provide development, design, engineering, project management,
installation, construction, operation and maintenance services for
telecommunications systems. In addition, our Transportation Services Group
provides services for the design, development, integration, installation,
construction, project management, maintenance and operation of advanced
intelligent transportation systems, automated toll collection systems and
electronic traffic management and control systems. Our Communication Development
Group provides communications design, installation and maintenance services to
foreign telephone companies.
Prior to its acquisition by us, MFSNT provided design, development, engineering,
installation, construction, operation and maintenance services for
telecommunications systems, as well as 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.
The address and telephone number of MFSNT is 1200 Landmark Center, Suite 1300,
Omaha, Nebraska 68102-1841, telephone number (888) 638-6866. Our address and
telephone number is 1000 Holcomb Woods Parkway, Suite 440, Roswell, GA 30076,
telephone number (770) 993-1570.
Summary of the Terms of the MFSNT Acquisition Agreements
On September 9, 1998, we, WorldCom and WorldCom Network Services, Inc.
("WorldCom Network"), a wholly owned subsidiary of WorldCom, finalized the terms
of the MFSNT Agreement through the execution of an amended agreement, which
agreement was subsequently amended on January 26, 1999 (as amended, the
"September Agreement").
In conjunction with the September Agreement, we entered into an additional
agreement with WorldCom that provided for a grant of an equity award to be
issued to WorldCom, Inc. in the form of a phantom stock award or other equity
participation award ("WorldCom Equity Award") equivalent to 600,000 shares of
common stock, payable in cash, stock, or a combination of both at our option.
The WorldCom Equity Awards are convertible, in whole or in part, solely with
respect to the following days: July 1, 2000, July 2, 2001, or July 2, 2002.
Subject to the adjustments described below, 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 September
Agreement also extended the expiration date of the WorldCom Option.
On January 12, 2000, we entered into an agreement with WorldCom whereby WorldCom
converted approximately $25.5 million of an original $30.0 million note we
issued to WorldCom as part of the MFSNT Acquisition, into 3,050,000 shares of
our Common Stock. The conversion was based on the January 8, 2000 closing price
of our
45
<PAGE> 51
Common Stock at $8.375 per share. The remainder of the original $30.0 million
note, approximately $4.5 million was converted into an amended and restated
note. The new WorldCom Note bears interest at 11.5 percent and will mature
February 1, 2001.
The obligations under the new WorldCom Note are junior and fully subordinated to
those under our 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:
- By applying 8 percent of the payment WorldCom Network owes us under
the WorldCom Master Services Agreement,
- By paying to WorldCom a portion of certain proceeds received by us
upon the sale of certain conduit assets, and
- 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:
- Require us to pay a 13.5 percent annual default rate of interest as
long as we are in default,
- Reduce the minimum yearly and aggregate revenues we would otherwise
receive under the WorldCom Master Services Agreement, and
- Refuse to give us additional work under the WorldCom Master Services
Agreement while we are in default.
As part of the MFSNT Acquisition, we, WorldCom Network and MFSNT entered into a
Master Services Agreement.
Reasons for the MFSNT Acquisition
The MFSNT Acquisition was deemed beneficial to Able and our Shareholders by our
Board of Directors for the following reasons:
- In order to expand in the domestic market, we have pursued a strategy of
growth through strategic acquisitions since December 1995. In general, this
acquisition strategy was designed to decrease our exposure in foreign markets.
As a result of our acquisition strategy, we acquired seven businesses
including MFSNT. The acquisition of MFSNT further increased our United States
operations.
- The services provided by MFSNT were complementary to the services
provided by us and our other subsidiaries prior to the date of the
MFSNT acquisition.
- The WorldCom Master Services Agreement provides a steady revenue
stream for at least five years to us and allows our existing partners
and customers to bid on contracts with WorldCom.
- The acquisition increased our market share in the telecommunications
industry.
Income Tax Consequences of the MFSNT Acquisition
There are no income tax consequences as a result of the MFSNT Acquisition.
See Appendix B for (i) additional information concerning Able's and MFSNT's
business, (ii) our selected financial data (incorporated by reference to our
Annual Report on Form 10-K for fiscal year ended 1998, filed February 24, 1999,
as amended March 1, 1999, and as further amended on May 26, 2000 (collectively,
the "Form 1998 10-K"), our Annual Report on Form 10-K for the fiscal year ended
October 31, 1999, as filed February 22, 2000, as amended May 26, 2000
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<PAGE> 52
(collectively, the "Form 1999 10-K"), and our Current Report on Form 8-K as
filed July 16, 1998, as amended August 31, 1998, as further amended October 2,
1998, and as further amended May 30, 2000 [collectively, the "MFSNT Acquisition
8-K"]); and (iii) Management's Discussion and Analysis of Financial Condition
and Results of Operations of us and of MFSNT. See Appendix C for (i) financial
statements for MFSNT (our financial statements are incorporated by reference to
our Annual Report on Form 1998 10-K and Form 1999 10-K; and (ii) combined pro
forma financial information for us and MFSNT.
The WorldCom Option and WorldCom Equity Award Issued in Connection with the
MFSNT Acquisition
Because of Nasdaq's position regarding the integration of the WorldCom Option,
the WorldCom Equity Award, the Series B Preferred Stock and the Series B
Warrants, and after discussions with the staff at Nasdaq, on January 8, 1999, we
and WorldCom modified the terms of
- the WorldCom Option from a grant of options to a grant of stock
appreciation rights, and
- the WorldCom Equity Award,
until such time as Shareholder approval is obtained by us (if ever) to avoid any
inadvertent violation of Rule 4460(i)(1)(C) with regard to the issuance of
securities in excess of the MFSNT 20% Share Limitation, as described in this
Proposal No. 6. As a result of these modifications, WorldCom currently is not
entitled to receive any Common Stock upon the exercise of either the WorldCom
Option or the WorldCom Equity Award. Additionally, holders of any stock
appreciation rights, as described below, are not deemed to be holders of, or
have any rights as a holder of, Common Stock with respect to any such stock
appreciation rights.
The WorldCom Option, as modified, and the WorldCom Equity Award are described
below:
- The WorldCom Option, as Modified
Until Shareholder approval is obtained by us in accordance with Rule
4460(i)(1)(C):
--The WorldCom Option has been modified to a stock appreciation rights
("SAR") award, whereby the holder is entitled to participate in an
increase in the value of an aggregate of 2,000,000 shares of Common
Stock ("Aggregate Base 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 (the
"Appreciation Amount") as of the applicable exercise date over $7.00
(the "Strike Price"), payable in cash only. The Appreciation Amount is
payable in cash within fifteen days of receipt of an exercise notice;
provided however, that to the extent that we are required to pay in
excess of $10.0 million in any twelve month period as a result of any
exercises of any SAR, 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 SAR commences on:
January 1, 2000 (the "Commencement Date"),
and terminates on January 2, 2002.
--In the event
of any change in our capital structure or our business as a result of
any
stock dividend or extraordinary dividend,
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<PAGE> 53
stock split or reverse stock split,
recapitalization or reclassification of capital stock, or
any similar change affect our capital structure, and
we determine an adjustment is appropriate,
then the number of shares constituting the Aggregate Base Common Stock
and the Strike Price will be appropriately adjusted consistent with
such change.
--In the event of
a merger or consolidation in which we are not the surviving
entity or
any transaction that results in the acquisition of
substantially all of our outstanding Common Stock or assets
("Acquisition Events"),
we may terminate all outstanding SARs, effective as of the Acquisition
Event, by delivering a notice of termination at least 30 days prior to
the date of consummation of the Acquisition Event; provided that,
during the period from the date on which such notice of termination is
delivered to the consummation of the Acquisition Event, WorldCom has
the right to exercise the SARs that are then outstanding as of the date
immediately preceding the date of the Acquisition Event upon the
occurrence of the Acquisition Event.
- The WorldCom Equity Award
On January 8, 1999, we and WorldCom entered into an agreement (the "Intent
Agreement") that sets forth the terms and conditions of when the WorldCom Equity
Award Agreement (the "Equity Award Agreement") will be executed. The Intent
Agreement also sets forth the specific terms of the WorldCom Equity Award, to be
evidenced in the form of a Stock Appreciation Rights Agreement ("SAR
Agreement").
The Intent Agreement provides that until Shareholder approval is obtained by us
in accordance with Rule 4460(i)(1)(C), the SAR Agreement will be executed at
such time as it meets certain "Conditions to Issuance". These "Conditions to
Issuance" (unless waived by us) are as follows:
--the SAR Agreement will not be issued until the Registration Statement
on Form S-1 (the "Registration
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<PAGE> 54
Statement") filed with the SEC to register the Common Stock underlying
the Series B Preferred Stock and Series B Warrants, as well as the
Common Stock underlying the WorldCom Option and the WorldCom Equity
Award, has been declared effective by the SEC and the shares of Common
Stock being registered are subject to effective registration; and
--we shall have obtained the consent or waiver of the senior lenders
under the Credit Agreement to issue the SARs pursuant to the SAR
Agreement;
provided that to the extent
--the issuance of such SAR Agreement would otherwise cause a default in
connection with any agreement or arrangement with any other third
parties, including any of the agreements with the holders of any of the
"Series B Securities," as defined in Proposal No. 6 below, or
--if the "Conditions to Issuance" have not been satisfied on or before
January 1, 2000 (originally February 28, 1999),
then in either of such events we and WorldCom shall use our respective good
faith efforts to agree upon such modifications to the terms of the SAR Agreement
so that such SAR Agreement would not cause such a default or require a consent
from a third party.
Until Shareholder approval is obtained by us in accordance with Rule
4460(i)(1)(C),
--when executed, the SAR Agreement will grant WorldCom the right to
participate in an increase in the value of an aggregate of 600,000
shares (Aggregate Base Common Stock) of Common Stock whereby for each
SAR exercise, the holder is entitled to receive an amount equal to the
excess of the fair market value of the Common Stock in excess of
$5-3/32 (the "Floor Collar Price"), as of July 1, 2000, July 2, 2001,
or July 2, 2002 only; provided that, in no event shall the maximum
amount payable exceed $25.00 per SAR.
--To the extent that the fair market value of a share of Common Stock
as of the date immediately preceding the execution of the WorldCom
Equity Award is greater than the Floor Collar Price of $5-3/32, then
the Floor Collar Price shall be adjusted to the then fair market value,
and the ceiling collar price shall be adjusted to a dollar amount equal
to the then fair market value plus $25.00; and the Aggregate Base
Common Stock shall be adjusted (the "Adjusted Aggregate Base Common
Stock") by
-multiplying 600,000 by a fraction,
-the numerator of which shall be the adjusted Floor Collar
Price, and
-the denominator of which shall be $5-3/32;
provided that, the Adjusted Aggregate Base Common Stock shall,
in no event, exceed a maximum of 700,000 shares of Common
Stock. The maximum aggregate proceeds (whether in cash, stock
or a combination thereof depending on whether Shareholder
approval of Proposal No. 6 is obtained) that may be received
by the holder from us from the exercise of the SAR rights
issued pursuant to this SAR Agreement shall not exceed
$15,000,000.
--In the event
-of any change in our the capital structure or our business as
a result of any
stock dividend or extraordinary dividend,
stock split or reverse stock split,
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recapitalization or reclassification of capital
stock, or
any similar change affect our capital structure, and
-we determine an adjustment is appropriate,
then the number of shares constituting the Aggregate Base Common Stock and the
collar price will be appropriately adjusted consistent with such change.
--In the event of
-a merger or consolidation in which we are not the surviving
entity, or
-any transaction that results in an Acquisition Event,
then we may terminate all outstanding SARs, effective as of the
Acquisition Event,
-by delivering a notice of termination at least 30 days prior
to the date of consummation of the Acquisition Event;
provided that, during the period from the date on which such
notice of termination is delivered to the consummation of the
Acquisition Event, WorldCom has the right to exercise the SARs
that are then outstanding as of the date immediately preceding
the date of the Acquisition Event but contingent on the
occurrence of the Acquisition Event.
--The SARs may be exercised in whole or in part, only by written notice
signed by the optionee and delivered to us within five days following
any exercise day, specifying
the number of SARs to be exercised,
the federal identification number of the optionee or
transferee,
if the WorldCom Equity Award is to be exercised by any parties
other than the Optionee, accompanied by proof that such
parties have the right to exercise the Award, and
such other required documents.
---Upon receipt of such notice, we shall have up to thirty (30) days to
pay the holder the value of any SARs so exercised, payable in cash only
by us.
---The maximum aggregate proceeds (whether in cash, stock or a
combination thereof) that may be received by the Optionee from us from
the exercise of the SAR rights issued pursuant to the WorldCom Equity
Award shall not exceed $15.0 million.
Modifications to the WorldCom Option and the Intent Agreement
The WorldCom Option and the Intent Agreement were subsequently modified on March
15, 1999, to
(1) provide that we have no obligation to appoint a person
designated by WorldCom or any of its affiliates to our Board
of Directors, as was originally required;
(2) extend the commencement of the exercise period for the
WorldCom Option to the earlier of
(i) one business day after the date upon which the
potential issuance of Common Stock under the WorldCom
Option is voted upon by the Shareholders, or
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<PAGE> 56
(ii) January 1, 2000 (the "Commencement Date"),
and ending on January 2, 2002 (the "Termination Date"); and
(3) provide that the WorldCom Equity Award will be issued;
provided that, to the extent the issuance of the WorldCom
Equity Award would otherwise cause a default in connection
with any agreement or arrangement with any other third
parties, including any restrictive agreements (which include
(A) a Credit Agreement dated June 11, 1998, as amended, with
our senior lenders, and (B) a Stock Purchase Agreement dated
June 26, 1998 ("Purchase Agreement") with certain purchasers
of our Series B Convertible Preferred Stock) the parties shall
use their respective good faith efforts to agree upon such
modifications to the terms of the WorldCom Equity Award so
that such WorldCom Equity Award would not cause such a default
or require a consent from a third party.
The Common Stock Underlying the WorldCom Option and the WorldCom Equity Award
For a general description of the Common Stock, par value $.001, underlying the
WorldCom Option and the WorldCom Equity Award, see Proposal No. 2. Other than as
described above, WorldCom is not entitled to any pre-emptive rights under the
terms of either the WorldCom Option or the WorldCom Equity Award. The rights
granted to WorldCom under the WorldCom Option and the WorldCom Equity Award are
not limited or qualified by any rights of any other class of securities.
Effect of Shareholder Approval
When and if Shareholder approval is obtained by us in accordance with Rule
4460(i)(1)(C),
--As to the WorldCom Option, as modified, the grant of the SARs reverts
back to an option whereby the holder would be entitled to purchase an
aggregate of two million shares (2,000,000) of Common Stock at $7.00
per share through January 2, 2002, and the grant of the SARs becomes
void. We would then issue shares of our Common Stock upon any exercise
of WorldCom Options. The WorldCom Options would then be subject to
adjustments similar to those described under "WorldCom Option, as
Modified." In order to exercise any options, the holder must give
written notice to us, specifying:
the number of Options to be exercised,
the federal identification number of the optionee or
transferee,
if the options are to be exercised by any parties
other than the Optionee, accompanied by proof that
such parties have the right to exercise the Award,
and
the exercise price in cash or other immediately
available funds.
--As to the WorldCom Equity Award, upon any exercise of the SARs, we
would have the option to make payments in cash, stock, or a combination
thereof.
The WorldCom Option and the WorldCom Equity Award each provide that at such time
as Shareholder approval is obtained in compliance with Rule 4460(i)(1)(C), each
of the agreements are automatically modified, without any further actions, as
described in this Proposal No. 6.
--With respect to the shares of Common Stock underlying the WorldCom Option and
the WorldCom Equity Award, even if Shareholder approval to Proposal No. 6 were
obtained, unless and until the Registration Statement on Form S-1 (the
"Registration Statement") that has been filed with the SEC to register such
underlying shares of Common Stock has been declared effective (which, to date,
has not yet occurred), the certificate representing such shares shall include
the following legend:
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<PAGE> 57
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF
ANY STATE, AND HAVE BEEN ACQUIRED FOR AN INVESTMENT AND MAY NOT BE
SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT OF SUCH SHARES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL ACCEPTABLE TO COUNSEL
FOR THE COMPANY THAT REGISTRATION IS NOT REQUIRED BY SUCH LAWS.
In the event that Shareholder approval is obtained as to this Proposal No. 6 and
we elect to pay the WorldCom Equity Award in Common Stock or in the event of an
exercise of the WorldCom Option, WorldCom would be entitled to receive up to a
maximum of 2,000,000 shares of Common Stock under the WorldCom Option and up to
a maximum of 600,000 shares of Common Stock under the WorldCom Equity Award. The
shares represented by such exercise(s) would represent 13.8% of the outstanding
Common Stock as of May 11, 2000 (independent of any other issuances, subject to
Shareholder approval described elsewhere in these Proxy Materials) and would
result in dilution to the current Shareholders' interests in our Company.
Assuming Shareholder approval, no further authorization for the issuances upon
the exercise of the WorldCom Option or WorldCom Equity Award will be solicited.
Any proceeds received from the exercise of the WorldCom Option (which, assuming
Shareholder approval would be $14.0 million) would be used to repay or offset
the WorldCom Note, for general corporate or working capital purposes.
Board Recommendation; Reasons
The Board of Directors believes that it is in our best interest for the WorldCom
Option, as modified, to revert back to the WorldCom Option whereby we would
receive cash in payment for any options exercised (as opposed to paying out cash
in the event of an exercise of any SAR). Any cash received upon the exercise of
WorldCom Options would be used to repay the WorldCom Note, for general corporate
and working capital purposes. Similarly, our Board of Directors believes that it
would be in our best interest to have the flexibility of paying any SARs
exercised pursuant to the WorldCom Equity Award in cash, stock, or a combination
thereof, at our discretion, as opposed to paying any SAR solely in cash. Payment
upon the exercise of any SARs (under either the WorldCom Option or the WorldCom
Equity Award) in cash only could materially and adversely affect our cash flow
because
- of the short time frame applicable to payment of any SARs exercised
(between 15 and 30 days from the date notice is received by us),
- payments by us to WorldCom could be significant, depending on the
number of SARs exercised and the then fair market value of the Common
Stock, and
- while our senior lender has approved the grant of the SARs to
WorldCom, it has not waived the right to call a default in the event
that any of the SARs are exercised.
Additionally, we want to encourage WorldCom to continue to have an equity
position in our company, given the volume of business currently and contemplated
to be, conducted between us and WorldCom affiliates, including, among other
agreements, the five-year Master Services Agreement between us and WorldCom
Network to provide telecommunications infrastructure services to WorldCom
affiliates. That Agreement could provide potential revenues to us of more than
$420 million over a five year period.
EFFECT OF MANAGEMENT VOTE ON PROPOSAL NO. 6.
SINCE OUR DIRECTORS AND OFFICERS OWN BENEFICIALLY 1,885,082 SHARES OF COMMON
STOCK, OR 11.5% OF THE OUTSTANDING VOTING SHARES, THEIR VOTES ARE NOT LIKELY TO
HAVE A MATERIAL IMPACT ON WHETHER THIS PROPOSAL IS ADOPTED. THE NUMBER OF SHARES
HELD BY OUR DIRECTORS AND OFFICERS THAT HAVE ACTUAL VOTING RIGHTS IS 240,082,
WHICH IS 1.5% OF THE OUTSTANDING SHARES.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" APPROVING OUR POSSIBLY
ISSUING MORE THAN 1,875,960 SHARES OF COMMON STOCK UPON EXERCISING OF CERTAIN
OPTIONS AND STOCK APPRECIATION RIGHTS GRANTED TO WORLDCOM, INC. IN
CONNECTION WITH THE MFS NETWORK TECHNOLOGIES, INC. ACQUISITION, WHICH SHARE
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AMOUNT OF 1,875,960 REPRESENTS AT LEAST 20% OF OUR OUTSTANDING COMMON STOCK
DETERMINED IMMEDIATELY PRIOR TO THE MFSNT AGREEMENT DATED APRIL 26, 1998.
PROPOSAL NO. 7
APPROVING OUR POSSIBLY ISSUING MORE THAN 1,875,960 SHARES OF OUR COMMON STOCK
UPON EXERCISING WARRANTS ISSUED TO THE SERIES B INVESTORS, WHICH SHARE
AMOUNT OF 1,875,960 REPRESENTS AT LEAST 20% OF THE OUTSTANDING COMMON STOCK
DETERMINED IMMEDIATELY PRIOR TO THE MFSNT AGREEMENT DATED APRIL 26, 1998.
Proposal No. 7 is independent of any other proposal submitted for Shareholder
approval, including Proposal No. 6.
The Series B Offering
Background
On June 30, 1998, we issued to the RoseGlen Group and the Palladin Group certain
Series B Securities, initially consisting of an aggregate of
- 4,000 shares of Series B Preferred Stock, and
- Series B Warrants to purchase an aggregate of 1,000,000 shares of
Common Stock at a then exercise price of $19.80 per share, which we
refer to as the Initial Warrants.
We received total gross proceeds of $20.0 million from the sale of the Series B
Securities, offset by $1.9 million in expenses associated with the issuance of
the Series B Securities. We sold the Series B Securities to finance part of the
purchase price of MFSNT.
The purchasers of the Series B Securities included two groups of accredited
investors (for a total of seven investors):
- The RoseGlen Group, which initially purchased 2,000 shares of Series
B Preferred Stock and acquired Warrants to purchase 370,000 shares of
Common Stock, and
- The Palladin Group, which initially purchased 2,000 shares of Series
B Preferred Stock and acquired Warrants to purchase 630,000 shares of
Common Stock.
During September and October 1998, an aggregate of 436 shares of Series B
Preferred Stock were converted by the holders into an aggregate of 1,007,927
shares of Common Stock.
The 1999 February Agreements
In January 1999, Interfiducia Partners, LLC, a Texas limited liability company
entered into certain letter agreements with Able, the RoseGlen Group and/or the
Palladin Group relating to the proposed purchase by Interfiducia of, among other
things, all or a portion of the outstanding Series B Securities from the
RoseGlen Group and the Palladin Group. We undertook due diligence regarding
Interfiducia at that time and all parties continued their respective
negotiations to finalize the contemplated transactions.
Because we were then in default under certain provisions of the terms of the
Series B Securities, we believed that it was important to complete the transfer
of all or a portion of the Series B Securities to a party willing to waive the
defaults. Interfiducia was not able to provide the funds necessary to complete
the transactions contemplated by the letter agreements in a timely manner in
order to avoid paying certain premiums and penalties to the holders of the
Series B Securities. As a result, on February 16, 1999, WorldCom advanced us
$32.0 million, which we call the WorldCom Advance, to facilitate the purchase of
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- 2,785 shares, or approximately 78%, of the Series B Preferred Stock,
and
- the outstanding $10.0 million principal amount of our 12% Senior
Subordinated Notes originally due January 6, 2005.
The WorldCom Advance is non-interest bearing, and is due on November 30, 2000.
At the same time, WorldCom also agreed to make available to us additional
advances of up to $15.0 million against amounts otherwise payable pursuant to
the WorldCom Master Services Agreement. We are to repay any additional advances
to WorldCom on November 30, 2000. The repayment of the WorldCom Advance is
subordinate to our obligations under our senior credit facility. The WorldCom
Advance was evidenced by a written agreement between WorldCom and us dated
February 16, 1999, which was subsequently amended and restated as of April 1,
1999.
Immediately thereafter, we in turn, used the WorldCom Advance to advance funds,
which we call the Company Advance, to Cotton Communications, Inc., which may be
deemed an affiliate of us. On February 17, 1999, pursuant to certain purchase
agreements between and among us, Cotton, the Palladin Group and/or the RoseGlen
Group, which we call the February Agreement, Cotton, in turn, used the Company
Advance to purchase approximately 78% of the outstanding shares of Series B
Preferred Stock, or 2,785 shares of the 3,564 shares outstanding (1,425 shares
from the RoseGlen Group for $11.0 million and 1,360 shares from the Palladin
Group for $7.85 million, which amounts included any accrued dividends, interest
or penalties), as well as the accrued obligations under the Senior Notes. The
sole shareholder, officer and director of Cotton was Tyler Dixon. Mr. Dixon is a
partner with the law firm of Raiford, Dixon & Thackston, LLP, which, during
fiscal 1998, received approximately $125,000 in legal fees from us. Cotton
received no consideration from Able in connection with the transactions.
However, we agreed to continue using Mr. Dixon's legal services and we waived
any conflicts that may arise with respect his performing such legal services as
a result of Cotton's purchase of the Series B Preferred Stock. See "Certain
Relationships and Related Party Transactions" for a discussion concerning the
consulting agreement between Mr. Dixon and us dated January 1, 1999 and
effective April 1, 1999 and the grant of stock options to Mr. Dixon.
Interfiducia continued to state to us throughout Cotton's negotiations with the
Palladin Group and the RoseGlen Group and subsequent to consummating the
February Agreements, that it would acquire Cotton's position. Cotton verbally
agreed that if Interfiducia came forward with funds shortly after the
consummation of the February Agreements, it would sell certain of the Series B
Securities and the Senior Notes to Interfiducia on the same terms and
conditions. Nonetheless, Interfiducia was never able to fund the proposed
acquisition in a timely manner nor were we able to obtain satisfactory due
diligence regarding Interfiducia and its principals. As a result, Interfiducia
never acquired Cotton's position.
The March Cotton Redemption
On March 22, 1999, we entered into a termination agreement with Cotton whereby
we redeemed the Senior Notes held by Cotton, as well as the 2,785 shares of
Series B Preferred Stock from Cotton in exchange for the cancellation of the
Company Advance made to Cotton on February 17, 1999. On May 7, 1999, we acquired
630,000 Series B Warrants from the Palladin Group at $3.00 per Warrant, for a
total of $1.89 million. The Senior Notes have now been marked paid, and the
2,785 shares of Series B Preferred Stock have been retired and the 630,000
Series B Warrants have been cancelled.
The February 2000 Agreements
Through February 3, 2000, the RoseGlen Group and the Palladin Group held the
following Series B Securities and we had issued the following amount of Common
Stock:
<TABLE>
<CAPTION>
Series B Preferred Stock Series B Warrants Common Stock(2)
<S> <C> <C> <C>
The RoseGlen Group 375 370,000 461,907
The Palladin Group 404 ---0---(1) 546,020
--- ------- ---------
TOTAL 779 370,000 1,007,927
=== ======= =========
</TABLE>
------------------
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<PAGE> 60
(1) On May 7, 1999, we purchased 630,000 Series B Warrants owned by the
Palladin Group at $3.00 per share and, as a result, such Warrants were
retired.
(2) Represents shares of Common Stock issued upon conversion of an
aggregate of 436 shares of Series B Preferred Stock.
Through February 4, 2000, we were in default of a number of provisions under the
terms of the Series B Securities, including the fact that the registration
statement we filed with the SEC to register the shares of our Common Stock
underlying the Series B Securities was still not effective. On February 4, 2000,
we entered into Securities Exchange Agreements with the Palladin Group and the
RoseGlen Group (the "2000 February Agreements") whereby we converted
approximately $6.3 million of the Series B Preferred Stock to Common Stock and
concurrently we redeemed approximately $10 million redemption value of the
remaining Series B Preferred Stock from a portion of the proceeds we received
from the Series C Offering described in Proposal No. 8 below.
As part of the 2000 February Agreements, generally,
-As to the RoseGlen Group, in exchange for 375 shares of Series B
Preferred Stock, we
--issued 500,000 shares of Common Stock,
--paid the holders an aggregate of $5,031,978; and
--issued five year warrants to purchase 100,000 shares of
Common Stock at an exercise price of $10.127 per share, which
was 130% of the fair market value of our Common Stock at
closing, which are subject to adjustments in the event of any
subdivisions, combinations, stock dividends, reclassification,
mergers or similar events.
-As to the Palladin Group, in exchange for 404 shares of Series B
Preferred Stock, we
--issued 301,787 shares of Common Stock, which number of
shares may be increased if, at the end of one hundred trading
days from February 4, 2000, the Average Trading Price of our
Common Stock, calculated as described below, is less than
$7.79 per share (the price of our Common Stock on February 3,
2000);
--paid the holders an aggregate of $5,816,394;
--issued First Warrants exercisable for 66,246 shares of
Common Stock, as described below , and
--issued five year warrants to purchase 100,000 shares of
Common Stock at an exercise price of $10.127 per share, which
was 130% of the fair market value of our Common Stock at
closing, and which are substantially similar to the RoseGlen
Warrants, and which we refer to as the "Second Warrants."
The Remaining Series B Securities
Below is a description of the terms of the Series B Securities which are still
outstanding:
-Remaining Initial Series B Warrants (370,000 shares)
Adjustments to the
Exercise Price The exercise price is subject to
proportional adjustments pursuant to
certain anti-dilution provisions in the
event that we take any of the following
actions:
--A forward or reverse stock split,
--A stock dividend,
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--A merger, consolidation or transfer or
sale of all or substantially all of our
assets,
--A reorganization or reclassification of
the Common Stock,
--If we distribute to holders of our Common
Stock, other than as part of our
dissolution, liquidation or the winding up
of our affairs, any shares of our capital
stock, any evidence of indebtedness, or any
of our assets (other than Common Stock), or
--Any other similar action of the type
described or contemplated above.
--Cashless Exercise The Initial Warrants may be exercised, in
whole or in part, on a "cashless" basis.
--Exercise
Period Through June 30, 2003; however, the
expiration date of the Initial Warrants will
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 Initial Warrants is not
effective.
--Exercise Price The exercise price was initially $19.80 per
share. Subsequently, the exercise price
of 370,000 Initial Warrants was reduced to
$13.25 per share.
--Limit on Exercise In no event shall any holder of Initial
Warrants be entitled to exercise such
Warrants if and to the extent that such
holder (together with its affiliates)
would beneficially own, immediately after
and giving effect to such conversion,
greater than 4.99% of the outstanding
shares of Common Stock.
--Number of Initial Warrants Initially 1,000,000, of which 370,000
remain outstanding, and which are
currently owned by the RoseGlen Group.
--Redemption At any time and from time to time until all
of the Initial Warrants have been exercised
(or retired), and provided that we are not
in breach of any provisions of the Initial
Warrants, we may purchase the Initial
Warrants from the holders thereof (upon 30
days prior written notice) at a purchase
price equal to $35.00, multiplied by the
number of the unexercised Initial Warrants
owned by such holder (the "Repurchase
Price").
-The RoseGlen Series B Securities Exchange Agreement Warrants
--Adjustments to the
Exercise Price The exercise price and number of warrant
shares are subject to a proportional
adjustment pursuant to certain
anti-dilution provisions in the event that
we take any of the following actions:
--A forward or reverse stock split or
similar issuance,
--A stock dividend,
--A merger, consolidation or transfer or
sale of all or substantially all of Able's
assets, or
--A reorganization or reclassification of
the Common Stock,
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--If we distribute to holders of our Common
Stock, other than as part of our
dissolution, liquidation or the winding up
of our affairs, any shares of our capital
stock, any evidence of indebtedness, or any
of our assets (other than Common Stock), or
--Any other similar action of the type
described or contemplated above.
--Cashless Exercise The RoseGlen Warrants may be exercised, in
whole or in part, on a "cashless" basis.
--Exercise Price $10.127 per share, which was 130% of the
market price of our Common Stock at closing
--Exercise Period Through February 3, 2005, however
the expiration date of the RoseGlen
Warrants will be extended by 1.5 days for
every day between October 31, 2000 and
February 3, 2005 upon which a registration
statement covering the shares of Common
Stock underlying the RoseGlen Warrants is
not effective.
--Limit on Exercise Same as the Initial Warrants.
--Number of Warrants RoseGlen Warrants to purchase 100,000
shares of our Common Stock.
-RoseGlen's Registration Rights and Our Obligations
--Blackout Periods See our discussion below in Proposal No. 8
concerning the Series C Securities.
--Conversion Deficiency See our discussion below in Proposal No. 8
concerning the Series C Securities.
--Delisting; No Listing If we fail, refuse, or cannot cause the
Registrable Securities, as defined below,
covered by the Registration Statement to be
listed with Nasdaq or any other approved
market from the Listing Period, which begins
the earlier of
--May 4, 2000, or
--the date the Registration Statement is
declared effected by the SEC
then we must pay 3% of the aggregate market
value of the
-Common Stock held by such Holder,
and
-the Warrant Shares
for each 30-day period from and after the
Listing Period during such time as the
Registrable Securities are not so listed.
--Premium Price Redemption
for Cash Payment Defaults If we fail or refuse to pay any default
payments or honor any penalty or amounts
when due, at any holder's request, we may be
required to purchase all or a portion of
--the Common Stock and Warrant Shares held
by such Holder, with default payments
accruing through the date of such purchase,
within five days of such request, at a
purchase price of 130% of the fair market
value of such shares, and
--if the Warrant has not been exercised, by
reducing the then exercise price by 30%.
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--Registration Deadline October 31, 2000
--Registrable Securities Generally, 500,000 shares of Common Stock
and 100,000 shares of Common Stock
underlying the RoseGlen Warrants.
--Registration Statement
Requirement to File We were required to file a registration
statement with the SEC by March 20, 2000,
however, because we currently have a
registration statement filed with the SEC
on Form S-1 to register common stock on
behalf of the holders, we have satisfied
this obligation.
--Registration Statement
Delay in Effectiveness If the registration statement is not
effective by October 31, 2000, then the
exercise price of the Warrants will be
reduced by 1% during the 30-day period from
and after October 31, 2000 during any part
of which the registration statement is not
effective, and shall be further reduced by
an additional 1.5% during and after each
30-day period thereafter.
-Adjustment to the Number of Shares of Common Stock Issued to the Palladin
Group at Closing.
At the end of the period that is 100 Trading Days from February 4, 2000 (June
27, 2000), the Palladin Group will deliver a notice to us setting forth the
Average Price and the calculation of any adjustment. Below is a discussion of
how this works.
--Adjustment If the Average Price is less than $7.79 per
share, we will issue to the Holders, pro
rata, additional shares of Common Stock in
an amount equal to
--the Remaining Redemption Price
($2,866,977), divided by
--the Average Price, minus
--301,787 shares and
--66,246 shares underlying the First
Warrants;
provided, however, if we are unable to issue
shares pursuant to the foregoing as a result
of the failure to obtain shareholder
approval to issue the Common Stock to the
Holders in excess of the Maximum Share
Amount (368,033 shares), then we must pay
the Holders, pro rata, a cash payment, equal
to
--the Current Redemption Price ($12.125 per
share), multiplied by
--an amount equal to
-the Remaining Redemption Price
($2,866,977), divided by
-the Average Price, minus
-301,787 shares, and
-66,246 shares underlying the First
Warrants.
--Average Price Average Price means the average of the
fifty low Trading Prices on Nasdaq during
each pair of two consecutive Trading Days
from the date hereof and ending on that
date which is 100 Trading Days from
February 4, 2000. However, if the Average
Price
--is less than $4.00, then the Average
Price for this purpose shall be $4.00.
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--Closing Price $7.79 per share
--Current Redemption
Price $12.125 per share.
--Maximum Share Amount 368,033 shares of Common Stock
--Remaining Redemption Price Maximum Share Amount multiplied by the
Closing Price.
-Palladin First Warrants (66,246 shares)
--Adjustments to the
Exercise Price Same as the RoseGlen Series B Securities
Exchange Agreement Warrants
--Cashless Exercise The First Warrants may be exercised on a
"cashless" basis.
--Exercise Period Beginning the date we determine the Average
Price and ending 30 days thereafter.
--Limit on Exercise Same as the RoseGlen Series B Securities
Exchange Agreement Warrants.
--Number of Warrants First Warrants to purchase 66,246 shares of
our Common Stock.
--Exercise Price The Exercise Price of the First Warrants is
the product
--of
-the Average Price, which will not
be greater than $9.50, multiplied
by
-301,787 plus the number of shares
to be issued pursuant to any First
Warrant, minus
--the Remaining Redemption Price
($2,866,977), divided by
--the number shares issued pursuant to each
First Warrant;
-provided however, that if the
Average Price is less than the
Closing Price ($7.79 per share), the
Exercise Price means $.01 per
share.
-Palladin Second Warrants
--Adjustments to the
Exercise Price Same as the RoseGlen Series B Securities
Exchange Agreement Warrants
--Cashless Exercise The Second Warrants may be exercised on a
"cashless" basis.
--Exercise Period Through February 4, 2005, subject to
adjustment.
--Limit on Exercise Same as the RoseGlen Series B Securities
Exchange Agreement Warrants
--Exercise Price $10.127 per share, which is equal to 130%
of the fair market value of our Common
Stock as of the date of grant.
--Additional Terms For additional terms, see Proposal No. 8
concerning the "Registrable Securities".
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The Common Stock Underlying the Series B Securities
For a general description of our Common Stock underlying the Series B Warrants,
see Proposal No. 2. Other than as described above, the holders of the Series B
Securities are not entitled to any pre-emptive rights under the terms of the
Series B Warrants. The rights granted to the holders of the Series B Securities
under the Series B Warrants are not limited or qualified by any rights of any
other class of securities.
With respect to the shares of Common Stock underlying each of the Series B
Warrants, even if Shareholder approval was obtained, unless and until the
Registration Statement that has been filed with the SEC to register such
underlying shares of Common Stock has been declared effective (which, to date,
has not yet occurred), the certificate representing such shares shall include
the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE, AND HAVE BEEN ACQUIRED FOR AN INVESTMENT
AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OF SUCH SHARES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL
ACCEPTABLE TO COUNSEL FOR THE COMPANY THAT REGISTRATION IS NOT
REQUIRED BY SUCH LAWS.
Nasdaq Rule 4460(i) and its Effect of Shareholder Approval
Rule 4460(i) requires Shareholder approval for certain events, including among
other situations
-upon a change of control,
-when stock of another company is acquired if, due to the present or
potential issuance of common stock or securities convertible or
exercisable into common stock, the number of shares of common stock to
be issued is or will be equal to or in excess of 20% of the number of
shares of common stock outstanding before the issuance of the
securities, or
-in connection with a transaction involving the sale or issuance of
common stock (or securities convertible into or exercisable into
common stock) equal to 20% or more of the common stock outstanding
before the issuance for less than the greater of book or market value
of the stock.
As of the date of the mailing of these Proxy Materials, the RoseGlen Group and
the Palladin Group have converted their Series B Preferred Stock into an
aggregate of 1,809,714 shares of Common Stock. The MFSNT 20% Share Limitation
(determined as of April 26, 1998) is 1,875,960 shares of Common Stock and thus,
only an additional 66,246 shares of Common Stock may be issued by us to holders
of securities issued in connection with the MFSNT Acquisition, without
exceeding the MFSNT 20% Share Limitation or obtaining Shareholder approval.
Because certain of the Series B Warrants are "future-priced securities", the
total number of shares actually issuable cannot be determined since the exercise
prices are subject to change, depending on the stock price of the Common Stock
and on whether we are in default of certain provisions on any given day. Thus,
the number of shares of Common Stock into which the remaining outstanding Series
B Warrants may be exercised cannot be pre-determined. Additionally, there is
either a de minimus or no minimum exercise price or a maximum number of shares
of Common Stock into which the Series B Warrants held by the RoseGlen Group are
exercisable. As a result, we are seeking Shareholder approval to permit the
RoseGlen Group and the Palladin Group (and any subsequent holder) to exercise
their respective Series B Warrants in excess of the MFSNT 20% Share Limitation,
since the percentage of our shares that may be issued upon conversion may be
subject to change.
Moreover, even if all the Series B Securities were not integrated with the
grant of the WorldCom Option and the
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WorldCom Equity Award pursuant to Rule 4460(i)(1)(C), as discussed above, it is
possible that based upon the total number of shares of Series B Preferred
Securities and Common Stock issued in connection with the Series B Offering, at
any time, the number of shares that could ultimately be exercised for a number
of shares of Common Stock could exceed the MFSNT 20% Share Limitation,
depending on the conversion price or exercise price, independent of the number
of shares that may be issued upon the exercise of the WorldCom Option and the
WorldCom Equity Award (assuming Shareholder approval). Thus, Shareholder
approval of Proposal No. 7 is necessary pursuant to Rule 4460(i)(1)(C),
independent of the WorldCom Option and the WorldCom Equity Award, as described
in Proposal No. 6. However, even if Shareholder approval of Proposal No. 7 is
obtained, the Palladin Group and the RoseGlen Group must each provide not less
than 60 days prior written notice to us of their respective intents to own more
than 4.99% of our outstanding Common Stock.
Furthermore, because certain of the Series B Warrants are exercisable for
Common Stock at any time at a discount from the market price of the Common
Stock at the time of exercise, Rule 4460(i)(1)(D) is also applicable. Rule
4460(i)(1)(D), among other things, requires Shareholder approval in connection
with a transaction involving the sale or issuance of common stock (or
securities convertible into or exercisable into common stock) equal to 20% or
more of the common stock outstanding before the issuance for less than the
greater of book or market value of the common stock. Because the exercise price
for the Series B Warrants is discounted from or less than the market price of
the Common Stock, Rule 4460(i)(1)(D) applies to exercise of the Series B
Warrants.
If Proposal No. 7 is approved by the Shareholders, no further authorization for
the issuances upon exercise of the Series B Warrants will be solicited.
Assuming Shareholder approval, any proceeds received by us from the exercise of
the
-Initial Series B Warrants, based upon an exercise price of $13.25 per
share,
-RoseGlen Series B Securities Exchange Agreement Warrants, based upon
an exercise price of $10.13 per share,
-Palladin First warrants, based upon an exercise price of $0.01 per
share, and
-Palladin Second Warrants, based upon an exercise price of $10.13 per
share,
we could receive proceeds of up to approximately $6,900,000 which we would use
for debt reduction and/or working capital.
Reasons for Approval of Proposal No. 6 and our Board's Recommendation
Our Board of Directors believes that it is in our Shareholders' best interest
for the holders of the Series B Securities to be entitled to convert their
shares of Series B Preferred Stock into Common Stock and exercise the Series B
Warrants
-in an amount of Common Stock that represents more than the MFSNT 20%
Share Limitation (taking into consideration the securities described
in both Proposal No. 6 and Proposal No. 7),
-at an exercise price that is less than the market value of the Common
Stock, and
-into an amount of Common Stock that could result in a change of
control (assumed to be 30% or more ownership of the Common Stock).
Approving Proposal No. 7 by our Shareholders would satisfy the Shareholder
approval requirements of Nasdaq Rules 4460(i)(1)(B), (C) and (D). Assuming
Shareholder approval, if the holders of the Series B Preferred Stock had
exercised their remaining Warrants into Common Stock, the holders would have
received, in the aggregate, approximately, 2,445,950 shares of Common Stock,
including an aggregate of 1,809,714 shares we previously issued upon the
conversion or exchange of Series B Preferred Stock. These additional shares
would have represented 13.0% of our outstanding Common Stock at May 11, 2000.
If Proposal No. 7 is approved by the Shareholders, no further authorization for
the exercise of the Series B Warrants will be solicited.
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EFFECT OF MANAGEMENT VOTE ON PROPOSAL NO. 7.
SINCE OUR DIRECTORS AND OFFICERS OWN BENEFICIALLY 1,885,082 SHARES OF COMMON
STOCK, OR 11.5% OF THE OUTSTANDING VOTING SHARES, THEIR VOTES ARE NOT LIKELY TO
HAVE A MATERIAL IMPACT ON WHETHER THIS PROPOSAL IS ADOPTED. THE NUMBER OF SHARES
HELD BY OUR DIRECTORS AND OFFICERS THAT HAVE ACTUAL VOTING RIGHTS IS 240,082,
WHICH IS 1.5% OF THE OUTSTANDING SHARES.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" APPROVING OUR POSSIBLY ISSUING
MORE THAN 1,875,960 SHARES OF COMMON STOCK UPON THE EXERCISE OF CERTAIN
WARRANTS ISSUED TO THE SERIES B INVESTORS, WHICH SHARE AMOUNT OF 1,875,960
REPRESENTS AT LEAST 20% OF THE OUTSTANDING COMMON STOCK DETERMINED IMMEDIATELY
PRIOR TO THE MFSNT AGREEMENT DATED APRIL 26, 1998.
PROPOSAL NO. 8
APPROVING OUR POSSIBLY ISSUING MORE THAN 3,128,500 SHARES OF OUR COMMON STOCK
UPON CONVERTING THE SERIES C PREFERRED STOCK AND EXERCISING THE SERIES C
WARRANTS ISSUED IN THE SERIES C OFFERING, WHICH SHARE AMOUNT OF 3,128,500
REPRESENTS AT LEAST 20% OF THE OUTSTANDING COMMON STOCK DETERMINED IMMEDIATELY
PRIOR TO THE CLOSING OF THE SERIES C OFFERING, WHICH OCCURRED FEBRUARY 7, 2000.
Proposal No. 8 is independent of any other proposal submitted for Shareholder
approval.
THE SERIES C OFFERING
On February 4, 2000, we entered into the Series C Convertible Preferred Stock
Purchase Agreement with certain seven accredited investors, four of whom had
previously purchased securities from us. In connection with the Series C Stock
Purchase transaction,
-The Series C Investors purchased 5,000 shares of the Series C
Convertible Preferred Stock at $3,000 per share for an agreement of
$15.0 million.
-The Series C Investors also received warrants exercisable for 200,000
shares of our Common Stock initially at 115% or the Initial Conversion
Price of $9.35 per share or $10.75 per share, which was 115% of the
then market price of our Common Stock, through February 3, 2005. The
Conversion Price may be reduced to $4.00 per share or lower as
described below. The exercise period for the warrants may also be
extended by 1.5 times the number of days after October 31, 2000,
required for the registration statement registering the shares
underlying the Series C Warrants to be made effective.
-The Series C Investors have registration rights with respect to the
shares of Common Stock underlying
-the Series C Preferred Stock, and
-Warrants
-We used approximately $10.0 million from the proceeds of the Series
C issuance to satisfy our obligations to the holders of the Series B
Convertible Preferred Stock and we used the remaining proceeds for
working capital.
-So long as at least 20% of the Series C Preferred Stock or Warrants
remains outstanding, we will not
-declare or pay any dividends or make any distributions to
holders of our Common Stock, or
-purchase or acquire for value, directly or indirectly, any
of our equity securities.
-Until 90 days after the Registration Statement has been declared
effective by the SEC and the Common shares
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underlying the Series C Preferred Stock and the Warrants are subject
to effective registration, neither Able, nor any of our subsidiaries,
may issue any equity securities or instruments or rights convertible
into or exchangeable or exercisable for any equity securities, except
-for currently outstanding convertible securities,
-shares issued pursuant to the Able Telcom Holding Corp. 1995
Stock Option Plan, as amended, or
other options to our employees,
-Unless agreed to by the Series C Investors, prior to February 4,
2001, or such additional time if we do not have an effective
registration by October 31, 2000, we may not issue or grant
-any convertible securities if the terms do not provide for a
fixed rate of conversion throughout such security's term, or
-any option, warrant or other right to purchase our
securities whose exercise is contingent upon, or whose price
is determined with respect to, the market price for our
Common Stock.
-Through September 30, 2000, the Series C Investor may purchase
additional Preferred Stock for an aggregate of $15.0 million, at $3,000
per share, having the rights, designations and preferences then in
effect for the Series C Preferred Stock. The September 30 date may be
extended for each day after October 31, 2000 there is not an effective
registration statement.
Series C Investors' Right of First Refusal
As part of the Series C transaction, we agreed not to offer, sell, contract or
issue or deliver any securities in a private placement or other transaction,
other than in connection with an employee stock purchase or similar plan or an
acquisition of another company, unless we first offer such securities to the
Series C Investors as follows:
-We will provide written notice of our intent to enter into such a
transaction together with a term sheet containing the economic terms
and significant provisions thereof and any other information the
Series C Investors reasonably request.
-Each Series C Investor will have twenty (20) Trading Days from
receipt of the Offer to deliver a written notice to us that such
Series C Investor wishes to accept the Offer in whole or in part
(subject to satisfactory due diligence and reasonably acceptable
definitive documentation), for the private placement.
-If a Series C Investor rejects the Offer or fails to respond within
such twenty (20) Trading Day period, then we can complete such private
placement without such Series C Investor on terms and conditions
substantially the same as those contained in the Offer.
-If a Series C Investor accepts the Offer but fails to close the
private placement within 30 Trading Days of accepting the Offer for
any reason other than
--any breach by us of our obligations under the Series C
documents or the applicable private placement,
--any delay by us or reasonable delay by such Series C
Investor in connection with execution of definitive
documentation,
--if the parties fail to reasonably agree on definitive
documentation, or
--reasonable dissatisfaction by such Series C Investor with
their due diligence examination,
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the Offer to such Series C Investor shall terminate and such Series C
Investor shall be entitled to receive any Offer in any future
private placement except for
--transactions between us and
MCI WorldCom, Inc.,
WorldCom Network Services, Inc.,
Triarc Companies, and/or Messrs. Peltz, May,
Packer or any of their respective affiliates, and
Foothill Capital Corporation,
--strategic investments in us or in any of our subsidiaries by
an industry joint venture partner,
industry supplier, or
a customer of either of the above, and
--a public or private secondary offering if we receive net
proceeds of at least $20.0 million.
Series C Investors' Registration Rights
As part of the Series C Offering, we also agreed to use our best efforts to
effect the registration of the following Registrable Securities on or before
October 31, 2000:
-301,787 shares of our Common Stock, received by the Series C
Investors, which we call the Secondary Common Shares,
-Common Stock and Warrants shares issued to any holder in connection
with the Exchange Agreement or upon their converting the Series C
Preferred Stock or Warrants, as applicable, or upon any stock split,
stock dividend, recapitalization or similar event with respect to such
securities,
-any securities issued or issuable to each Holder upon converting,
exercising or exchanging any Secondary Common Shares, Series C
Preferred Stock, Warrants, Warrant Shares, or Common Shares, and
-any other of our securities issued as a dividend or other
distribution with respect to, or upon converting or exchanging, or in
replacing any of these securities.
Our obligations include, without limitation,
-filing a registration statement with the SEC and using our best
efforts to cause it to be declared effective on or before October 31,
2000,
-The number of shares of Common Stock that we initially must include
are to be not less than
--the number of shares of Common Stock for which the Series C
Preferred Stock are at any time convertible in full, assuming
a Conversion Price of $4.00 per share, and
--105% of the number of Warrant Shares that are then issuable
upon the exercise of the Warrants
-executing an undertaking to
-file post-effective amendments,
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-file appropriate qualification under applicable blue sky or
other state securities laws, and
-undertake appropriate compliance with applicable regulations
issued under the Securities Act as would permit or facilitate
the sale or distribution of all the Registrable Securities in
the manner (including manner of sale) in all states
reasonably requested by the Holder on an approved market.
If the Registration Statement is not effective by October 31, 2000,
the Conversion Price will be reduced by
-10% on November 1, 2000 and
-further reduced by an additional 1% on the last day of each
successive 30-day period after the Registration Deadline until the
Registration Statement has been declared effective.
-The Series C Convertible Preferred Stock. Below is a summary of the current
material terms of the Series C Preferred Stock.
--Adjustment of Conversion
Price if we Issue
Certain Securities We will further adjust the Conversion Price
if
-at any time prior to February 4, 2001, we
issue or sell Common Stock, or securities
convertible into, exercisable for, or
exchangeable for, Common Stock at a sales,
exercise, or conversion price less than the
Conversion Price, then the Conversion Price
shall be reduced, but never increased, to
equal the reduced price.
However, notwithstanding what is discussed
above, we do not have to adjust the
Conversion Price if we issue shares or
options
--pursuant to our employee, director or
consultant stock option plans or employee
stock purchase plans currently in force, or
--as a consideration for an Equity Sale.
Nonetheless, if, at any time when any
Preferred Shares are outstanding, we effect
an Equity Sale at a Reduced Price that is
below the Closing Bid Price on the day any
of our securities that are part of such
Equity Sale are issued or sold, then
generally, the Conversion Price will be
reduced by multiplying the Conversion Price
by a fraction,
--the numerator being an amount equal to
the sum of
-the number of shares of Common
Stock outstanding immediately prior
to the Equity Sale, multiplied by
the then prevailing Closing Bid
Price, and
-the aggregate consideration
received for the Equity Sale, and
--the denominator of which shall be equal
to
-the number of shares of Common
Stock outstanding immediately after
the Equity Sale, multiplied by the
Closing Bid Price.
--Adjustments of Conversion
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Price if We Subdivide or At any time, if we subdivide, by stock
Combine our Common Stock split, stock dividend, recapitalization or
otherwise, one or more classes of our
outstanding shares of Common Stock into a
greater number of shares, we will
proportionately reduce the Conversion Price
that was in effect immediately prior to
such subdivision. At any time, if we
combine, by combination, reverse stock
split or otherwise, one or more of our
classes of Common Stock, we will
proportionately increase the Conversion
Price in effect immediately prior to such
combination.
--Adjustments of Conversion
Price if we Issue
Convertible Securities If we issue or sell convertible securities
that are convertible into or exchangeable
for Common Stock at a price which varies
with the market price of the Common Stock,
for which we refer to the formulation for
such variable price the "variable price,"
we will provide a written variable notice
via facsimile and overnight courier to each
holder of the Preferred Shares on the date
we issue any convertible securities. If the
holders of Preferred Shares representing at
least two-thirds of the Preferred Shares
then outstanding provide written notice via
facsimile and overnight courier to us
within five business Trading Days of
receiving a Variable Notice that such
holders desire to replace the Conversion
Price then in effect with the Variable
Price described in such Variable Notice,
then from and after the date we receive the
Variable Price Election Notice the
Conversion Price as to all outstanding
Preferred Shares will automatically be
replaced with the Variable Price, with such
modifications as may be required to give
full effect to the substitution of the
Variable Price for the Conversion Price. If
a holder delivers a Conversion Notice at
any time after we issue convertible
securities with a Variable Price but before
such holder receives our Variable Notice,
then such holder shall have the option by
written notice to us either to
--rescind such Conversion Notice or
--have the Conversion Price be equal to
such Variable Price for the conversion
effected by such Conversion Notice.
--Adjustment to the Conversion
Price if we Reclassify,
Consolidate or Merge Prior to our consummating any Organic
Change, we will make appropriate
provisions, which is subject to the Series
C Holders' approval, to ensure that each of
the holders will thereafter have the right
to acquire and receive, in lieu of or in
addition to, as the case may be, the shares
of Common Stock otherwise acquirable and
receivable upon converting such holder's
Preferred Shares, including, if we
consolidate, merge or we enter into a sale
in which the successor entity or purchasing
entity is not us, an immediate adjustment
of the Conversion Price to reflect the
value for the Common Stock reflected by the
terms of such consolidation, merger or
sale, and if the value so reflected is less
than the Conversion Price in effect
immediately prior to such consolidation,
merger or sale to reflect the price of the
common stock of the surviving entity and
the market in which such common stock is
traded. We will not consolidate, merge, or
sell, unless prior to the consummation of
the proposed transaction, the successor
entity, if other than us, resulting from
consolidation or merger or the entity
purchasing such assets assumes, by written
instrument, in form and substance
satisfactory to the holders of a majority
of the Preferred Shares then outstanding,
the obligation to deliver to each holder of
Preferred Shares such shares of stock,
securities or assets as such holder may be
entitled to acquire.
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--Blackout Periods If at any time after the effective date of
our Registration Statement, if the
Registration Statements' effectiveness is
suspended for more than the Suspension
Grace Period, then we must pay each holder
for each 30-day period (prorated for any
partial period) from and after the
Suspension Grace Period. After the fifth
Trading Day following the Suspension Grace
Period's expiration, a Holder will have the
right to have us redeem its Series C
Preferred and or Registrable Securities, in
whole or in part, as follows:
--As to the Series C Preferred Stock, the
shares will be redeemable at the Triggering
Event Redemption Price,
--As to the Registrable Securities, the
securities will be redeemable at the
Premium Redemption Price.
--Cap Allocation Amount The Cap Allocation Amount is
--the Exchange Cap amount multiplied by
--a fraction,
-the numerator of which is the
number of Preferred Shares issued
to such holder pursuant to the
Investment Agreement, and
-the denominator of which is the
aggregate amount of all the
Preferred Shares issued to the
holders pursuant to the Investment
Agreement.
--Closing Bid Price Generally, the Closing Bid Price for our
securities is the last closing bid price on
the Nasdaq National Market, the American
Stock Exchange or the New York Stock
Exchange, as applicable.
--Company Redemption If we elect to make a Company Redemption, we
will, within five Trading Days after the
date we first became eligible to elect any
such Company Redemption, give a Redemption
Notice to the holders that we intend to
redeem the Preferred Shares. Any Redemption
Notice must be given by facsimile or by
overnight courier to the holders. The
Redemption Notice shall be addressed to each
such holder at the facsimile number or
address of such holder appearing on our
books or given by such holder to us for the
purpose of notice. The Redemption Notice
shall state the number of Preferred Shares
of each holder required to be redeemed and,
within five Trading Days after the effective
date of the Company Redemption, such holder
shall surrender to us at the place
designated in the Company Redemption Notice,
or to an agent designated by the holder,
such holder's Preferred Stock Certificate(s)
representing the shares so redeemed against
payment in cash of the applicable Redemption
Price. If the Registration Statement does
not remain continuously effective during the
period commencing upon the delivery of the
Redemption Notice and ending on the date the
Company Redemption is effective, the
Redemption Notice with respect to each
holder shall be voidable at the option of
such holder.
--Company Redemption Price The Company Redemption Price is the sum of
--the Liquidation Value at the effective
date of the First Company Redemption, plus
--10% of such Liquidation Value for each
whole or partial six-month period
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between February 4, 2000 and the effective
date of the First Company Redemption.
--Conversion,
Generally The holders have the right, at their
respective options, to convert the
Preferred Shares into Common Stock at
anytime, if
--anytime a holder converts, the number of
shares of Common Stock a holder and its
affiliates would beneficially own is equal
to or less than 4.99% of our outstanding
Common Stock. However, a holder may waive
the 4.99% limit if we are given not less
than 61 days' prior notice only if a
holder's percentage would not exceed 9.9% of
our outstanding Common Stock following
conversion.
--Conversion Approval If required, we shall use our best efforts
to obtain, and in any event, on or before
our next annual Shareholders' Meeting,
shareholder approval pursuant to Rule
4460(i) authorizing our issuing all Common
Shares and Warrant Shares issuable upon
converting any Preferred Shares or exercise
of any Warrants, including by calling a
special meeting of such shareholders within
ten days, and holding such meeting within
45 days; provided that if the Trading Price
decreased by more than 20% over the
preceding 30 days, then 45 shall be
increased to 60, of the date of any such
attempted conversion, and having our Board
of Directors recommend such approval in a
proxy statement. If a conversion by a
holder of any Preferred Shares in whole or
in part for Common Shares could result in
our being delisted from the Nasdaq National
Market for issuing in excess of 20% of our
outstanding Common Stock to the holders
without the approval of our shareholders,
and we fail to seek or obtain shareholder
approval, then we, upon the holder's
request, must redeem any and all Preferred
Shares covered by the applicable Conversion
Notice and any and all Preferred Shares
that would, if a Conversion Notice for all
Preferred Shares were then delivered,
result in our being subject to such
delisting, at a price equal to 120% of the
Liquidation Value.
--Conversion Benefit The Conversion Benefit is equal to the
product of
--the Conversion Rate on the date of such
holder's delivery of a Notice of Redemption
Upon Triggering Event, and
--the greater of
-the Closing Bid Price on the
Trading Day immediately preceding
such Triggering Event, or
-the Closing Bid Price on the date
of the holder's delivery to us of a
Notice of Redemption Upon
Triggering Event or, if such date
of delivery is not a Trading Day,
the next Trading Day.
--Conversion Deficiency If we do not have a sufficient number of
shares of Common Stock registered for
resale under the Registration Statement,
which are exempt from the registration
requirements pursuant to Rule 144(k) under
the Securities Act, or we are otherwise
unable or unwilling to issue such Common
Shares, including without limitation if we
are prohibited by any Nasdaq rule,
regulation, or policy or any exchange or
market upon which our Common Stock may be
traded, for any reason after receipt of a
Conversion Notice,
--then
-we will pay, in cash, to each
holder an amount equal to 3% of the
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Liquidation Value for the Preferred
Shares held by such holder for each
30-day period, or portion thereof,
that we fail or refuse to issue
Common Shares, and
-at any time five days after the
first 30-day period described above
starts, at the request of any
holder pursuant to a Notice of
Redemption, we promptly
will purchase from such
holder, at a purchase
price equal to the
Triggering Event
Redemption Price as of
that Conversion Date, the
number of Preferred Shares
equal to such holder's pro
rata share of the
Deficiency, if the failure
to issue Common Shares
results from the lack of a
sufficient number, and
will purchase all, or such
portion as such holder may
elect, of such holder's
Preferred Shares at such
Triggering Event
Redemption Price if the
failure to issue Common
Shares results from any
other cause.
-Any request by a holder is
revocable by that holder at any
time prior to its receipt of the
Triggering Event Redemption Price.
If we receive a Conversion Notice or Notice
of Redemption, including a Notice of
Redemption Upon Major Transaction or Notice
of Redemption Upon Triggering Event, from
more than one holder of Preferred Shares on
the same day and we can convert and/or
redeem some, but not all, of the Preferred
Shares, we will convert and/or redeem from
each holder of Preferred Shares electing to
have Preferred Shares converted and/or
redeemed at such time an amount equal to
such holder's pro-rata amount, based on the
number of Preferred Shares held by such
holder relative to the number of Preferred
Shares outstanding, of all Preferred Shares
being converted and redeemed at such time.
--Conversion,
Limitation on Number of
Conversion Shares Notwithstanding any other provisions, we
are not obligated to issue any shares of
Common Stock upon conversion of the
Preferred Shares if issuing such shares of
Common Stock would exceed the Exchange Cap,
except that such limitation shall not apply
in the event that
-our shareholders approve our issuing such
shares in excess of any exchange cap
amount, as required by Rule 4460(i) of the
Nasdaq National Market or
-we obtain a written opinion from our
outside counsel that we do not need our
shareholders to approve our issuing shares
in excess of any cap, which opinion shall
be reasonably satisfactory to the holders
of a majority of the Preferred Shares then
outstanding. If and to the extent that
shareholder approval is required, we will
as soon as practicable use our best efforts
to obtain such approval. Until such
approval or written opinion is obtained, no
purchaser of Preferred Shares will be
issued, upon converting Preferred Shares,
shares of Common Stock in an amount greater
than the Cap Allocation Amount.
If any holder sells or otherwise transfers
any of such Purchaser's Preferred Shares,
the transferee shall be allocated a pro
rata portion of such holder's Cap
Allocation Amount. In the event that any
holder of Preferred Shares converts all of
such
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<PAGE> 75
holder's Preferred Shares into a number of
shares of Common Stock which in the
aggregate, is less than such holder's Cap
Allocation Amount, then the difference
between such holder's Cap Allocation Amount
and the number of shares of Common Stock
actually issued to such holder shall be
allocated to the respective Cap Allocation
Amounts of the remaining holders of
Preferred Shares on a pro rata basis in
proportion to the number of Preferred
Shares then held by each such holder.
--Conversion Price Initially, $9.35, however, starting on
August 4, 2000, and then on the 4th day of
the month at the end of each following six
month period, we refer to each of these
dates as Reset Dates, we will recalculate
the Conversion Price to equal
--the average Closing Bid Prices for our
Common Stock for the ten consecutive
Trading Days preceding the applicable Reset
Date; generally however,
--no Conversion Price shall be recalculated
if it would result in a new Conversion
Price that is greater than the then current
Conversion Price, and
--if any recalculation results in a
Conversion Price of less than $4.00,
generally the Conversion Price shall
thereafter be $4.00. As we discussed above
under Adjustments to the Conversion Price,
we may be required to further adjust the
Conversion Price.
--Conversion Rate The Conversion Rate is equal to
-the Liquidation Value, divided by
-the Conversion Price
--Default Interest 2% per month.
--Deficiency The Deficiency is equal to the number of
Preferred Shares that would not be able to
be converted for Common Shares, due to an
insufficient number of Common Shares
available, if all the outstanding Preferred
Shares were submitted for conversion at the
Conversion Price as of the date such
Deficiency is determined.
--Dividends Generally, dividends, which are cumulative,
of 5.9% per year of the Stated Value of
$3,000 per share. The dividends accrue daily
from February 5, 2000 and increase
Liquidation Value of the Preferred Shares.
The dividends will be paid or accrued on
October 31, January 31, April
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30, and July 31, beginning April 30, 2000.
We must provide the holders with at least
20 days prior written notice if we intend
to pay the dividends in cash on the
dividend dates.
--Equity Sale An Equity Sale occurs if we acquire or
develop other entities within our industry,
or in connection with strategic
acquisitions or alliances with strategic
business partners, as approved by our Board
of Directors.
--Exchange Cap The number of shares of Common Stock which
we may issue upon conversion of the
Preferred Shares without breaching our
obligations under applicable rules or
regulations relating to the Nasdaq National
Market.
--Failure to Timely Convert If, within five trading days after we
receive the Preferred Stock certificates to
be converted and the Conversion Notice, we
fail to
--issue a certificate for the number of
shares of Common Stock to which a holder is
entitled or to credit the holder's account
balance with The Depository Trust Company
for such number of shares of Common Stock
to which the holder is entitled upon such
holder's conversion of the Preferred
Shares, or
--issue a new Preferred Stock Certificate
representing the number of Preferred Shares
to which such holder is entitled,
in addition to all other available remedies
which such holder may pursue, we will pay
additional damages to such holder on each
day after such fifth Trading Day that such
conversion or delivery of such Preferred
Stock Certificates, as the case may be, is
not timely effected in an amount equal to
0.5% of the product of
--the sum of
-the number of shares of Common
Stock not issued to the holder on a
timely basis and to which such
holder is entitled and,
-in the event we have failed to
deliver a Preferred Stock
Certificate to the holder on a
timely basis, the number of shares
of Common Stock issuable upon
converting the Preferred Shares
represented by such Preferred Stock
Certificate as of the last possible
date which we could have issued
such Preferred Stock Certificate to
such holder, and
--the Closing Bid Price of the Common Stock
on the last possible date which we could
have issued such Common Stock and the
Preferred Stock Certificate, as the case
may be.
--Liquidation, Dissolution,
Winding-Up If we liquidate, whether voluntarily or
involuntarily, dissolve or wind up, the
holders of the Series C Preferred Stock
will be entitled to receive Preferred Funds
before any amount shall be paid to the
holders of any class of our capital stock
that is junior in rank to the Preferred
Shares with respect to preferences as
to distributions and payments on our
liquidating, dissolving and winding up.
Preferred Funds would equal an amount per
Series C Preferred Share equal to the
Liquidation Value; provided that, if the
Preferred Funds are insufficient to pay the
full amount due to the holders of Preferred
Shares and holders of shares of other
classes or series of our preferred
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stock that are of equal rank with the
Preferred Shares as to payments of
Preferred Funds, which we call "Pari Passu
Shares", then each holder of Preferred
Shares and Pari Passu Shares will receive a
percentage of the Preferred Funds equal to
the full amount of Preferred Funds payable
to such holder as a liquidation preference,
as a percentage of the full amount of
Preferred Funds payable to all holders of
Preferred Shares and Pari Passu Shares. Our
purchase or redemption of stock of any
class, in any manner permitted by law,
shall not, for the purposes hereof, be
regarded as liquidating, dissolving, or
winding up Able. Neither our consolidating
or merging with or into any other person,
nor the sale or transfer by us of less than
substantially all of our assets, shall, for
the purposes hereof, be deemed to be a
liquidation, dissolution, or winding up of
us. No holder of Preferred Shares will be
entitled to receive any amounts upon any
liquidation, dissolution or winding up of
us other than these amounts; provided that
a holder of Preferred Shares is entitled to
all amounts previously accrued with respect
to amounts owed by us.
--Liquidation Value On a per share basis of $3,000, the sum of
--the Stated Value, plus
--unpaid Default Interest through the date
of determination, plus
--any accrued dividends.
--Major Transaction A Major Transaction includes
--if we consolidate, merge, or undertake
any other business combination with or into
another person, other than:
-a consolidation, merger or other
business combination in which
holders of our voting power
immediately prior to the
transaction continue after the
transaction to hold, directly or
indirectly, the voting power of the
surviving entity or entities
necessary to elect a majority of
the members of the Board of
Directors (or their equivalent if
other than a corporation) of such
entity or entities, or
-pursuant to a statutory merger
effected solely for the purpose of
changing the jurisdiction of our
incorporation;
--the sale or transfer of all or
substantially all of our assets; or
--a purchase, tender or exchange offer made
to and accepted by the holders of more than
30% of our outstanding shares of Common
Stock.
--Major Transaction
Redemption price 120% of the Liquidation Value
--Mandatory Conversion at
Maturity Date If any Series C Preferred Stock remains
outstanding and is not converted on the
Maturity Date, then all such Preferred
Shares shall be converted as of such date
as if the holders of such Preferred Shares
had given the Conversion Notice at the
Maturity Date; provided, however, that if a
Triggering Event has occurred and is
continuing on the Maturity Date, then we
will, within five Trading Days following
the Maturity Date (unless otherwise
notified in writing by the holder of its
request to have the Preferred Shares
converted into Common Stock), pay to each
holder of Preferred Shares then
outstanding, in immediately available
funds, an amount equal to the Triggering
Event Redemption Price as of the Maturity
Date. All holders of Preferred shares shall
thereupon surrender all Preferred Stock
Certificates, duly endorsed for
cancellation, to us or our Transfer Agent,
provided that we have complied with our
obligations.
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--Maturity Date February 4, 2005, subject to certain
extensions including 1.5 days for each day
in any Suspension Grace Period.
--Modifying the Preferred
Share Terms Not less than two-thirds of the then
outstanding Preferred Shares, is required
to
--amend, alter, change or repeal
any of the powers, designations,
preferences and rights of the Preferred
Shares, or
--issue any Preferred Shares other than
pursuant to the Investment Agreement.
--Nasdaq Limits We are not obligated to issue or register
any shares of our Common Stock if the
issuance or registration is prohibited by
any rule, regulation or policy of Nasdaq or
any exchange or market upon which our stock
is traded.
--Organic Change An Organic Change occurs if we
--recapitalize,
--reorganize,
--reclassify,
--consolidate,
--merge,
--sell all or substantially all of our
assets to another person, or
--undertake a transaction which is effected
in such a way that holders of our Common
Stock are entitled to receive, either
directly or upon subsequent liquidation,
stock, securities or assets with respect to
or in exchange for Common Stock.
--Paying the
Redemption Price Once we receive a notice to redeem upon
either
--a Triggering Event, or
--a Major Transaction,
we will notify each holder that we received
the appropriate notice. Each holder will
then submit the holder's Preferred Stock
Certificates.
In the case of redemption upon a Major
Transaction, we are obligated to pay the
holder prior to the consummation of the
Major Transaction, assuming we received the
proper notice and the stock certificates.
In the case of redemption upon a Triggering
Event, upon proper notice, we are obligated
to pay the holder within five business days
after receiving the notice, and assuming we
received the appropriate stock
certificates.
If we are unable to redeem all of the
Preferred Shares, we will redeem a pro-rata
amount. If we fail to redeem all of the
Preferred Shares submitted to be redeemed,
in addition to any other remedies available
to the holders of the Preferred Shares, the
Redemption Price payable in respect of such
unredeemed Preferred Shares shall bear the
Default Interest until paid in full.
Holders may void their redemption notices
prior to our redeeming the appropriate
number of Preferred Shares.
--Permitted Transactions Permitted Transactions include
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<PAGE> 79
--transactions closed prior to February 4,
2001 between us and
-MCI WorldCom, Inc.,
-WorldCom Network Services, Inc.,
-Triarc Companies, and/or
Messrs. Peltz, May, Packer
or any of their respective
affiliates, and
-Foothill Capital Corporation,
--strategic investments in us or in any of
our subsidiaries by
-an industry joint venture partner,
-industry supplier, or
-a customer of either of the above,
and
--a public or private secondary offering if
we receive net proceeds of at least $20.0
million.
--Preferred Funds Preferred Funds are cash out of our assets,
whether from capital or from earnings
available to be distributed to our
shareholders.
--Preferred Rank All shares of Common Stock are of junior
rank to all Preferred Shares in respect to
the preferences as to distributions and
payments upon our being liquidated,
dissolved, and wound up. The rights of the
shares of Common Stock will be subject to
the preferences and relative rights of the
Preferred Shares. Without the prior express
written consent of the holders of not less
than a majority of the then-outstanding
Preferred Shares, we shall not authorize or
issue additional or other capital stock
that is of senior rank or pari passu rank
to the Preferred Shares in respect of the
preferences as to distributions and
payments upon our being liquidated,
dissolved and wound up; provided, however,
that we may issue additional or other
capital stock that is of senior rank or
pari passu rank with the Preferred Shares
in connection with
--a Permitted Transaction, or
--the capitalization of Adesta, ICP, Inc.
Without the prior express written consent
of the holders of not less than a majority
of the then-outstanding Preferred Shares,
we will not authorize or amend our Articles
of Incorporation or bylaws, or file any
resolution of our board of directors with
the Secretary of State of the State of
Florida containing any provisions that
would adversely affect or otherwise impair
the rights or relative priority of the
holders of the Preferred Shares relative to
the holders of the Common Stock or the
holders of any other class of capital
stock.
If we merge or consolidate with or into
another corporation, the Preferred Shares
will maintain their relative powers,
designations and preferences.
--Premium Redemption Price The Premium Redemption Price equals the
greater of
--1.2 multiplied,
--by the dollar amount that is the product
of
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-the number of Common Shares that
would be issuable on conversion of
the Preferred Shares to be redeemed,
and
-the Conversion Price as of the
date of the Notice of Redemption,
or
the Conversion Benefit.
--Purchase Rights In addition to any adjustments of the
Conversion Rights, if at any time we grant,
issue or sell any options, convertible
securities or rights to purchase stock,
warrants, securities or other property pro
rata to the record holders of any class of
Common Stock, then the holders of the
Preferred Shares are entitled to acquire,
upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which
such holder could have acquired if such
holder had held the number of shares of
Common Stock acquirable upon complete
conversion of the Preferred Shares, without
taking into account any limitations or
restrictions on the timing or amount of
conversions, immediately before the date on
which a record is taken for the grant,
issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as
of which the record holders of the Common
Stock are to be determined for the grant,
issue, or sale of such Purchase Rights.
--Premium Price Redemption
for Cash Payment Defaults In the event we fail or refuse to pay any
default payment or honor any penalty or
similar amounts when due, at any holder's
option and request by delivery of a Notice
of Redemption, we will purchase all or a
portion of the Preferred Shares, Common
Shares and/or Warrant Shares held by such
holder, with any default payment penalty or
similar amounts accruing through the date
of such purchase, within five Trading Days
of such request, at a purchase price equal
to the greater of
--1.2 times the dollar amount that is the
product of
-the number of Common Shares that
would be issuable on conversion of
the Preferred Shares to be redeemed
pursuant to this clause, and
-the Conversion Price as of the
date of delivery of the Notice of
Redemption, or
--the Conversion Benefit;
provided that such holder may revoke such
request at any time prior to receipt of
such payment of such purchase price.
Payment of the purchase price shall be made
by us in accordance with the procedures
governing the payment of the Triggering
Event Redemption Price. Until such time as
we purchase such Preferred Shares at the
request of such holder pursuant to the two
preceding sentences, at any holder's
request and option we shall, as to such
holder pay any accruing default payments
penalty or similar amounts by adding and
including such amounts to the Liquidation
Value instead of in cash.
--Redemption Option--
Able - First Company
Redemption Rights Subject to the restrictions and conditions
relating to the Conversion Rate and the
Conversion Price and the exercise by any
holder of its right to redeem Preferred
Shares, commencing on the earlier of
--either 60 days after the Registration
Statement first becomes effective, or
--December 31, 2000,
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we may, at our option, from time to time,
require all holders to redeem their
Preferred Shares, in whole or in part as
specified by us, at the Company Redemption
Price and pursuant to a Company Redemption
Notice; provided, however, that no First
Company Redemption shall be permitted
unless:
-- the Closing Bid Price of the Common
Stock is less than 70% of the average
Closing Price for the ten consecutive
Trading Days preceding the date of such
Company Redemption Notice.
A First Company Redemption will be
effective upon the close of business on the
15th Trading Day after the date that the
Company Redemption Notice is received by
each holder.
Commencing on the earlier of either
--60 days after the Registration Statement
first becomes effective, or
--December 31, 2000,
if the Closing Bid Price of the Common Stock
is less than 70% of the average Closing Bid
Price for any ten consecutive Trading Days
ending subsequent to such 60th day, which,
for each such Closing Bid Price we call a
"Call Price," and we are unable for any
reason to or elect not to exercise a First
Company Redemption within five Trading Days
after the end of such ten consecutive
Trading Day period, then the Conversion
Price shall immediately reset to equal the
lower of
--the average Closing Bid Price for the ten
consecutive Trading Days prior to the end
of such five Trading Day period, or
--the lowest Call Price,
and we will thereafter cease for the
remainder of the time that any Preferred
Share is outstanding to be entitled to
exercise a First Company Redemption. In no
event shall any reset of the Conversion
Price reduce the Conversion Price to less
than $4.00, without taking into account any
additional adjustments to the Conversion
Price.
--Redemption Option--
Able - Second Company
Redemption Rights Subject to the restrictions and conditions
relating to the Conversion Rate and the
Conversion Price and the exercise by any
holder of its right to redeem Preferred
Shares, commencing after February 4, 2000,
we may, at our option, from time to time,
require all holders to redeem their
Preferred Shares, in whole or in part as
specified by us at the Company Redemption
Price pursuant to a Company Redemption
Notice following the appropriate
procedures; provided, however, that no
Second Company Redemption shall be
permitted
--from February 4, 2000 to February 4,
2001, or
--any time from and after February 4, 2001,
unless
-the Registration Statement has
been effective under the Act for at
least 60
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consecutive days preceding the date
of our Redemption Notice, and
-in the case of a Second Company
Redemption from February 4, 2000 to
February 4, 2001, the average
Closing Bid Price of the Common
Stock is equal to or greater than
170% of the Initial Conversion Price
for the 20 consecutive Trading Days
preceding the date of such
Redemption Notice, and in the case
of a Second Company Redemption from
and after February 4, 2001, the
average Closing Bid Price of the
Common Stock is equal to or greater
than 150% of the Initial Conversion
Price for the 20 consecutive Trading
Days preceding the date of such
Redemption Notice.
A Second Company Redemption shall be
effective upon the close of business on the
15th Trading Day after the date that the
Company Redemption Notice is received by
each holder.
If less than all of the outstanding
Preferred Shares are to be redeemed, then
we will redeem a pro rata portion from each
holder according to the respective number
of Preferred Shares held by such holder on
the date the Company Redemption is
effective.
--Redemption Option
Holders - Upon a Major
Transaction In addition to all other rights of the
holders of Preferred Shares, simultaneous
with or after a Major Transaction has
occurred, each holder of Preferred Shares
has the right, at such holder's option, to
require us to redeem all or a portion of
such holder's Preferred Shares at a price
per Preferred Share equal to the Major
Transaction Redemption Price.
No sooner than 15 Trading Days, nor later
than ten Trading Days, prior to our
consummating a Major Transaction, but not
prior to our publicly announcing such a
Major Transaction, we will deliver a
written notice thereof, via facsimile or
overnight courier to each holder of
Preferred Shares. After receiving our
notice, any holder of the Preferred Shares
then outstanding may require us to redeem
all or a portion of the holder's Preferred
Shares, which redemption shall be effective
concurrent with our consummating the Major
Transaction, by delivering written notice
thereof via facsimile and overnight courier
to us, which notice shall indicate
--the number of Preferred Shares that such
holder is submitting for redemption, and
--the applicable Major Transaction
Redemption Price.
--Redemption Option
Holders - Upon a Triggering
Event In addition to all other rights of the
holders of Preferred Shares, simultaneous
with or after a Triggering Event occurs,
--we will pay in cash to each holder
default interest in an amount equal to 3%
of the Liquidation Value for the Preferred
Shares held by such holders for each 30-day
period, prorated for any partial period,
from and after the expiration of the
Suspension Grace Period; and
--at any time after the 4th trading day
following the expiration of the Suspension
Grace Period, each holder of Preferred
Shares will have the right, at such
holder's option, to require us to redeem all
or a portion of such holder's Preferred
Shares at the Triggering Event Redemption
Price.
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Within one Trading Day after a Triggering
Event occurs, we will deliver written
notice thereof via facsimile and overnight
courier to each holder of Preferred Shares.
At any time after the earlier of a holder
receiving the notice and such holder
becoming aware of a Triggering Event, any
holder of Preferred Shares then outstanding
may require us to redeem all or a portion
of the holder's Preferred Shares then
outstanding by delivering written notice
thereof via facsimile and overnight courier
to us, which Notice shall indicate
--the number of Preferred Shares that such
holder is submitting for redemption, and
--the applicable Triggering Event
Redemption Price
-Reservation of Shares So long as any of the Preferred Shares are
outstanding, we will reserve and keep
available out of our authorized and
unissued Common Stock, solely for the
purpose of effecting the conversion of the
Preferred Shares, such number of shares of
Common Stock as shall from time to time be
sufficient to effect the conversion of all
of the Preferred Shares then outstanding,
without regard to any limitations on
conversions; provided that the number of
shares of Common Stock so reserved will at
no time be less than the number of shares
of Common Stock for which the Preferred
Shares are at any time convertible,
assuming a Conversion Price of $4.00.
--Stated Value $3,000
--Suspension Grace Period The Suspension Grace Period occurs if any
Holder's ability to sell Registrable
Securities under the Registration Statement
is suspended for
--five consecutive days or fewer, or
--ten days in any calendar year.
--Triggering Event A Triggering Event will have occurred upon
any of the following events:
--if the Registration Statement covering
the Common Stock underlying the Series C
Preferred Stock and the Warrants Shares is
not declared effective by the SEC on or
prior to October 31, 2000;
--while the Registration Statement is
required to be maintained effective, in the
event the effectiveness of the Registration
Statement lapses for any reason (including,
without limitation, the issuance of a stop
order) or is unavailable, except for a
period not exceeding the Suspension Grace
Period,
--delisting or suspension from listing of
our Common Stock from Nasdaq, for a period
of five consecutive days or for an
aggregate of at least ten days in any
365-day period,
--our notice to any holder of any Preferred
Shares at any time of our intention not to
comply with proper requests for conversion,
or
--any representation or warranty by us was
not true and correct at the time made or if
we breach any covenant or other term or
condition of the documents relating to the
Series C Offering.
--Triggering Event
Redemption Price The Triggering Event Redemption Price is
equal to the greater of
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--120% of the Liquidation Value, and
--the Conversion Benefit.
Voting Rights Holders of Preferred Shares shall have no
voting rights, except as required by law,
including, but not limited to, the Florida
Business Corporation Act, and as we
expressly discuss.
-The Series C Warrants
--Number of Warrants Series C Warrants to purchase up to 200,000
shares of our Common Stock.
--Exercise Period Through February 4, 2005, however, the
expiration date may be extended by 1.5 days
for every day starting October 31, 2000 if
the registration statement filed with the
SEC is not effective by that date. In no
event will any holder of Warrants be
entitled to exercise such Warrants to the
extent that such holder (together with its
affiliates) would beneficially own,
immediately after and giving effect to such
conversion, greater than the Restricted
Ownership Percentage which is 4.99% of the
outstanding shares of Common Stock.
Each Warrant Holder has the right at any
time to reduce its Restricted Ownership
Percentage immediately upon notice to us or
in the event of a Change in Control
Transaction.
Each Warrant Holder has the right at any
time to increase its Restricted Ownership
Percentage or otherwise waive in whole or in
part the restrictions upon 61 days' prior
notice to us or immediately in the event of
a Change in Control Transaction,
Each Warrant Holder may eliminate or
reinstate this limitation at any time and
from time to time (which elimination will
be effective upon 61 days' prior notice and
which reinstatement will be effective
immediately).
The Warrant Holder may not waive or modify
its Restricted Ownership Percentage if the
Warrant Holder were to acquire additional
shares of Common Stock which would be
exceeded if its Restricted Ownership
Percentage were 9.99%.
If a Change in Control Transaction occurs,
any holder may reinstate immediately (in
whole or in part) the requirement that any
increase in its Restricted Ownership
Percentage be subject to 61 days' prior
written notice, notwithstanding such Change
in Control Transaction, without imposing
such requirement on, or otherwise changing
such holder's rights with respect to, any
other Change in Control Transaction.
--Change of Control
Transaction A change of control transaction will occur
upon the earlier of our announcing or
consummating a transaction or series of
transactions (other than the Merger) if
--we consolidate with or into any other
corporation or other entity or person
(whether or not we are the surviving
corporation), or any other corporate
reorganization or transaction or series of
related transactions in which in excess of
50% of our voting power is transferred
through a merger, consolidation, tender
offer or similar transaction, or
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--more than 50% of our Board of Directors
consists of directors not nominated by our
prior Board of Directors, or
--any person (as defined in Section 13(d)
of the Exchange Act) together with its
affiliates and associates (as such terms
are defined in Rule 405 under the Act),
beneficially owns or is deemed to
beneficially own (as described in Rule
13d-3 under the Exchange Act without regard
to the 60-day exercise period) in excess of
50% of our voting power.
--Exercise Price The exercise price was initially $10.75 per
share.
--Adjustments to the
Exercise Price and
Number of Shares The exercise price and number of securities
purchasable upon exercise of the warrant are
subject to a proportional adjustment
pursuant to certain anti-dilution provisions
in the event that we take any of the
following actions:
--if we effectuate a forward or reverse
stock split or similar issuance,
--if we issue any stock dividends,
--if we merge, consolidate or transfer or
sell all or substantially all of our
assets,
--if we reorganize or reclassify our Common
Stock,
--if we distribute to holders of our Common
Stock, other than as part of our
dissolution, liquidation or the winding up
of our affairs, any shares of our capital
stock, any evidence of indebtedness, or any
of our assets (other than Common Stock), or
--Other than if we issue
-shares or options issued or which
may be issued to employees,
directors or consultants,
-shares or options pursuant to our
employee or director option plans,
-shares issued upon exercise of
warrants issued prior to the date
hereof to John Hancock Mutual Life
Insurance Co. and its affiliates,
-shares issued to RoseGlen and the
holders of the Series A Preferred
Stock,
-shares issued upon exercise of
warrants issued prior to February
4, 2000 in conjunction with our
issuing Series B Preferred Stock,
-equity awards and options to
WorldCom Network Services, Inc.,
and
-shares issued upon exercise of
options, warrants or rights
outstanding as of February 4, 2000
and listed in any of our reports
filed under the Exchange Act from
February 4, 1999 through the
preceding 12 months,
--at any time prior to February 4, 2001, we
issue or sell any Common Stock or
convertible securities at a purchase price
per share less than the greater of
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-the exercise price or,
-the fair market value of the
Common Stock on the trading day
next preceding such issue or sale,
--the exercise price will be reduced
concurrently with such issue or sale
determined by multiplying the exercise
price then in effect by a fraction,
-the numerator of which shall be
the sum of
the number of shares of
Common Stock outstanding
immediately prior to such
issue or sale, plus
the number of shares of
Common Stock which the
aggregate consideration
received by us for
additional shares would
purchase at such fair
market value or exercise
price, as the case may be;
and
-the denominator of which shall be
the number of shares of Common
Stock outstanding immediately after
such issue or sale.
--any other similar action of the type
described or contemplated above.
Future Priced Securities
The Conversion Price of the Series C Preferred Stock is generally tied to the
trading price of our Common Stock. Although generally a minimum conversion
price of $4.00 has been established, this minimum conversion price is subject
to additional adjustments if certain events do or do not occur, often within a
certain time frame. Similarly, the Exercise Price of the Series C Warrants are
also subject to adjustment in the event certain events do or do not occur,
often by certain dates. Securities such as the
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- Series C Preferred Stock that may be converted into, and
- Series C Warrants that may be exercised for,
Common Stock at a price lower than the future market price of the Common Stock
are often referred to as "Future-Priced Securities". The lower the price of the
Common Stock, the lower the Conversion Price or Exercise Price, and
consequently, the more shares of Common Stock that are issuable upon converting
the Series C Preferred Stock or exercising the Series C Warrants. Because
neither the
- Conversion Rate of the Series C Preferred Stock, nor
- Exercise Price of the Series C Warrants
can be determined as to the shares held by the Series C Investors, if issuing a
future-priced security is followed by a decline in the Common Stock price, the
existing holders of the Common Stock will face additional dilution. Short
selling of the Common Stock (i.e. committing to sell the stock at a future date
with the hope that the trading price falls so that the seller may purchase the
Common Stock at a lower price than the price at which the seller committed to
sell), including by the holders of the Series C Securities, could lead to a
lowering of the trading price of our Common Stock, resulting in more shares of
Common Stock being issuable upon conversion of the Series C Preferred Stock.
While we do not encourage short selling of our Common Stock, we cannot prevent
this activity from occurring, which could lead to a drop in the trading price
of the Common Stock.
The Common Stock Underlying the Series C Securities
For a general description of the Common Stock, par value $.001, underlying the
Series C Preferred Stock and the Series C Warrants, see Proposal No. 2. Other
than as described above, the holders of the Series C Securities are not
entitled to any pre-emptive rights under the terms of either the Series C
Preferred Stock or the Series C Warrants other than as described herein. The
rights granted to the holders of the Series C Securities under the Series C
Preferred Stock and the Series C Warrants are not limited or qualified by any
rights of any other class of securities.
With respect to the shares of Common Stock underlying the Series C Preferred
Stock and the Series C Warrants, even if Shareholder approval was obtained,
unless and until the Registration Statement that has been filed with the SEC to
register such underlying shares of Common Stock has been declared effective
(which, to date, has not yet occurred), the certificate representing such
shares shall include the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE, AND HAVE BEEN ACQUIRED FOR AN
INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OF SUCH SHARES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF
COUNSEL ACCEPTABLE TO COUNSEL FOR THE COMPANY THAT REGISTRATION IS
NOT REQUIRED BY SUCH LAWS.
Nasdaq Rule 4460(i) and its Effect on Shareholder Approval
As discussed above, Rule 4460(i) requires Shareholder approval for certain
events, including:
- upon a change of control,
- when stock of another company is acquired if, due to the present or
potential issuance of common stock or securities convertible or
exercisable into common stock, the number of shares of common stock
to be issued is or will be equal to or in excess of 20% of the number
of shares of common stock outstanding before the issuance of the
securities, or
- in connection with a transaction involving the sale or issuance of
common stock (or securities convertible into or exercisable into
common stock) equal to 20% or more of the common stock outstanding
before the issuance for less than the greater of book or market value
of the stock.
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As of the date of the mailing of these Proxy Materials, the Series C Investors
have not converted any of their warrants or stock. The Series C 20% Share
Limitation (determined as of February 4, 2000) is 3,128,500 shares of Common
Stock. Because the Series C Securities are "future-priced securities", the
total number of shares actually issuable cannot be determined since the
Conversion Rate of the Series C Preferred Stock and the Exercise Price of the
Series C Warrants constantly changes, depending on the stock price of the
Common Stock on any given day and whether certain events have or have not
occurred. Thus, the number of shares of Common Stock into which the outstanding
shares of Series C Preferred Securities may be converted or exercised cannot be
pre-determined. As a result, we are seeking Shareholder approval to permit the
Series C Investors (and any subsequent holders) to convert or exercise their
respective Series C Securities in excess of the Series C 20% Share Limitation,
since the percentage of shares that may be issued upon conversion is constantly
changing and could exceed this limitation.
Moreover, even if the Series C Securities were not integrated with the grant of
the WorldCom Option and the WorldCom Equity Award pursuant to Rule
4460(i)(1)(C), it is possible that based upon the total number of shares of
Series C Securities initially issued in connection with the Series C Offering,
the number of shares of Series C Preferred Stock that could ultimately be
convertible into or exercised for a number of shares of Common Stock could
exceed the Series C 20% Share Limitation, depending on the Conversion Rate or
Exercise Price. Thus, Shareholder approval of Proposal No. 8 is necessary
pursuant to Rule 4460(i)(1)(C). However, even if Shareholder approval of
Proposal No. 8 is obtained, the Series C Investors each must provide not less
than 60 days prior written notice to us of their respective intents to own more
than 4.99% of our outstanding Common Stock.
In addition, while there is a minimum floor (minimum) exercise price of $4.00
per share with respect to the conversion of the Series C Preferred Stock, the
minimum price is subject to further adjustment. If such price falls below
approximately $3.25 per share, there is a remote possibility that the issuance
of shares to the Series C Investors could result in a change of control
(assumed to be 30% or more ownership of the Common Stock). As a result,
Shareholder approval is also required pursuant to Rule 4460(i)(1)(B) upon a
change of control.
Furthermore, because
- the Series C Preferred Stock is convertible into Common Stock at
any time at a discount from the market price of the Common Stock at
the time of conversion, and
- the Series C Warrants may be exercised for Common Stock at less
than the market price of our Common Stock at the time of exercise,
depending on
-- the market price at the time of exercise, and
-- whether certain events may or may not have occurred,
Rule 4460(i)(1)(D) is also applicable. Rule 4460(i)(1)(D), among other things,
requires Shareholder approval in connection with a transaction involving the
sale or issuance of common stock (or securities convertible into or exercisable
into common stock) equal to 20% or more of the common stock outstanding before
the issuance for less than the greater of book or market value of the common
stock. Because the Conversion Rate is discounted from the market price of the
Common Stock, Rule 4460(i)(1)(D) applies to the conversion of the Series C
Preferred Stock and may apply to the exercise of the Series C Warrants in the
event that the exercise price of the Series C Warrants is less than the book or
market value of the Common Stock as of the date of exercise.
In the event that shareholder approval is obtained, and assuming exercise of
the outstanding Series C Warrants, although the Series C Warrants were not "in
the money", and converting the outstanding Series C Preferred Stock based upon
an exercise price of $4.00 per share with respect to the conversion of Series C
Preferred Stock, the holders of the Series C Securities would, in the
aggregate, be entitled to the following:
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<TABLE>
<S> <C>
SERIES C PREFERRED STOCK
Number of Shares of Series C Preferred Stock Outstanding 5,000
Shares of Common Stock to be Issued Upon Conversion(1) 3,750,000
Percentage of Shares of Common Stock Outstanding(2) 18.7%
SERIES C WARRANTS
Number of Warrants Outstanding 200,000
Shares of Common Stock to be Issued Upon Exercise 200,000
Percentage of Shares Outstanding(2) 1.2%
TOTAL
Total Number of Shares of Common Stock to be Issued upon 3,950,000
Conversion/Exercise
Total Percentage Outstanding 19.3%
</TABLE>
(1) Based upon a conversion rate of $4.00 per share, as determined as of May
11, 2000, by us according to the terms of our agreements with the holders
of the Series C Securities.
(2) As of May 11, 2000, there were 16,308,582 shares of Common Stock
outstanding. The percentage is calculated assuming the number of shares
shown were issued.
If Proposal No. 8 is approved by the Shareholders, no further authorization for
the issuances upon conversion of the Series C Preferred Stock or exercise of
the Series C Warrants will be solicited.
Assuming Shareholder approval, any proceeds received by us from the exercise of
the Series C Warrants (and based upon an exercise price of $10.75 per share,
would total approximately $2,100,000) would be used for debt reduction or
working capital purposes.
Reasons for Approval of Proposal No. 8 and our Board's Recommendation
The Board of Directors believes that it is in the Shareholders' best interest
for the holders of the Series C Securities to be entitled to convert their
shares of Series C Preferred Stock into Common Stock and exercise the Series C
Warrants
- in an amount of Common Stock that represents more than the Series C
20% Share Limitation,
- at an exercise price that is less than the market value of the
Common Stock, and
- into an amount of Common Stock that could result in a change of
control (assumed to be 30% or more ownership of the Common Stock).
Approval of Proposal No. 8 by the Shareholders would satisfy the Shareholder
approval requirements of Nasdaq Rules 4460(i)(1)(B), (C) and (D). Assuming
Shareholder approval, if the holders of the Series C Preferred Stock had
converted their shares of Preferred Stock into Common Stock and exercised each
of the Series C Warrants, the holders would receive, in the aggregate, 3,950,000
shares of Common Stock. These additional shares would have represented 19.3% of
the outstanding Common Stock at May 11, 2000.
If Shareholder approval is not obtained, it is our position that the holders of
the Series C Securities may be entitled to require us to redeem all of the
shares of the Series C Preferred Stock for an aggregate redemption price of
approximately $21.0 million. Payment of any redemption amounts would materially
and adversely affect our cash flow because:
- of the short time frame to pay for such redemption (five business
days upon a Triggering Event), and
- depending on the number of shares of Series C Preferred Stock to be
redeemed, such redemption could
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necessitate a dollar payment to the holders which could severely
diminish our existing cash flow, working capital and availability
under our credit facility as well as adversely impact our business
and financial condition.
Such an exercise and/or payment would also result in a default in one or more
of our other obligations, including our obligations to senior lenders under our
credit facility. Such defaults would have a material adverse impact on our
business, financial condition, results of operations and cash flow.
Shareholder approval, however, would not negate any "Triggering Events",
including our obligation to have the Registration Statement declared effective
by October 31, 2000. Even if Shareholder approval to issue the shares of Common
Stock issuable upon conversion of the Series C Preferred Stock and exercise of
the Series C Warrants, we could still be in default of our other obligations,
resulting in additional monetary penalties as well as redemption of the Series
C Common Stock at the Premium Redemption Price per share described above.
EFFECT OF MANAGEMENT VOTE ON PROPOSAL NO. 8.
SINCE OUR DIRECTORS AND OFFICERS OWN BENEFICIALLY 1,885,082 SHARES OF COMMON
STOCK, OR 11.5% OF THE OUTSTANDING VOTING SHARES, THEIR VOTES ARE NOT LIKELY TO
HAVE A MATERIAL IMPACT ON WHETHER THIS PROPOSAL IS ADOPTED. THE NUMBER OF SHARES
HELD BY OUR DIRECTORS AND OFFICERS THAT HAVE ACTUAL VOTING RIGHTS IS 240,082,
WHICH IS 1.5% OF THE OUTSTANDING SHARES.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" APPROVING OUR POSSIBLY ISSUING
MORE THAN 3,128,500 SHARES OF OUR COMMON STOCK UPON CONVERTING THE SERIES C
PREFERRED STOCK AND EXERCISING THE SERIES C WARRANTS ISSUED IN THE
SERIES C OFFERING, WHICH SHARE AMOUNT OF 3,128,500 REPRESENTS AT LEAST 20%
OF THE OUTSTANDING COMMON STOCK DETERMINED IMMEDIATELY PRIOR TO THE
CLOSING OF THE SERIES C OFFERING, WHICH OCCURRED FEBRUARY 7, 2000.
PROPOSAL NO. 9
RATIFYING OUR APPOINTING ARTHUR ANDERSEN LLP AS OUR INDEPENDENT ACCOUNTANTS
The Board of Directors has selected the firm of Arthur Andersen LLP to serve as
our independent accountants for the fiscal years ending October 31, 1998,
October 31, 1999 and October 31, 2000 and recommends to the Shareholders that
they vote for the ratification of that appointment. Representatives of Arthur
Andersen LLP are expected to be present at the Annual Meeting, will have the
opportunity to make a statement, if they so desire, and are expected to be
available to respond to appropriate questions.
Arthur Andersen LLP has served as auditors of our consolidated financial
statements since they were engaged on October 12, 1998. Ernst & Young LLP, our
previous auditors, resigned as our auditors effective September 7, 1998. The
reports of Ernst & Young LLP on our financial statements for the fiscal years
ended October 31, 1997 and 1996 did not contain an adverse opinion or disclaimer
of opinion and were not qualified or modified as to uncertainty, audit scope, or
accounting principles. In connection with the audits of our financial statements
for each of the two years ended October 31, 1997 and 1996, and in the subsequent
interim periods, there were no disagreements with Ernst & Young LLP on any
matters of accounting principles or practices, financial statement disclosure,
or auditing scope and procedures which, if not resolved to the satisfaction of
Ernst & Young LLP, would have caused Ernst & Young LLP to make reference to the
matter in their reports.
Ernst & Young did inform us of the existence of the following reportable
events, as defined in Item 304(a)(1)(v) of Regulation S-K of the Securities Act
of 1933, as amended:
In their Report to the Audit Committee for the year ended October 31,
1997, Ernst & Young LLP advised the Company as to the existence of
reportable conditions in the Company's system of internal
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controls. These reportable conditions related to: (i) the lack of
segregation of duties over the cash disbursement 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.
During the fiscal years ended October 31, 1997 and 1996 and during the
subsequent interim period prior to engaging Arthur Andersen LLP, neither we nor
anyone on our behalf consulted with Arthur Andersen LLP regarding either the
application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
our financial statements. Previously, however, Arthur Andersen LLP was the
independent auditors for MFS Network Technologies, Inc. and Patton Management
Corporation, both of which were acquired by us during fiscal year 1998.
The appointment of auditors is approved annually by our Board of Directors and
subsequently submitted to the Shareholders for ratification. The decision of
our Board of Directors is based upon the recommendation of the Audit Committee,
which reviews the scope of the accountants' engagement, including the
remuneration to be paid, and reviews the independence of the accountants.
The proposal to ratify the appointment of Arthur Andersen LLP will be approved
by the Shareholders if it receives the affirmative vote of a majority of the
votes cast by Shareholders entitled to vote on the proposal.
EFFECT OF MANAGEMENT VOTE ON PROPOSAL NO. 9.
SINCE OUR DIRECTORS AND OFFICERS OWN BENEFICIALLY 1,885,082 SHARES OF COMMON
STOCK, OR 11.5% OF THE OUTSTANDING VOTING SHARES, THEIR VOTES ARE NOT LIKELY TO
HAVE A MATERIAL IMPACT ON WHETHER THIS PROPOSAL IS ADOPTED. THE NUMBER OF SHARES
HELD BY OUR DIRECTORS AND OFFICERS THAT HAVE ACTUAL VOTING RIGHTS IS 240,082,
WHICH IS LESS THAN 1.5% OF THE OUTSTANDING SHARES.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" RATIFYING THE
SELECTION OF ARTHUR ANDERSEN LLP AS INDEPENDENT ACCOUNTANTS
OTHER BUSINESS
We know of no other business to be brought at the Annual Meeting. If, however,
any other business should be properly brought up before the Annual Meeting,
those persons named in the accompanying Proxy Card will vote Proxies as in
their discretion they may deem appropriate, unless you direct them to do
otherwise in your Proxy Card.
OTHER MATTERS
SHAREHOLDER PROPOSALS
Any of our Shareholders wishing to include proposals in the proxy material in
relation to the annual meeting of our Shareholders to be held in 2001 must
submit the same in writing so as to be received at our executive offices on or
before February 28, 2001. Such proposals must also meet the other requirements
of the rules of the SEC relating to Shareholders' proposals.
If notice of a Shareholder proposal that has not been submitted to be included
in our proxy statement is not received by us on or before ______, 2000 or such
date which is 45 days before the date this proxy is mailed, the persons named
in the enclosed form of proxy will have discretionary authority to vote all
proxies with respect thereto in accordance with their best judgment. If notice
of the proposal is timely served, the persons named in the enclosed form of
proxy may not exercise their discretionary authority as to the proposal.
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SOLICITATION OF PROXIES
The cost of solicitation of proxies for use at the Annual Meeting will be borne
by us. Solicitations will be made primarily by mail or by facsimile, but our
employees may solicit proxies personally or by telephone.
OTHER INFORMATION
Our Annual Report on Form 10-K for fiscal year ended October 31, 1998, filed
February 24, 1999, as amended March 1, 1999, and as further amended on May 26,
2000, all subsequent Quarterly Reports on Form 10-Q including Form 10-Q for the
first quarter ended January 31, 1999, filed on March 17, 1999, as amended May
26, 2000, for the second quarter ended April 30, 1999, filed June 14, 1999, as
amended May 26, 2000, for the third quarter ended July 31, 1999, filed
September 14, 1999, as amended May 26, 2000, and our Annual Report on Form 10-K
for the fiscal year ended October 31, 1999, filed February 22, 2000, as amended
May 26, 2000 and all subsequent Quarterly Reports on Form 10-Q including our
Form 10-Q for the first quarter ended January 31, 2000, filed on April 12, 2000
, all of which have been filed before the date of the Annual Meeting, are
incorporated by reference in these Proxy Materials. We will provide to any
Shareholder, upon written request and without charge, a copy (without exhibits)
of all information incorporated by reference in this Proxy Statement. Requests
should be addressed to The Financial Relations Board, Inc., 675 Third Avenue,
New York, New York 10017, Attn: Brian Gill
By Order Of the Board of Directors
BILLY V. RAY, JR.
Chairman of the Board
Roswell, Georgia
____________, 2000
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APPENDIX A
ABLE TELCOM HOLDING CORP.
1995 STOCK OPTION PLAN, AS AMENDED
SECTION 1. PURPOSE.
This 1995 Stock Option Plan is intended to provide incentives to the officers,
employees and other eligible persons performing services for Able Telcom
Holding Corp. and its present and future subsidiaries to acquire an ownership
interest in the Company through the exercise of options to purchase Common
Stock or the receipt of awards of shares of Common Stock which may be granted
pursuant to this Plan.
SECTION 2. DEFINITIONS.
(a) "Agreement" shall have the meaning, ascribed to the term as set forth
in Section 6 hereof.
(b) "Award" means an Option or a Stock Award granted to an eligible person
pursuant to this Plan.
(c) "Board of Directors" means the Board of Directors of the Company.
(d) "Common Stock" means the common stock, $.001 par value per share, of
the Company.
(e) "Company" means Able Telcom Holding Corp., a Florida corporation.
(f) "Employee" means every individual performing services for the Company
or any Subsidiary if the relationship between him and the person for whom he
performs such services is the legal relationship of employer and employee as
determined in accordance with Section 3401(c) of Internal Revenue Code and
Treasury Regulations promulgated thereunder. A member of the Board of Directors
in his sole capacity as such is not an Employee.
(g) "Incentive Stock Option" means a right granted pursuant to this Plan
to purchase Common Stock that satisfies the requirements of Section 422 of the
Internal Revenue Code.
(h) "Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended.
(i) "Non-Affiliate Director" means every member of the Board of Directors
who is not an Employee of the Company or any Subsidiary and who does not
beneficially own, within the meaning of Rule 13d-2 of the Securities Exchange
Act of 1934, as amended, more than five percent (5%) of any class of the
outstanding capital stock of the Company.
(j) "Nonqualified Stock Option" means a right granted pursuant to this
Plan to purchase Common Stock that does not satisfy the requirements of Section
422 of the Internal Revenue Code.
(k) "Option" means a right granted pursuant to this Plan to purchase
Common Stock which may be either an Incentive Stock Option or a Nonqualified
Stock Option as determined by the Board of Directors.
(l) "Optionee" means an individual who has received an Option under the
Plan.
(m) "Option Shares" means the shares of Common Stock issuable upon the
exercise of an Option.
(n) "Plan" means this 1995 Stock Option Plan of Able Telcom Holding Corp.
(o) "Plan Administrators" shall have the meaning ascribed to the term as
set forth in Section 5 hereof.
(p) "Plan Adoption Date" means the date on which this Plan shall have been
adopted by the Board of Directors.
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(q) "Reserved Shares" shall have the meaning ascribed to the term as set
forth in Section 3 hereof.
(r) "Stock Award" shall mean an award of shares of Common Stock under
Section 6-A hereof.
(s) "Subsidiary" means any corporation (other than the Company) in an
(unbroken chain of corporations beginning with the Company if, at the time the
Option is granted, each of the corporations other than the last corporation in
the unbroken chain owns 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
SECTION 3. SHARES SUBJECT TO THE PLAN.
Subject to adjustments pursuant to Section 9 of the Plan, no more than Five
Million Five Hundred Thousand (5,500,000) shares in the aggregate of the
Company's Common Stock (the "Reserved Shares") may be issued pursuant to the
Plan to eligible participants. The number of the Reserved shall be reduced by
the number of Options of Stock Awards granted under the Plan. The Reserved
Shares may be made available from authorized but unissued Common Stock of the
Company, from Common Stock of the Company held as treasury stock, from any
shares which may become available due to the expiration, cancellation or other
termination of any Option or the forfeiture of any Common Stock issued pursuant
to a Stock Award previously granted by the Company, or from any combination of
the foregoing.
SECTION 4. ELIGIBILITY.
The individuals eligible to receive Awards under this Plan shall be such valued
Employees, Non-Affiliate Directors, advisors or consultants of the Company or
any Subsidiary, as the Plan Administrators may from time to time determine and
select. Non-Affiliate Directors, advisors and consultants shall be eligible to
receive only Nonqualified Stock Options. Employees shall be eligible to receive
Incentive Stock Options, Nonqualified Stock Options and Stock Awards. An
Optionee may receive more than one Option or Stock Award or any combination of
the two. No Employee of the Company or any Subsidiary is eligible to receive
any Incentive Stock Options if such Employee, at the time the option is
granted, owns, beneficially or of record, in excess of 10% of the outstanding
voting stock of the Company or a Subsidiary; provided, however, that such
Employee will be eligible to receive an Incentive Stock Option if at the time
such Option is granted the Option price is at least 110% of the fair market
value (determined with regard to Section 422(c)(7) of the Internal Revenue
Code) of the stock subject to the Option and such Option by its terms is not
exercisable after the expiration of five years from the date such Option is
granted. Pursuant to Section 422(d) of the Internal Revenue Code, no Option
granted pursuant to this Plan shall be treated as an Incentive Stock Option to
the extent that the aggregate fair market value, determined at the time the
Option was granted, of Common Stock with respect to which Options that
otherwise qualify as Incentive Stock Options are exercisable for the first time
by an Employee during any calendar year, under all plans of the Company and its
Subsidiaries, exceeds $100,000.
SECTION 5. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by the Board of Directors or a
committee thereof consisting solely of two or more "Non-Employee Directors" (as
such term is defined in Rule 16b-3 under the Securities Exchange Act of 1934,
as amended) as determined by the Board of Directors, which may be the
compensation Committee or a subcommittee of the Compensation Committee (in any
such case, the "Plan Administrators").
(b) The Plan Administrators shall have the power, subject to, and within
the limits of, the express provisions of the Plan:
(i) To determine from time to time which eligible persons shall be
granted Awards under the Plan, and the time when any Award shall
be granted;
(ii) To determine the number of shares of Common Stock to be subject
to any Option or included in any Stock Award granted to any
person and, in the case of Options, whether such Options are
Incentive Stock Options, Nonqualified Stock Options or any
combination thereof;
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<PAGE> 95
(iii) To determine the duration and purposes of leaves of absence
which may be granted to Optionees without constituting a
termination of their employment for purposes of the Plan;
(iv) To prescribe the terms and provisions of each Option granted
under the Plan (which need not be identical), including the
exercise price and the period of time during which such Option
may be exercised or shall become exercisable, and the
conditions, restrictions, risks of forfeiture and other
limitations, if any, applicable to any Stock Award;
(v) To construe and interpret the Plan and Awards granted under it,
and to establish, amend and revoke rules and regulations for its
administration; and
(vi) Generally, to exercise such powers and perform such acts as are
deemed necessary or expedient to promote the best interests of
the Company with respect to the Plan.
(c) The Plan Administrators, in the exercise of these powers, may correct
any defect or supply any omission, or reconcile any inconsistency in the Plan,
or in any Award, in the manner and to the extent it shall deem necessary or
expedient to make the Plan fully effective. All determinations of the Plan
Administrators shall be made by majority vote. Subject to any applicable
provisions of the Company's By-laws, all decisions made by the Plan
Administrators pursuant to the provisions of the Plan and related orders or
resolutions of the Plan Administrators shall be final, conclusive and binding
on all persons, including the Company, shareholders of the Company, Employees
and Optionees.
(d) The Plan Administrators may designate the Secretary of the Company, or
other employees of the Company or competent professional advisors, to assist in
the administration of this Plan and may grant authority to such persons to
execute agreements or other documents on behalf of the Plan Administrators.
(e) The Plan Administrators may employ such legal counsel, consultants and
agents as they may deem desirable for the administration of this Plan and may
rely upon any opinion received from any such counselor consultant and any
computation received from any such consultant or agent. No present or former
Plan Administrator shall be liable for any action or determination made in good
faith with respect to this Plan or any Award granted hereunder. To the maximum
extent permitted by applicable law and the Company's Certificate of
Incorporation and By-laws, each present or former Plan Administrator shall be
indemnified and held harmless by the Company against any cost or expenses
(including counsel fees) or liability (including any sum paid in settlement of
a claim with the approval of the Company) arising out of any act or omission to
act in connection with this Plan unless arising out of such person's own fraud
or bad faith. Such indemnification shall be in addition to any rights of
indemnification the person may have as a director, officer or employee or under
the Certificate of Incorporation of the Company, the By-laws of the Company or
otherwise. Expenses incurred by the Plan Administrators in the engagement of
such counsel, consultant or agent shall be paid by the Company.
SECTION 6. OPTION TERMS AND CONDITIONS.
The Options granted under the Plan shall be evidenced by written Option
Agreements (the "Agreements") consistent with the terms of the Plan which shall
be executed by the Company and the Optionee. The Agreements, in such form as
the Plan Administrators shall from time to time approve, shall, incorporate the
following terms and conditions:
(a) Time of Exercise. Options shall be exercisable in accordance with the
terms of the Agreements as approved by the Plan Administrators from time to
time. Incentive Stock Options may be exercised only if, at all times during the
period that begins on the date of the granting of the Incentive Stock Option
and that ends on the day three (3) months before the date of such exercise, the
Optionee was an Employee of the Company or any Subsidiary; provided, however,
that if the Optionee is "disabled" within the meaning of Section 22(e) of the
Internal Revenue Code, then the end of the preceding post-employment exercise
period shall be extended to one (1) year.
(b) Purchase Price. Except as otherwise provided in Section 4 hereof, the
purchase price per share of Common Stock deliverable upon the exercise of an
Incentive Stock Option shall not be less than the fair market value of
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<PAGE> 96
the Common Stock on the date the Option is granted. The purchase price per
share of Common Stock deliverable upon the exercise of a Nonqualified Stock
Option shall be determined by the Plan Administrators in their sole discretion.
(c) Method of Exercise. In order to exercise an Option in whole or in
part, the Optionee shall give written notice to the Company at its principal
place of business of such exercise, stating the number of shares with respect
to which the Option is being exercised. Such notice shall be accompanied by
full payment of the purchase price thereof either (i) in cash, or (ii) at the
discretion of the Plan Administrators, in whole shares of Common Stock having a
fair market value equal as of the date of the exercise to the cash exercise
price of the Option, or (iii) at the discretion of the Plan Administrators, by
delivery of the Optionee's personal recourse note bearing interest payable not
less than annually at no less than 100% of the lowest applicable Federal rate,
as defined in Section 1274(d) of the Internal Revenue Code, or (iv) any
combination of (i), (ii) and (iii) above. If the Plan Administrators exercise
their discretion to permit payment of the exercise price of any Option by means
of the methods set forth in clauses (ii), (iii) or (iv) of the preceding
sentence, such discretion shall be exercised in writing at the time of the
grant of die Option in question. The exercise date of the Option shall be the
date the Company receives such notice with any necessary accompaniments in
satisfactory order.
(d) Transferability. An Option shall not be transferable by the Optionee
other than at death and an Option granted to such Optionee is exercisable,
during his lifetime, only by such Optionee.
The Agreements may also contain such other terms, provisions, and conditions
consistent with the Plan and applicable provisions of the Internal Revenue Code
as the Plan Administrators may determine are necessary or proper.
SECTION 6-A. STOCK AWARDS
Subject to the limitations of this Plan, the Plan Administrators may select
persons to receive Stock Awards and determine the time when each Award shall be
granted, the number of shares of Common Stock subject to each Award, the period
of time, if any, during which all of or a portion of such shares shall be
subject to forfeiture and the other terms and conditions of such Award, if any.
Subject to the restrictions set forth below, the recipient of a Stock Award
shall have all the rights of a shareholder of the Company with respect to the
shares of Common Stock subject to such Award, including voting rights and the
right to receive all dividends and other distributions of the Company with
respect to such shares. Certificates representing shares of Common Stock issued
upon the grant of a Stock Award may be by the Company until the lapse of any
conditions to vesting or risks of forfeiture. Shares of Common Stock included
in any Stock Award are not transferable until fully vested or until the lapse
or termination of any other risks of forfeiture.
SECTION 7. STOCK OPTION GRANT FOR NON-AFFILIATE DIRECTORS.
(a) Grant of Options.
(i) Each Non-Affiliate Director of the Company as of the date of
approval of this Plan by the Board of Directors (the "Plan
Adoption Date"), or any other person as of the date he or she
first becomes a Non-Affiliate Director and thereafter, on the
date of such Non-Affiliate Director's re-election as a Director
of the Company, is hereby, and shall be, automatically granted a
Nonqualified Stock Option to purchase Ten Thousand (10,000)
shares of Common Stock. The Options granted to existing
Non-Affiliate Directors as of the Plan Adoption Date shall be at
an exercise price equal to the closing market price for the
Common Stock on that date and shall vest one (1) year from the
date of such grant, so long as such Non-Affiliate Director is
serving as a Non-Affiliate Director of the Company on such
vesting date.
(ii) Each Non-Affiliate Director shall further receive the number of
options described below upon such Non-Affiliate Director's
election, re-election, or appointment, as the case may be, to
serve in the capacit(ies) described below:
<TABLE>
<CAPTION>
Position Number of Options
<S> <C>
Chairman of the Board of Directors 5,000
Audit Committee Chairman 2,000
</TABLE>
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<PAGE> 97
<TABLE>
<S> <C>
Audit Committee Member 1,000
Compensation Committee Chairman 2,000
Compensation Committee Member 1,000
Nominating Committee Chairman 2,000
Nominating Committee Member 1,000
</TABLE>
The grant of the options described in this Section 7(a)(ii) shall
vest one year from the date of grant so long as such Non-Affiliate
Directors is acting in such capacities as of such vesting date(s).
(b) Option Price. Notwithstanding anything to the contrary contained in
this Plan, any Nonqualified Stock Option granted pursuant to this Section 7
shall provide an exercise price per share equal to 100% of the fair market
value per share of the Common Stock on the date of such grant.
(c) Option Term. Any Nonqualified Stock Option granted pursuant to this
Section 7 shall expire on (i) September 19, 2005, or (ii) the date which is two
years after the date that such Non-Affiliate Director shall no longer serve as
a member of the Board. Nonqualified Stock Options issued to a non-affiliate
Director shall not be exercisable until the first anniversary of the date of
grant (the "Vesting Date"); provided, however, that said Options shall not vest
and shall expire if the Non-Affiliate Director fails to attend at least 60% of
all Board of Directors' meetings, and meetings of committees of which he is a
member, which take place between the date of grant and the Vesting Date.
(d) Other Terms. All grants of Nonqualified Stock Options pursuant to this
Section 7 shall in all other respects be made in accordance with the provisions
of this Plan applicable to other eligible persons. The provisions of this
Section 7 shall not be amended more than once in any six month period, other
than to comply with changes in the Internal Revenue Code, the Employee
Retirement Income Security Act of 1974, as amended, or other applicable federal
or state law.
SECTION 8. RIGHTS OF STOCKHOLDERS AND OPTIONEE.
An Optionee shall not be deemed to be the holder of, or to have any of the
rights of a holder with respect to, any shares subject to such Option, unless
and until: (a) the Option shall have been exercised pursuant to the terms
thereof; (b) the Company shall have issued and delivered the shares to the
Optionee; and (c) the Optionee's name shall have been entered as a stockholder
of record on the books of the Company. Thereupon, the Optionee shall have full
voting and other ownership rights with respect to such shares.
SECTION 9. ADJUSTMENTS IN THE EVENT OF CHANGES IN THE
CAPITAL STRUCTURE, REORGANIZATION ANTI-DILUTION OR ACCOUNTING CHANGES.
(a) Changes in Capital Structure. In the event of a change in the
corporate structure or shares of the Company, the Plan Administrators (subject
to any required action by the stockholders) shall make such equitable
adjustments as they may deem appropriate in the number and kind of shares
authorized by the Plan and, with respect to outstanding Options in the number
and kind of shares covered thereby and in the exercise price of such Options on
the dates granted. For the purpose of this Section, a change in the corporate
structure or shares of the Company shall include, but is not limited to,
changes resulting from a recapitalization, stock split, reverse stock split,
consolidation, rights offering, stock dividend, reorganization, or liquidation.
Any additional shares of Common Stock or other securities or rights issued or
issuable with respect to any portion of a Stock Award which is unvested or
remains subject to risks of forfeiture or other conditions at the time of any
such change shall be subject to the same restrictions, risks or other
conditions, for the same period of time, as are then applicable to such portion
of the Stock Award.
(b) Reorganization-Continuation of the Plan. Upon the effective date of
the dissolution or liquidation of the Company, or a reorganization, merger or
consolidation of the Company with one or more corporations in which the Company
is not the surviving corporation, or of a transfer of substantially all of the
Company's property or more than 80% of the then outstanding shares of the
Company to another corporation not controlled by the Company's stockholders,
the Plan and any Option previously granted under the Plan shall terminate
unless provision be made in writing in connection with such transaction for the
continuation of (i) the Plan and for the assumption of the Options previously
granted, or for the substitution of new Options covering the shares of a
successor employer corporation, or a
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<PAGE> 98
parent or subsidiary thereof, with appropriate adjustments (in accordance with
the applicable provisions of the Internal Revenue Code) as to the number and
kind of shares and price per share, in which event the Plan and the Options
previously granted or new Options substituted therefor shall continue in the
manner and under the terms as provided, and (ii) all vesting requirements for
any portion of a Stock Award which is unvested shall be deemed satisfied and
the shares subject thereto fully vested, and all risks of forfeiture or other
restrictions or conditions applicable to any Stock Award shall lapse and
terminate.
(c) Reorganization-Termination of the Plan. In the event of a dissolution,
liquidation, reorganization, merger, consolidation, transfer of assets or
transfer of shares, as provided in Section 9(b) above, and if provision is not
made in such transaction for the continuance of the Plan and for the assumption
of Options previously granted or the substitution of new Options covering die
shares of a successor employer corporation or a parent or subsidiary thereof,
then an Optionee under the Plan shall be entitled to written notice prior to
the effective date of any such transactions stating that rights under his
Option must be exercised within thirty (30) days of the date of such notice or
they will be terminated.
SECTION 10. GENERAL RESTRICTIONS.
(a) No Option shall be exercisable, in whole or in part, and the Company
shall not be obligated to sell any Option Shares, if such exercise or sale
would, in the opinion of the Company, violate the applicable requirements of
any Federal or state law. Additionally, no Option shall be exercisable if, at
any time, the Company shall determine in its discretion that:
(i) the listing of the Option Shares is necessary or desirable under
any securities exchange requirements; or
(ii) the qualification of the Option Shares is necessary or desirable
under any applicable law; or
(iii) the consent or approval of any governmental regulatory body is
necessary or desirable as a condition of, or in connection with, the issuance
of the Option Shares; unless such listing, qualification, consent or approval
shall have been effected or obtained free of any conditions not acceptable to
the Company.
(b) If any law or regulation of any state or Federal commission or agency
having jurisdiction shall require the Company or the Optionee to take any
action with respect to the Option Shares, then the date upon which the Company
shall deliver or cause to be delivered the certificate or certificates for the
Option Shares shall be postponed until full compliance shall have been made
with all such requirements.
SECTION 11. EMPLOYMENT.
Nothing in this Plan shall be deemed to grant any right of continued employment
to a participating employee or to limit or waive any rights of the Company or
its Subsidiary to terminate such employment at any time, with or without cause.
SECTION 12. AMENDMENT.
Subject to the provisions of Section 7(d) hereof, the Board of Directors shall
have the power to amend or revise the terms of this Plan or any part thereof
without further action of the stockholders; provided, however, that no such
amendment shall impair any Award or deprive any Optionee of shares that may
have been granted to him under the Plan without his consent; and provided
further that no such amendment shall, without shareholder approval:
(a) increase the aggregate number of the Reserved Shares;
(b) change the class of persons eligible to receive Awards under the Plan;
(c) extend the maximum period during which any Option may be granted or
exercised;
(d) reduce the Option price per share under any Option below fair market
value at the time such Option was granted; or
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<PAGE> 99
(e) extend the term of the Plan.
SECTION 13. EFFECTIVE DATE AND TERMINATION OF PLAN.
(a) The effective date of the Plan shall be the Plan Adoption Date;
provided, however, in the event that the Plan is not approved by the voting
stockholders of the Company on or before December 31, 1996, the Plan and all
Options granted and to be granted hereunder shall be null and void and the
Company shall have no obligation of any nature whatsoever to any employee or
other person arising out of the Plan or any options granted or to be granted
hereunder.
(b) The Board of Directors of the Company may terminate the Plan at any
time with respect to any shares that are not subject to Awards. Unless
terminated earlier by the Board of Directors, the Plan shall terminate on
September 19, 2005, and no Awards shall be granted under this Plan after it has
been terminated. Termination of this Plan shall not affect the right and
obligation of any Optionee with respect to Awards granted prior to termination.
SECTION 14. WITHHOLDING TAXES.
Whenever under the Plan shares are to be issued in respect of Awards granted
hereunder, the Company shall have the right to require the recipient to make
arrangements to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements, if any, prior to or following the
delivery of any certificate or certificates for such shares.
SECTION 15. QUALIFICATION.
This Plan is adopted pursuant to, and is intended to comply with, the
applicable provisions of the Internal Revenue Code and the regulations
thereunder. Incentive Stock Options granted pursuant to this Plan are intended
to be "incentive stock options" as that term is defined in Section 422 of the
Internal Revenue Code and the regulations thereunder. In the event this Plan or
any Incentive Stock Option granted pursuant to this Plan is in any way
inconsistent with the applicable legal requirements of the Internal Revenue
Code or any regulation thereunder, this Plan and any Incentive Stock Option
granted pursuant to this Plan shall be deemed automatically amended as of the
date hereof to conform to such legal requirements, if such conformity can be
achieved by amendment.
SECTION 16. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION.
Each Employee who receives an Incentive Stock Option must agree to notify the
Company in writing immediately after the Employee makes a disqualifying
disposition of any Common Stock acquired pursuant to the exercise of an
Incentive Stock Option. For purposes of this Plan, a "disqualifying
disposition" is any disposition (including any sale) of such Common Stock
before the later of (i) two years after the date the Employee was granted the
Incentive Stock Option, or (ii) one year after the date the Employee acquired
Common Stock by exercising the Incentive Stock Option.
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<PAGE> 100
APPENDIX B
(a) Additional information concerning the business of the Company and of MFSNT
BUSINESS OF THE COMPANY (Pre-MFSNT Acquisition)
Prior to the MFSNT Acquisition, Able specialized in designing, installing,
maintaining and providing system integration services for advanced voice, data
and video communications networks. Able's customers included, and still include,
domestic and international telephone operating companies, government entities,
and mid- to large- size corporations. Able provided its customers with a number
of complementary services within the telecommunication infrastructure, traffic
management systems, automated manufacturing systems and utility network areas.
Able developed the ability to assemble a large, trained workforce, offer a
turn-key service mix and satisfy requirements for capital, bonding, technical,
administrative and financial pre-qualifications which allowed the Company to bid
on large projects and compete on both a national and international level.
Able conducted its business through three main operating groups: (1)
Telecommunication Services, (2) Traffic Management Services, and (3)
Communications Development. Each operating group contained subsidiaries that
relied on local managerial talent supported by centralized corporate control.
These groups are briefly summarized below.
Telecommunications Services consisted of network 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 provided primarily to local telephone companies,
although work has been performed for long distance telephone companies,
electric utility companies, local municipalities and cable television
multiple system operators in the United States, as well as electric
utility grids and water and sewer utilities. "Inside plant" services
(also known as premise wiring) consist of engineering, design,
installation and integration of telecommunication networks and delivery
systems for voice, data and video providing connectivity and networking
to offices for large private businesses, including banks, universities
and hospitals.
Traffic Management Services consisted of designing, installing and
maintaining traffic control and signalization devices (i.e.,
stoplights, crosswalk signals, drawbridge and railroad track signals
and gate systems traffic detection and data gathering devices). This
operating group also designed, installed and maintained "intelligent
highway" communication systems that involve the interconnection of data
and video systems, fog detection devices, remote signalization or
computerized signage in order to monitor and communicate traffic
conditions such that real-time responses to dynamic changes in traffic
patterns and climate conditions can be made.
Communications Development activities consisted of management of Able's
joint venture arrangements in Latin America, primarily Venezuela, which
were formed to provide telecommunication installation and maintenance
services to privatized local telephone companies. In 1996, these
activities were expanded to include marketing to Latin American
telephone companies of "Neurolama," an internally developed proprietary
telephone call record and data collection system.
Able's strategy was to capture an increased share of the market for outsourced
network installation, maintenance and system integration and through increased
marketing efforts by broadening the range of services it offers to customers.
This strategy includes both (i) growth through acquisition and (ii) internal
growth of existing and complementary lines of business.
COMPANY STRUCTURE
Able was incorporated in 1987 as "Delta Venture Fund, Inc.", a Colorado
Corporation. Able adopted its current name in 1989 and changed its corporate
domicile to Florida in 1991. Commencing in mid-1992 until mid-1994, 95 percent
of the Company's revenues and profits were derived from telecommunications
services provided primarily through two majority-owned subsidiaries located in
Caracas, Venezuela. These services were provided to one customer, CANTV, the
Venezuelan national telephone company. To decrease its exposure to foreign
markets, in 1994, Able expanded its business focus by marketing its 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. The
majority of TSCI's business is conducted in Florida and Virginia with these
states' respective Departments of Transportation and various city and county
municipalities.
To further expand in the domestic market and to facilitate a continued
acquisition program, the Company acquired the common stock of H.C. Connell, Inc.
("Connell") in December 1995. Connell performs primarily outside plant
telecommunication and electric power services for local telephone and utility
companies in central Florida. Connell was renamed Able Telecommunications and
Power, Inc. ("ATP") in January 1999. In October 1996, Able acquired the common
stock of Georgia Electric Company ("GEC"), headquartered in Albany, Georgia. GEC
operates in eight southeastern states and specializes in the installation,
testing and maintenance of intelligent highway and communication systems
including computerized traffic management, wireless and fiber optic data
networks, weather sensors, voice data and video systems and computerized
manufacturing and control systems. In December 1996, Able acquired the common
stock of Dial Communications, Inc. ("Dial") of Tallahassee, Florida. At that
time, Dial provided outside and inside plant telecommunication services to the
regional Bell operating company, other local and long distance telephone
companies, private businesses and universities. Able has subsequently
discontinued Dial's operations. In April 1998, Able acquired the common stock of
Patton Management Company ("Patton") of Atlanta, Georgia which provides advanced
telecommunication network services to upgrade existing networks and to provide
connectivity to office buildings, local and wide area networks.
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BUSINESS OF THE COMPANY (Post-MFSNT Acquisition)
GENERAL OVERVIEW
The following discussion of Able's business includes those aspects of Able's
operations acquired in the MFSNT Acquisition. For a better understanding of
those aspects of Able's business attributable to MFSNT, see the description of
the business of MFSNT set forth under the heading "Business of MFSNT".
Able, and its subsidiaries, develops, builds and maintains communications
systems for companies and governmental authorities. The Company has five
organizational groups. Each group is comprised of subsidiaries of the Company
with each having local executive management functioning under a decentralized
operating environment. The Company completed operational restructuring of its
subsidiaries during fiscal year 1999. As a result, the Company now has 14 active
subsidiaries, 11 of which are wholly-owned.
The service provided by each group is as follows:
<TABLE>
<CAPTION>
ORGANIZATIONAL GROUP SERVICE PROVIDED
-------------------- ----------------
<S> <C>
Network Services................................. Design, development, engineering, installation,
construction, operation and maintenance
services for telecommunications systems.
Network Development.............................. Established subsequent to October 31, 1999, to own,
operate and maintain local and regional
telecommunication networks.
Transportation Services ......................... Design, development, integration, installation,
construction, project management, maintenance and
operation of automated toll collection systems.
Construction..................................... Design, development, installation, construction,
maintenance and operation of electronic traffic
management and control systems, and road signage.
Communications Development ...................... Design, installation and maintenance services to
foreign telephone companies in South America.
</TABLE>
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COMPANY STRUCTURE
In July 1998, in a transaction that increased Able's revenues by approximately
300 percent, the Company acquired the network construction and transportation
systems business of MFS Network Technologies, Inc. ("MFSNT") from MCI WorldCom,
Inc. ("WorldCom"). MFSNT was then divided into two entities, 1) the network
construction business became MFS Network Technologies, Inc. and 2) the
transportation systems business became MFS Transportation Systems, Inc. As part
of the MFSNT acquisition, the Company, WorldCom and MFSNT entered into a Master
Services Agreement (the "WorldCom Master Services Agreement") pursuant to which
the Company agreed to provide telecommunication infrastructure services to
WorldCom on a cost-plus 12 percent basis for a minimum of $40.0 million per
year. 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. To
achieve these established minimums, WorldCom has agreed to award the Company at
least 75 percent of all WorldCom'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 for as much as $130.0 million of services
during each year of the five-year contract. The Company has also agreed that
WorldCom 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.
In July 1999, the Company entered into a teaming agreement with 186K.Net, Co.
(the "186K Agreement"), a technology firm and hosting facility, to combine their
respective expertise in infrastructure engineering/design and high-end Internet
technology to deliver high-speed Internet connectivity, telecommunications and
systems integration solutions. Under the 186K Agreement, the Company will focus
on infrastructure build-outs and 186K.Net, Co. will focus on the delivery of
high-end Internet services. Included in the 186K Agreement is a deferred value
added equity swap that would allow either party to benefit by an increase in
market capitalization value over a three year period (refer to Exhibit 2.6 for
more detail).
In November 1999, the Company acquired the common stock of Southern Aluminum and
Steel Corporation ("SASCO") and Specialty Electronic Systems, Inc. ("SES") which
together provide expertise in design, installation and project implementation of
advanced highway communication networks and Intelligent Transportation Systems.
In January 2000, Able established Able ICP, Inc. ("Able ICP") which will own,
operate and maintain local and regional telecommunication networks as part of
Able's Network Development Group. Able ICP is a development company that is
expected to require significant capital expenditures related to network
construction and which is not expected during fiscal 2000 to generate
significant net income or earnings before interest, depreciation, taxes and
amortization. The Company's ability to grow Able ICP and to implement its
business plan will be dependent on the Company's ability to fund its capital
expenditure needs, either internally or through borrowings and the sale of
equity. No assurance can be given that the Company will be able to meet Able
ICP's funding needs on a timely basis, or at all, on terms acceptable to the
Company, or that Able ICP will ever be profitable. In March 2000, the name
"Able ICP, Inc." was changed to "Adesta ICP, Inc."
In compliance with a contractual obligation with WorldCom, effective February
2000, all subsidiaries bearing "MFS" as part of their name were changed. MFS
Network Technologies, Inc. changed its name to Adesta Communications, Inc.
("Adesta Communications"), MFS Transportation Systems, Inc. changed its name to
Adesta Transportation, Inc. ("Adesta Transportation") and MFS TransTech, Inc.
changed its name to TransTech, Inc. In conjunction with these name changes, this
proxy statement includes a proposal to shareholders to change the name of the
Company to "The Adesta Group, Inc."
SERVICES, MARKETS AND CUSTOMERS
Able conducts five distinct types of business activities, four of which are
primarily conducted in the United States and one of which is conducted abroad.
Domestically, Able provides network services, network development,
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transportation services and construction. Abroad, principally in Venezuela, the
Company conducts communication development activities. Each of these activities
is discussed in more detail below. In most of Able's business activities it
faces competition that may be larger and may have substantially greater
financing, distribution and marketing resources than Able.
Network Services Group. The Network Services Group provides telecommunications
network services through two divisions: (i) the Telecommunications Systems
Integration Division provides general contracting services for large-scale
telecommunications projects, and (ii) the Telecommunications Construction
Division specializes in the construction of network projects or project phases.
Able provides turn-key telecommunications infrastructure solutions through the
Telecommunications Systems Integration Division. As a telecommunications systems
integrator, Able provides "one-stop" capabilities that include project
development, design, engineering, construction management, and on-going
maintenance and operations services for telecommunications networks. The
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 aerially 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,
Able provides maintenance and installation of electric utility grids and water
and sewer utilities. The Company provides outside plant telecommunications
services primarily under hourly and per unit basis contracts to local telephone
companies. Able also provides these services to long distance telephone
companies, electric utility companies, local municipalities and cable television
multiple system operators.
Network Development Group. The Network Development Group was established
subsequent to October 31, 1999, to design, engineer, construct, operate and
maintain state-of-the-art, 'future proof' (designed for low cost upgrades to
avoid obsolescence), fiber optic networks providing virtually unlimited
bandwidth, and a comprehensive suite of cutting edge multimedia
telecommunications services for users in Tier 3 cities (those with populations
between 100,000 and 250,000).
Transportation Services Group. The Transportation Services Group 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, Able has and
continues to 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. Able developed automatic vehicle identification technology jointly
with Texas Instruments and used it in many of its electronic toll and traffic
management projects. The Transportation Services Group markets its services to
state and local government transportation departments.
Construction Group. The Company's Construction Group 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, gate systems and traffic detection and data
gathering devices. The Company also designs, develops, installs, maintains and
operates "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. The Company also
installs and maintains computerized manufacturing systems for various
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industrial businesses. Many of the functions of the Construction Group,
particularly those involved in intelligent highway systems, complement those of
the Network Services Group.
Communications Development Group. The Company's Communications Development Group
operates primarily in Venezuela. These activities consist of management of 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 Able has an 80% voting
and ownership interest and a 50% share of profits and losses. In 1996, the
Communications Development Group expanded its communications development
activities to include the marketing to Central and South 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.
INDUSTRY AND GEOGRAPHIC AREA SEGMENT INFORMATION
Sales to unaffiliated customers, income (loss) from operations, and identifiable
assets pertaining to the Groups in which the Company operates are presented
below (in thousands).
<TABLE>
<CAPTION>
For the Fiscal Year Ended October 31,
-------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Sales to unaffiliated customers:
Network Services $260,354 $ 62,243 $ --
Transportation Services 39,394 24,639 --
Construction 113,948 125,270 82,171
Communication Development (International) 4,869 5,329 4,163
-------- -------- -------
$418,565 $217,481 $86,334
-------- -------- -------
Income (loss) from operations:
Network Services $ 14,746 $ 6,272 $ --
Transportation Services (10,618) 2,586 --
Construction (5,730) 1,718 4,824
Communication Development (International) 346 182 17
Unallocated Corporate Overhead (628) 651 --
-------- -------- -------
$ (1,884) $ 11,409 $ 4,841
-------- -------- -------
Identifiable assets:
Network Services $139,460 $159,660 $ --
Transportation Services 50,178 48,830 --
Construction 66,667 71,941 44,751
Communication Development (International) 3,813 4,496 2,509
Corporate 1,915 5,833 3,086
-------- -------- -------
$262,033 $290,760 $50,346
-------- -------- -------
</TABLE>
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, Able believes 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
operations 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 compare 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
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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 Able.
The infrastructure and network services segment of the communications industry
is poised for significant growth, due to the changing regulatory environment and
rapid advancements in technology, which require increases in bandwidth to carry
voice, video and data. These trends are resulting in a significant need for
rapid replacement and upgrade of existing communications infrastructure and
network systems. In addition, new entrants to the telecommunications industry
are increasingly turning to experienced, full-service communications
infrastructure and network integrators for assistance and support.
It has been forecasted that significant growth will occur within the
international market for telecommunications infrastructure. In many emerging and
developing areas such as South America, the Pacific Rim and Africa, the
infrastructure required to support telecommunications on a widespread local
level is incomplete or nonexistent. The telecommunications infrastructure that
currently exists is typically 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 economic areas creates an opportunity to provide
turn-key telecommunications infrastructure project managerial services. Able
expects not only to selectively bid on new opportunities, but also further
develop existing telecommunications infrastructure projects.
Transportation Systems. The market for traffic management and, 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 will provide $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.
SUPPLIERS AND RAW MATERIALS
Able has no material dependence on any one supplier of raw materials.
BACKLOG
The Company's estimated backlog at January 31, 2000, was as follows:
<TABLE>
<CAPTION>
Operations and
Construction Maintenance
Organizational Group Contracts Contracts Total
---------------------------------------------------------------------
<S> <C> <C> <C>
Network Services $408,000 $ 179,000 $ 587,000
Transportation Services 140,000 120,000 260,000
Construction 151,000 33,000 184,000
-------- ---------- ----------
$699,000 $ 332,000 $1,031,000
======== ========== ==========
</TABLE>
The Company expects to complete approximately 40% of the total backlog within
the next fiscal year. Due to the nature of the Company's contractual
commitments, in many instances its customers do not commit to the volume of
services to be purchased under a contract but, rather, commit the Company to
perform these services if requested by the customer and commit to obtain these
services from it if they are not performed internally. Many of the contracts are
multi-year agreements, ranging from less than one year to 20 years. The Company
includes the full amount of services projected to be performed over the life of
the contract in backlog due to its historical relationships with its customers
and experience
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in procurements of this nature. Contract backlog of $500 million is under
performance bonds and the Company may be subject to liquidated damages for
failure to perform in a timely manner. The Company's backlog may fluctuate and
does not necessarily indicate the amount of future sales. A substantial amount
of its order backlog can be canceled at any time without penalty, except, in
some cases, the Company can recover 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 its
customers could have a material adverse effect on its business, operating
results and financial condition. In addition, there can be no assurance as to
customers' requirements during a particular period or that such estimates at any
point in time are accurate.
DEPENDENCE UPON KEY CUSTOMERS
The Company derives a significant portion of its revenues from a few large
customers. Those customers are as follows:
<TABLE>
<CAPTION>
Revenue for the Percentage of Total
Fiscal Year Revenues During The Fiscal
Ended October 31, Years Ended October 31,
Customer Operating Group 1999 1999 1998 1997
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
New Jersey Consortium Transportation and Network Services $78,515 18% 7% --
WorldCom Network Services 61,636 15% 14% --
Williams Communications, Inc. Network Services 49,621 12% -- --
Cooper Tire Company Construction 13,050 3% 6% 15%
Florida Power Corp Construction 13,514 3% 2% 9%
State of Illinois (ISTHA) Network Services 11,680 2% 8% 12%
</TABLE>
MFSNT is party to multiple contracts with the New Jersey Consortium ("New Jersey
Consortium Contracts") which includes the New Jersey Turnpike Authority, New
Jersey Highway Authority, Port Authority of New York and New Jersey, South
Jersey Transportation Authority, State of Delaware Department of Transportation.
The New Jersey Consortium Contracts provide for, among other items, MFSNT to
construct and maintain a fully integrated automated toll collection system and
supporting fiber optic network. The estimated gross value of the New Jersey
Consortium Contracts is in excess of $280.0 million. During the fiscal year
ended October 31, 1999, the Company incurred net losses related to the New
Jersey Consortium Contracts of approximately $4.0 million, including penalties
of approximately $4.9 million associated with the failure to meet certain
milestones provided in the contracts. The Company is not currently incurring
additional penalties related to the New Jersey Consortium Contracts.
At October 31, 1999, the Company had billed and unbilled receivables of $18.3
million and $20.4 million related to the New Jersey Consortium, $10.9 million
and $8.7 million related to WorldCom and $6.2 million and $1.1 million related
to Williams Communications, Inc., respectively.
Able believes that a substantial portion of its total revenues and operating
income will continue to be derived from a concentrated group of customers, in
particular the New Jersey Consortium and WorldCom. The loss of the New Jersey
Consortium, WorldCom or any other such customers could have a material adverse
effect on Able's 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 a contract may result in the loss of the contract and subject
the Company to litigation and various claims, including liquidated damages.
Construction Contracts. For construction contracts, the Company obtains fixed
price or cost plus 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 a
set of specifications for the project to qualified contractors. The Company then
estimates the total project cost based on input from engineering, production and
materials procurement personnel. Able then submits a bid 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
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prime contractor. Able must submit performance bonds on substantially all
contracts obtained. 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.
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. Contract duration is dependent upon the size and scope of the
project but typically is from six months to three years. Contracts generally set
forth date-specific milestones and provide for liquidated damages for failure to
meet milestones. During fiscal 1999, Able was subject to liquidated damages
relating to the "Violations Processing Center" portion of the New Jersey
Consortium Contract amounting to approximately $4.9 million.
In most cases, Able supplies the materials required for a particular project,
including materials and component parts required for the production of highway
signage and guardrails 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 customer. 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.
SERVICE CONTRACTS. The Company generally provides telecommunication, cable
television, electric utility and manufacturing system services (i.e.,
non-governmental business) under comprehensive operation and maintenance and
master service contracts that either give Able 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. Able is typically compensated on
an hourly or per unit basis or, less frequently, at a fixed price for services
performed. Contract duration is either 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, generally
consisting of cable, equipment and hardware, and the Company supplies the
expertise, personnel, tools and equipment necessary to perform its services.
SALES AND MARKETING
Able markets its systems integration services through a dedicated sales group.
Its salespeople market directly to existing and potential customers, including
municipalities and other government authorities, telecommunications companies
and utility companies. Able's salespeople work with those responsible for
project development and funding to facilitate network design and funding
procurement.
Typically, the contracting process for systems integration projects entails the
development of a list of qualified bidders and the establishment of a bid
schedule, the distribution of, and response to, a request for proposal ("RFP")
and 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.
Able markets its telecommunications construction services to local and long
distance telephone companies, utility companies, local municipalities and
certain corporations with particular communications needs. In addition, the
Company markets its construction services to certain systems integrators. A
dedicated sales force, as well as members of each subsidiary's senior
management, actively market Able's services in their defined geographic regions.
Additionally, Able markets transportation construction services to state and
local departments of transportation, public/private toll authorities and certain
international authorities.
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COMPETITION
Network Services Group. 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. Able's 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, the
Company assists the customer in preparing a viable and customized project
business plan that addresses the customer's specific telecommunications needs,
including budgetary and other concerns. Able also has focused on "project
development" opportunities presenting ownership or participation opportunities
that can generate recurring revenues. The Company believes that no other company
presently provides these kind of complete, turnkey project development service
for these customers. Able can make no assurances, however, 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 Able's services, or that it will be able to
maintain its 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.
Network Development Group. The competitive environments within the large
metropolitan areas (called Tier 1 cities), such as New York, Los Angeles,
Chicago and Atlanta, already have an Incumbent Local Exchange Carrier ("ILEC")
and multiple Competitive Local Exchange Carriers ("CLECs") competing for their
large, high volume, business base. In addition, due to the high density of
apartment complexes, many have more than one cable company.
In contrast, the Tier 3 cities that the Network Development Group is targeting
typically have the ILEC, one cable company, and in some cases facilities based
CLECs targeting a limited area of businesses. In most cases, both the cable
company and the ILEC have legacy infrastructures with very limited capability to
provide modern services.
Transportation Services Group. The Transportation Services Group 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").
Construction Group. The market in which the Construction Group competes is
characterized by large competitors who meet the experience, bonding and
licensure requirements for larger projects and by small private companies
competing for projects of $3 million or less in limited geographic areas. The
Construction Group's largest competitors include Lockheed Martin, Traffic
Control Devices of Florida and MasTec, Inc. The Construction Group's smaller
competitors are High Power of Florida, MICA Corporation of Texas and Fishback &
Moore. A number of these competitors may be larger, may have substantially
greater financial, distribution and marketing resources, and may have more
established reputations than Able.
Communications Development Group. The Communications Development Group competes
for business in the international market, primarily in South 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 a myriad of smaller companies competing for a
growing but limited market, which forces margins down.
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EMPLOYEES
As of January 31, 2000, the Company and its subsidiaries had approximately 2,000
employees. The number of employees considered as laborers can vary significantly
according to contracts in progress. Such employees are generally available to
the Company through an extensive network of contacts within the communications
industry.
PROPERTIES
The Company's corporate offices are in Roswell, Georgia, where it occupies 6,600
square feet under a lease that expires July 31, 2004. The Company also has 5,110
square feet of office space under a lease that expires January 31, 2004 in West
Palm Beach, Florida which is presently available for sublet. The Company leases
35,815 square feet of office space in Omaha, Nebraska, under a lease that
expires September 30, 2004, and which houses Adesta Communications, and 40,111
square feet in Mt. Laurel, New Jersey, under a lease that expires February 28,
2003 and which houses Adesta Transportation. The Company leases 6,400 square
feet of space in Fairbanks, Alaska, for a network operations center. The Company
leases 6,800 square feet of office space in Fort Lauderdale, Florida, under a
lease which expires September 30, 2003, which facility is presently available
for sublet. The Company leases several field offices and numerous smaller
offices. The Company also leases on a short-term or cancelable basis temporary
equipment yards or storage locations in various areas as necessary to enable it
to efficiently perform its service contracts.
The Company owns (subject to a mortgage) and operates a 10,000 square foot
facility for operations based in Chesapeake, Virginia. The Company's 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. Able also owns a 15,000 square foot
facility located on approximately three acres of land for operations in Tampa,
Florida.
SEASONALITY
The Company operates throughout the United States and its results of operations
are not significantly impacted by seasonal changes.
LEGAL PROCEEDINGS
In May 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 subsequently became a member of the Company's Board
of Directors. Mr. Davidson resigned in January 2000. 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. In May 2000, Able was
determined to owe SIRIT $1.2 million in compensatory damages and $31.0 million
in punitive damages. Able believes that the jury award is both without merit and
excessive and is intending to pursue all its legal rights, including an appeal
of the jury award.
In 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 other similarly situated investors and seeks
unspecified damages and attorneys' fees.
In 1997, Bayport Pipeline, Inc. ("Bayport") filed a lawsuit against MFSNT
seeking a declaratory judgment concerning the rights and obligations of Bayport
and MFSNT under a Subcontract Agreement that was entered into on May 1, 1997
related to the NYSTA contract. The matter was referred to arbitration in January
1999. The total amount sought was not less than $5.5 million and subsequent to
October 31, 1999 was increased to $19 million. On February 24, 2000, the
arbitrator ruled that MFSNT owed Bayport $4.1 million, which is consistent with
amounts previously accrued by the Company. The arbitrator's award is binding;
however, the Company is disputing the calculation of the award, which it
believes in error. Additionally, the Company may appeal the award in future
legal proceedings.
In 1997, U.S. Public Technologies, Inc. ("USPT") filed a lawsuit in the United
States District Court for the Southern District of California, (San Diego),
against MFSNT for breach of contract, breach of an alleged implied covenant of
good faith and fair dealing, tortious interference, violation of the California
Unfair Competition Act, promissory
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estoppel and unjust enrichment in connection with a Teaming Agreement between
MFSNT and USPT concerning the Consortium Regional Electronic Toll Collection
Implementation Program in the state of New Jersey. In this lawsuit, USPT seeks
actual damages in excess of $8.5 million and unspecified exemplary damages.
Discovery had not yet commenced in this lawsuit.
In 1999, Newbery Alaska, Inc. ("Newbery") filed a demand for arbitration seeking
approximately $3.8 million. This dispute arises out of Newbery's subcontract
with MFSNT related to the fiber optic network constructed by MFSNT for Kanas.
Newbery's claims are for the balance of the subcontract, including retainage and
disputed claims for extras based on alleged deficiencies in the plans and
specifications and various other alleged constructive change orders. The parties
are currently conducting discovery. Arbitration hearings on this matter should
take place in the spring or summer of 2000.
In 1998, Alphatech, Inc. ("Alphatech") filed a lawsuit in the U.S. District
Court in Massachusetts. This suit alleges ten counts, including breach of
Teaming Agreements on the E-470 project and the New Jersey Regional Consortium
project, breach of implied duty of good faith and fair dealing on both projects,
misappropriation of trade secrets, deceit, violation of Massachusetts General
Laws Chapter 93A, promissory estoppel, quantum meruit, and unjust enrichment.
Alphatech's claim is for $15 million. A hearing for a summary judgment is
scheduled in May 2000.
In 1998, T.A.M.E. Construction, Inc. ("TAME") sued for breach of contract,
promissory estoppel, discrimination and defamation related to certain contracts
performed by GEC. TAME alleges that it was wrongfully terminated as a
subcontractor. TAME claims contract damages in the amount of $250,000, punitive
damages for discrimination of $1,000,000 and defamation damages of an additional
$1,000,000. GEC has moved for summary judgment. This matter is not set for
trial.
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
The Company 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.
However, Able can make no assurances that products will not be developed in the
future that will produce the same or a better result or be produced in a more
economical manner. See "Business of MFSNT - Research and Development;
Proprietary Technology and Rights" for a discussion of the Company's proprietary
technology and rights (acquired in that acquisition).
NEUROLAMA. The Communications Development Group has incurred in excess of $1.0
million of costs developing its proprietary software, NeuroLAMA. NeuroLAMA is a
telephone call record and data collection system. NeuroLAMA helps telephone
companies increase revenues by decreasing fraud, eliminating misoperation, and
increasing efficiency through their analog telecommunications systems.
NeuroLAMA's quality, reliability and uniqueness of design are proving far
superior to any competing system. The Communications Development Group estimates
that roughly 250 million analog lines worldwide could benefit from the
implementation of NeuroLAMA. The software is being marketed throughout South
America. Currently, the Communications Development Group has not capitalized any
costs related to this software.
Able relies on a combination of contractual rights, patents, trade secrets,
know-how, trademarks, non-disclosure agreements, licenses and other technical
measures to establish and protect the Company's proprietary rights to protect
its proprietary applications and technologies. To the extent necessary, Able
intends to vigorously defend any and all rights Able has, now or in the future,
in its proprietary applications and technologies. However, the Company can make
no assurances that it will be successful in pursuing any of its rights or, if
successful, that it will be timely.
B-11
<PAGE> 111
MARKET PRICE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is traded on the Nasdaq National Market System (NMS) under the
trading symbol "ABTE". The following table sets forth the high and low sale
prices for the Common Stock for each fiscal quarter indicated below.
<TABLE>
<CAPTION>
Sale Price Range
----------------
High Low
---- ---
<S> <C> <C> <C>
Year Ended October 31, 1997
1st Quarter .............................. $ 9.625 $ 7.250
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 ............................. 11.5625 6.625
3rd Quarter ............................. 7.125 5.8125
4th Quarter ............................. 10.0625 7.500
Year Ended October 31, 2000
1st Quarter ............................. $ 11.875 $ 4.50
2nd Quarter ............................. 6.72 4.75
</TABLE>
On February 4, 2000, there were approximately 412 shareholders of record of the
Company's Common Stock.
No cash dividends have been declared by the Company on its Common Stock since
its inception and the Company has no present intention to declare or pay cash
dividends on the Common Stock in the forseeable future. The Company intends to
retain any earnings, which it may realize in the foreseeable future to finance
its operations. The terms of the Company's $35.0 million secured revolving
credit facility, the Series C Preferred Stock and the Wor1dCom Note restrict or
prohibit the Company's ability to declare or pay dividends on shares of Common
Stock. Holders of Series C Preferred Stock are generally entitled to receive
cumulative quarterly dividends at a rate of 5.9 percent per year. On February 4,
2000, the Company redeemed and retired all remaining shares of Series B
Preferred Stock by payment of $10,851,062 in cash and the issuance of 801,785 in
restricted common shares that were issued at or above market price and further
Able issued 267,000 Warrants to acquire its Common Stock at varying prices.
Also, on February 4, 2000, Able privately placed 5,000 shares of Series C
Preferred Stock with a small group of investors at $3,000 per share. The sale of
the Series C shares includes the issuance of Warrants to purchase up to 200,000
shares at prices substantially above market. See "Management's Discussion of
Financial Condition and Results of Operations - Liquidity and Capital Resources"
and "Consolidated Audited Financial Statements of the Company" incorporated by
reference to the Company's Annual Report of Form 10-K for the fiscal year ended
October 31, 1999, as filed February 22, 2000, as amended March 1, 1999 and as
further amended May 26, 2000.
Management expects that, except for the dividends required to be paid or payable
to the holders of the Series B Preferred Stock, Able will retain its earnings,
if any, to finance operations. Thus, Able does not expect to pay dividends to
holders of Common Stock for the foreseeable future.
For Selected Financial Data and Management's Discussion and Analysis of
Financial Condition and Results of Operations, see the Company's Annual Report
on Form 10-K for the year ended October 31, 1998, filed February 24, 1999, as
amended March 1, 1999, and as further amended on May 23, 2000,and the Company's
Annual Report on Form
B-12
<PAGE> 112
10-K for the year ended October 31, 1999, as filed February 22, 2000, as amended
May 23, 2000, a copy of which has been provided along with these Proxy
Materials.
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 as of October
31, 1998 (amounts in thousands):
B-13
<PAGE> 113
Expected Maturity
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 Thereafter
---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Fixed rate debt $15,047 $18,225 $ 1,021 $ 935 $ 872 $21,081
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 cash flow exposure due to interest rate changes for its fixed
debt obligations. The Company's $35.0 million credit facility with NationsBank
has been declared in default obligating the Company to pay a default penalty of
2% per annum. 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 October 31, 1998 and October 31, 1999.
Additionally, foreign currency transaction gains and losses were not material to
the Company's results of operation for the fiscal years ended October 31, 1998
and October 31, 1999. Accordingly, the Company was not subject to material
foreign currency exchange rate risks 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.
B-14
<PAGE> 114
BUSINESS OF MFSNT
Much of the information provided herein related to MFSNT is as of, or before,
July 2, 1998 (the acquisition date).
General Overview
MFS Network Technologies (MFSNT) provides systems integration for advanced
telecommunications networks and is engaged in the development, design, project
management, construction, operation and maintenance of communications systems
throughout the United States. MFSNT conducts its business through two divisions:
(i) MFS Network Systems, a communications network systems integrator, and (ii)
MFS Transportation Systems, which provides intelligent transportation and
traffic management services. MFSNT manages the integration of a variety of
equipment and software systems from multiple vendors, selecting those components
most suitable for each individual bid or project.
MFS Network Systems believes that it has remained at the forefront of the
telecommunications network industry through the development of advanced
telecommunications systems in partnership with public authorities and private
corporations. MFSNT believes that it has the ability to engage large
telecommunications projects, evidenced by work completed for WorldCom, resulting
in $500 million in revenues and the deployment of 500,000 fiber miles in 43
cities, as well as the successful completion of a full-scale, state-wide
fiberoptic telecommunications network for the Iowa state government, in addition
to numerous other similar projects.
Its clients include federal, state and local government agencies,
telecommunications service providers, regional and state transportation and
transit agencies, public utilities and private industry in the United States and
abroad. MFSNT's wholly owned subsidiary, MFS Transportation Systems, located in
Mt. Laurel, NJ provides systems integration for intelligent transportation
systems applications, primarily electronic toll and traffic management.
Company Structure
MFSNT was formed in 1988 as a subsidiary of Peter Kiewit Sons', Inc. In December
1996, MFSNT was purchased by WorldCom. In July 1998, WorldCom sold MFSNT to the
Company.
Services, Markets and Customers
MFSNT conducts two distinct types of business activities which are primarily
conducted in the United States. These business activities include its
(i) Network Systems Group and (ii) Transportation Systems Group.
Network Systems Group. MFSNT's Network Systems Group provides telecommunications
network services for large-scale telecommunications' projects. This group
provides turn-key telecommunications infrastructure solutions by providing
"one-stop" capabilities that include project development, design, engineering,
construction management, and on-going maintenance and operations services for
telecommunications networks. MFSNT's projects include the construction of fiber
optic networks that provide advanced digital voice, data and video
communications and wireless infrastructure deployment.
Transportation Systems Group. The Transportation Systems Group provides
full-service general contracting services for large-scale projects which
includes providing "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,
MFSNT develops 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. MFSNT developed
Automatic Vehicle Identification technology jointly with Texas Instruments and
used it in many of its electronic toll and traffic management projects. The
Transportation Systems Group markets its services to state and local government
transportation departments.
Industry Overview (See discussion above under "Business of the Company
(Post-MFSNT Acquisition) - Industry
B-15
<PAGE> 115
Overview).
Suppliers and Raw Materials
MFSNT has no material dependence on any one supplier of raw materials.
Backlog
MFSNT includes all services projected to be performed over the life of each
executed contract in backlog at the date of determination due to MFSNT's
historical relationship with its customers and experience in the procurements of
this nature. As of June 30, 1998 backlog was approximately $647.7 million,
approximately $70.7 million (10.9 percent) of which was attributable to WorldCom
Network. MFSNT expects to complete approximately 33 percent of this backlog
within the next fiscal year As of June 30, 1997, MFSNT's backlog was
approximately $367.7 million, approximately $60.2 million (16.4 percent) of
which was attributable to WorldCom Network. Due to the nature of MFSNT's
contractual commitments, in many instances its customers do not commit to the
volume of services to be purchased under the contract, but rather commit MFSNT
to perform these services if requested by the customer and obtain these services
from MFSNT if they are not performed internally. Many of the contracts are
multi-year agreements, and MFSNT includes the full amount of services projected
to be performed over the life of the contract. At June 30, 1998 contract backlog
of approximately $495.5 million is under performance bonds and MFSNT may be
subject to liquidated damages for failure to perform in a timely manner. MFSNT's
backlog may fluctuate and does not necessarily indicate the amount of future
sales. A substantial amount of MFSNT's order backlog can be canceled at any time
without penalty, except, in some cases, the recovery of MFSNT's 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 MFSNT's customers could have a material adverse effect on its
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.
Contracts
The Company has and will continue to execute various contracts which may require
MFSNT to, among other items, maintain specific financial parameters, meet
specific milestones and post adequate collateral generally in the form of
performance bonds. Failure by MFSNT to meet its obligations under these
contracts may result in the loss of the contract and subject MFSNT to
litigation and various claims, including liquidated damages.
Telecommunication and Related Services. MFSNT generally provides
telecommunication, cable television, electric utility and manufacturing system
services (i.e., non-governmental business) under comprehensive master service
contracts that either give MFSNT the right to perform certain services at
negotiated prices in a specified geographic area during the contract period or
pre-qualify MFSNT 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. MFSNT 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
dependent on the size and scope of the project. In most cases, MFSNT's customers
supply most of the materials required for a particular project, generally
consisting of cable, equipment and hardware and MFSNT supplies the expertise,
personnel, tools and equipment necessary to perform its services.
Traffic Management and General Utility Services. For traffic management and
general utility services (i.e., government funded business), MFSNT generally
obtains fixed price contracts for projects, either as a prime contractor or as a
subcontractor, on a competitive bid basis. Typically, for prime contracts, DOT
or other governmental body provides to qualified contractors a set of
specifications for the project. MFSNT then estimates the total project cost
based on input from engineering, production and materials procurement personnel.
A bid is then submitted by MFSNT along with a bid bond. For most government
funded projects, the scope of work extends across many industry segments. In
such cases, MFSNT subcontracts its expertise to a prime contractor. MFSNT must
submit performance bonds on substantially all contracts obtained. MFSNT believes
its relations with its bonding company are good and that its bonding capacity is
adequate. However, the financial viability of MFSNT is dependent upon
maintaining adequate bonding capacity and any loss of such would have a material
adverse effect on MFSNT.
B-16
<PAGE> 116
Contract duration is dependent upon the size and scope of the project. Contracts
generally set forth date-specific milestones and provide for severe liquidated
damages for failure to meet the milestones by the specified dates.
The failure to complete the contract backlog on time could have a material
adverse impact upon the financial condition of MFSNT. MFSNT 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
MFSNT.
Sales and Marketing
MFSNT markets its systems integration services through its in-house sales group,
marketing directly to existing and potential customers, including municipalities
and other government authorities, telecommunications companies and utility
companies. Its 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)
developing a list of qualified bidders and the establishment of a bid schedule;
(ii) distributing and responding to RFPs; and (iii) awarding contracts 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.
Competition
Network Systems Group. The Network Systems Group competes for business in two
segments: (i) the traditional RFP/bid based segment for the installation and
integration of infrastructure projects and (ii) a less traditional "project
development" segment. MFSNT's largest competitors in the traditional RFP/bid
based segment are telecommunications service providers. The Network Systems
Group has identified and pursued the "project developments" 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 telecommunications service provider's network. Once a customer has
decided to build its own network, MFSNT assists the customer in preparing a
viable and customized project business plan that addresses the customer's
specific telecommunications needs, including budgetary and other concerns. MFSNT
also has focused on "project development" opportunities presenting ownership or
participation opportunities that can generate recurring revenues. Management
believes that no other company presently provides these kind of complete
turn-key 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 MFSNT's
services, or that MFSNT will be able to maintain its competitive position.
Transportation Systems Group. The Transportation Systems Group believes its
major competitors in the North American market are Lockheed Information
Management Co., a division of Lockheed Martin and Synatonic Technology, Inc.,
doing business as Transcore ("Transcore"), a division of SAIC Corporation.
Employees
As of June 30, 1998, MFSNT had approximately 1200 employees. None of MFSNT's
employees is represented by a labor union and management considers relations
with key and other employees to be good.
Properties
The Network Systems Group corporate offices are located in Omaha, Nebraska,
where it occupies 33,571 square feet under a lease that expires September 30,
1999. The Transportation Systems Group corporate offices are located in
Mt. Laurel, New Jersey, where it occupies 40,111 square feet under a lease
that expires February 28, 2003. There are also leases of
B-17
<PAGE> 117
6,400 square feet of space in Fairbanks, Alaska for a network operations center
and MFSNT leases several field offices and numerous smaller offices. There are
also leases on a short-term or cancelable basis for temporary equipment yards or
storage locations in various areas as necessary to enable efficient performance
of service contracts.
Research and Development; Proprietary Technology and Rights
MFSNT has various proprietary software including applications at the lane,
plaza, host, and customer service center levels within a sophisticated
electronic toll collection system architecture. MFSNT has 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 specific needs and operational requirements. The
lane controller application is the head 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. MFSNT 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. Able's
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 videocassette recorders are used to visually record lane
activity on a 24-hour basis.
Market Price of Common Stock and Dividend Policy
Prior to the MFSNT Acquisition, MFSNT was a division of a public company,
WorldCom, Inc. Therefore, there was no market price for the common stock of
MFSNT. Subsequent to the MFSNT Acquisition, MFSNT was a wholly-owned subsidiary
of the Company.
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<PAGE> 118
Selected Financial Data
The following is a summary of MFSNT's financial statements and should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations". The financial statements of MFSNT include the
accounts of i) Network Technologies Division of MFS Network Technologies, Inc.;
ii) MFS Transportation Systems, Inc.; iii) MFS TransTech, Inc.; and iv) MFS
Network Technologies of the District of Columbia, Inc. (collectively referred to
as the "Division"). The financial data for the six months ended July 2, 1998 and
June 30, 1997 include, in the opinion of management, all adjustments necessary
to present fairly the financial position and results of the Division for such
periods. Due to seasonality and other market factors, the historical results for
the six months ended July 2, 1998 are not necessarily indicative of results for
a full year (amounts in thousands):
<TABLE>
<CAPTION>
For the Six Months Ended For the Years Ended December 31,
---------------------------- --------------------------------------------------------------------
Revenues July 2, 1998 July 30, 1997 1997 1996 1995 1994 1993
------------ ------------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Affiliated entity $ 36,703 $ 34,078 $ 100,902 $ 56,238 $ 112,693 $ 86,791 $ 45,652
Third party 63,826 108,011 264,015 165,867 61,146 32,500 70,290
--------- --------- --------- --------- --------- --------- --------
100,529 142,089 364,917 222,105 173,839 119,291 115,942
Cost of revenues 136,075 136,294 363,453 206,225 155,826 103,171 96,778
--------- --------- --------- --------- --------- --------- --------
Gross Margin (loss) (35,546) 5,795 1,465 15,880 18,013 16,120 19,164
Operating Expenses 11,814 14,830 25,066 23,754 22,806 18,607 17,245
--------- --------- --------- --------- --------- --------- --------
Operating income (loss) (47,359) (9,035) (23,601) (7,874) (4,793) (2,487) 1,919
Other income (expense) 16 (11) (23) (102) 231 138 148
--------- --------- --------- --------- --------- --------- --------
Net income (loss) $ (47,344) $ (9,046) $ (23,624) $ (7,976) $ (4,562) $ (2,349) $ 2,067
========= ========= ========= ========= ========= ========= ========
BALANCE SHEET
DATA (at end of period):
Cash and cash equivalents $ 6 $ 179 $ -- $ 300 $ -- $ 22 $ 2,634
Total Assets 180,905 155,128 230,200 135,078 97,604 68,515 52,843
Advances from parent 119,389 95,143 142,968 76,648 58,310 26,415 8,816
Contributions and
accumulated deficit (72,760) (9,043) (25,417) (1,792) 6,116 10,746 13,275
</TABLE>
B-19
<PAGE> 119
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following table sets forth, for the periods indicated, selected elements of
the Division's statements of operations as a percentage of its revenues:
<TABLE>
<CAPTION>
For the Six Months Ended For the Years Ended December 31,
----------------------------- ---------------------------------------
July 2, 1998 July 30, 1997 1997 1996 1995
------------ ------------- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenue:
Affiliated entity 36.5% 24.0% 27.7% 25.3% 64.8%
Third party 63.5% 76.0% 72.3% 74.7% 35.2%
----- ----- ----- ----- -----
Total revenues 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues 135.4% 95.9% 99.6% 92.9% 89.6%
Operating expenses 11.7% 10.4% 6.9% 10.7% 13.1%
Other (income) expense -- -- -- -- --
----- ----- ----- ----- -----
Net Loss (47.1)% (6.3)% (6.5)% (3.6)% (2.7)%
</TABLE>
Revenues - Affiliated Entities
Revenues from affiliated entities were $36.7 million and $34.1 million for the
six months ended July 2, 1998 and June 30, 1997, respectively, an increase of
$2.6 million or 7.6 percent. Revenues from affiliated entities were $100.9
million and $56.2 million for the years ended December 31, 1997 and 1996,
respectively, an increase of $44.7 million or 80.0 percent. Revenues from
affiliated entities were $56.2 million and $112.7 million for the years ended
December 31, 1996 and 1995, respectively, a decrease of $56.5 million or 50.l
percent.
Revenues from affiliated companies relate primarily to the network
infrastructure project needs of the Division's parent. Substantially all of
MFSNT's revenue from affiliated entities is from cost reimbursable contracts
that include an 8.7 percent general and administrative fee.
Revenues - Third Party
Revenues from third parties were $63.8 million and $108.0 million for the six
months ended July 2, 1998 and June 30, 1997, respectively, a decrease of $44.2
million or 40.9 percent. The decrease related primarily to decreases in revenue
in the Division's network systems group of $56.9 million partially offset by
revenue increases of $12.7 in the Division's transportation systems group. The
decrease in revenues from the Division's network systems group resulted
primarily from the Company's infrastructure projects with the New York State
Thruway Authority ("NYSTA") and Nortel which generated revenues of $26.0 million
and $78.2 million during the six months ended July 2, 1998 and June 30, 1997,
respectively. Substantially all of the increase in the revenues from the
Division's transportation systems group resulted from the New Jersey Consortium
project which was obtained in early 1998.
Revenues from third parties were $264.0 million and $165.9 million for the years
ended December 31, 1997 and 1996 respectively, an increase of $98.1 million or
59.1 percent. This increase is primarily due to the NYSTA project that began in
late 1996.
Revenues from third parties were $165.9 million and $61.1 million for the years
ended December 31, 1996 and 1995, respectively, an increase of $104.8 million or
171.5 percent. The increase consisted of $95.1 million and $9.7 million
increases from the Divisions network systems and transportation systems groups,
respectively. The increase in the network systems group was due primarily to
infrastructure projects with Nortel and Kanas Telcom that began in 1996 and
generated combined revenues of $89.6 million. The increase in the transportation
systems group was due primarily to toll collection and traffic management
projects with the Atlantic City Expressway and the Arizona Department of
B-20
<PAGE> 120
Transportation which combined to increase revenue $9.5 million between 1996 and
1995.
Cost of Revenues
Costs of revenues were $136.1 million and $136.3 million for the six months
ended July 2, 1998 and June 30, 1977, respectively, a decrease of $0.2 million
or less than 1.0 percent.
Costs of revenues were $363.5 million and $206.2 million for the years ended
December 31, 1997 and 1996, respectively, an increase of $157.3 million or 76.3
percent.
Costs of revenues were $206.2 million and $155.8 million of the years ended
December 31, 1996 and 1995, respectively, an increase of $50.4 million or 32.3
percent.
Changes in costs of revenues for all periods discussed generally correlate to
changes in revenues. Cost of revenues include all direct material and labor
costs, as well as those indirect costs relating to the contract such as indirect
labor, supplies and equipment costs. Changes in job performance, condition and
the estimated profitability may result in changes in the estimates for project
costs and profits. Revised estimates are recognized in the period in which the
changes are determined. When the current estimates of total contract revenue and
contract cost indicates a loss, a provision for the entire loss on the contract
is made. At July 2, 1998 and December 31, 1997, reserves for losses on
uncompleted contracts totaled $39.9 million and $12.6 million, respectively.
Operating Expenses
Operating expenses were $11.8 million and $14.8 million for the six months ended
July 2, 1998 and June 30, 1997, respectively, a decrease of $3.0 million or 20.3
percent.
Operating expenses were $25.1 million and $23.8 million for the years ended
December 31, 1997 and 1996, respectively, an increase of $1.3 million or 5.5
percent.
Operating expenses were $23.8 million and $22.8 million of the years ended
December 31, 1996 and 1995, respectively, an increase of $1.0 million or 4.4
percent.
Changes in operating expenses for all periods discussed generally correlate to
changes in revenue.
Net Loss
Net loss was $47.3 million and $9.0 million for the six months ended July 2,
1998 and June 30, 1997, an increase of $38.3 million or 425.5 percent.
Net loss was $23.6 million and $8.0 million for the years ended December 31,
1997 and 1996, respectively, an increase of $15.6 million or 195.0 percent.
B-21
<PAGE> 121
Net loss was $8.0 million and $4.6 million for the years ended December 31, 1996
and 1995, respectively, an increase of $3.4 million or 73.9 percent.
Liquidity and Capital Resources
Cash and Cash Equivalents - Cash and cash equivalents were $0.0, $0.0 and $0.3
million at July 2, 1998, December 31, 1997 and December 31, 1996, respectively.
The treasury and cash management functions of the Company are performed by the
Company. All net cash inflows are applied against advances. It was the intent of
WorldCom to support the Division until such time that the Division could
generate sufficient cash flows to fund its operations.
Cash from Operations - Cash from operations were $24.0 million and $(16.2)
million during the six months ended July 2, 1998 and June 30, 1997,
respectively, an increase of $40.2 million or 248.1 percent. The change resulted
primarily from the liquidation during the six months ended July 2, 1998 of
current assets related to the NYSTA contract.
Cash from operations were $(62.4) million and $(19.7) million for the years
ended December 31, 1997 and 1996, respectively, a decrease of $42.7 million or
216.8 percent. The change related primarily from the accumulation during the
year ended December 31, 1997 of costs related to the NYSTA contract.
Cash from operations were $(19.7) million and $(29.8) million for the years
ended December 31, 1996 and 1995, respectively.
Cash from Investing Activities - Cash from investing activities were $(0.4)
million and $(2.4) million for the six months ended July 2, 1998 and June 30,
1997, respectively, an increase of $2.0 million or 83.3 percent.
Cash from investing activities were $(4.2) million and $(2.1) million for the
years ended December 31, 1997 and 1996, respectively, a decrease of $2.1 million
or 100.0 percent.
Cash from investing activities were $(2.1) million and $(2.2) million for the
years ended December 31, 1996 and l995, respectively, an increase of $0.1
million or 4.5 percent. Investing activities generally relate to purchases of
network and equipment to support the infrastructure necessary to support the
network services and transportation services groups.
Cash from Financing Activities - Cash from financing activities were $(23.6)
million and $18.5 million for the six months ended July 27 1998 and June 30,
1997, respectively, a decrease of $42.1 million or 227.6 percent.
Cash from financing activities were $66.3 million and $22.1 million for the
years ended December 31, 1997 and 1996, respectively, an increase of $44.2
million or 200.0 percent.
Cash from financing activities were $22.1 million and $31.9 million for the
years ended December 31, 1996 and 1995, respectively, a decrease of $9.8 million
or 30.7 percent.
Financing activities for all periods discussed relate to advances from parent.
As discussed above, all net cash inflows are applied against advances from
parent. Likewise, it was the intent of the Company's parent to support the
Division until such time that the Division could generate sufficient cash flows
to fund its operations.
B-22
<PAGE> 122
APPENDIX C
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To MFS Network Technologies, Inc.:
We have audited the accompanying balance sheets of the Network Technologies
Division of MFS Network Technologies, Inc. as of December 31, 1997 (restated
- see Note 10) and 1996, and the related statements of operations and cash
flows for the years ended December 31, 1997 (restated - see Note 10), 1996
and 1995. These financial statements are the responsibility of the Division's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Network Technologies
Division of MFS Network Technologies, Inc. as of December 31, 1997 and 1996, and
the results of its operations and its cash flows for the years ended December
31, 1997, 1996 and 1995, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Omaha, Nebraska,
June 16, 1998 (except with
respect to the matter discussed
in Note 10, as to which the
date is May 24, 2000)
<PAGE> 123
NETWORK TECHNOLOGIES DIVISION OF
MFS NETWORK TECHNOLOGIES, INC.
BALANCE SHEETS--JULY 2, 1998, DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
RESTATED
--------------------------------
JULY 2, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------ ------------ ------------
(UNAUDITED) (AUDITED) (AUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,902 $ -- $ 300,000
Accounts receivable-
Affiliated entities 19,829,355 40,649,818 10,698,656
Third party 38,948,038 20,194,721 23,159,965
Costs and earnings in excess of billings on
uncompleted contracts-
Affiliated entities 11,893,461 19,068,875 9,535,530
Third party 75,456,486 119,018,440 85,008,166
Other current assets 523,736 2,898,233 395,394
------------ ------------ ------------
Total current assets 146,656,978 201,830,087 129,097,711
PROPERTY AND EQUIPMENT, net 5,727,302 6,133,214 4,654,412
NETWORK ASSETS HELD FOR SALE 28,044,000 21,110,000 --
RESTRICTED ASSETS 347,481 746,245 984,869
OTHER NONCURRENT ASSETS, net 128,850 380,257 341,244
------------ ------------ ------------
Total assets $180,904,611 $230,199,803 $135,078,236
============ ============ ============
LIABILITIES, CONTRIBUTIONS AND ACCUMULATED DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 13,732,569 $ 25,259,641 $ 15,304,269
Accrued costs and billings in excess of revenue
on uncompleted contracts-
Affiliated entities 8,041,172 12,360,457 4,426,092
Third party 48,537,638 42,545,113 39,825,275
Reserves for losses on uncompleted contracts 39,900,000 12,610,000 --
Accrued compensation 1,464,551 836,131 598,405
Other current liabilities 600,118 647,146 68,530
------------ ------------ ------------
Total current liabilities 112,276,048 94,258,488 60,222,571
PROPERTY TAXES PAYABLE 22,000,000 18,390,000 --
ADVANCES FROM MFS NETWORK TECHNOLOGIES, INC. 119,388,930 142,967,895 76,648,131
COMMITMENTS AND CONTINGENCIES (Note 7)
CONTRIBUTIONS AND ACCUMULATED DEFICIT:
Contributions from MFS Network
Technologies, Inc. 11,755,694 11,755,694 11,755,694
Accumulated deficit (84,516,061) (37,172,274) (13,548,160)
------------ ------------ ------------
Total contributions and accumulated
deficit (72,760,367) (25,416,580) (1,792,466)
------------ ------------ ------------
Total liabilities, contributions and
accumulated deficit $180,904,611 $230,199,803 $135,078,236
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE> 124
NETWORK TECHNOLOGIES DIVISION OF
MFS NETWORK TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED JULY 2, 1998, JUNE 30, 1997,
DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
SIX-MONTHS
ENDED YEARS ENDED
----------------------------- DECEMBER 31,
RESTATED --------------------------------------------
JULY 2, JUNE 30, RESTATED
1998 1997 1997 1996 1995
------------ ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (AUDITED) (AUDITED) (AUDITED)
<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 63,826,308 108,011,172 264,015,450 165,867,327 61,145,581
------------ ------------ ------------ ------------ ------------
Total revenue 100,529,313 142,088,808 364,917,269 222,105,229 173,838,255
COST OF REVENUES 136,075,030 136,294,198 363,452,515 206,225,389 155,826,296
------------ ------------ ------------ ------------ ------------
(35,545,717) 5,794,610 1,464,754 15,879,840 18,011,959
OPERATING EXPENSES 11,813,772 14,830,436 25,066,129 23,754,195 22,806,053
------------ ------------ ------------ ------------ ------------
OPERATING LOSS (47,359,489) (9,035,826) (23,601,375) (7,874,355) (4,794,094)
OTHER INCOME (EXPENSE), net 15,701 (10,706) (22,739) (101,630) 231,355
------------ ------------ ------------ ------------ ------------
NET LOSS $(47,343,788) $ (9,046,532) $(23,624,114) $ (7,975,985) $ (4,562,739)
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 125
NETWORK TECHNOLOGIES DIVISION OF
MFS NETWORK TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED JULY 2, 1998, JUNE 30, 1997,
DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
SIX-MONTHS
ENDED YEARS ENDED
------------------------------ DECEMBER 31,
RESTATED ---------------------------------------------
JULY 2, JUNE 30, RESTATED
1998 1997 1997 1996 1995
----------- ----------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (AUDITED) (AUDITED) (AUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(47,343,788) $ (9,046,532) $(23,624,114) $ (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
Reserves for losses on uncompleted
contracts 27,290,000 -- 12,610,000 -- --
Increase in property tax payable 3,610,000 -- 18,390,000 -- --
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 50,737,368 (16,712,465) (43,543,619) (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)
Construction of network assets
held for sale (6,934,000) -- (21,110,000) -- --
Restricted assets 398,764 238,624 238,624 (280,191) (207,332)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
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 (952,000) (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 used in 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 provided by (used in)
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.
<PAGE> 126
NETWORK TECHNOLOGIES DIVISION OF
MFS NETWORK TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 2, 1998 (UNAUDITED), JUNE 30, 1997 (UNAUDITED),
DECEMBER 31, 1997, 1996 AND 1995
1. ORGANIZATION:
The financial statements include the accounts of the following entities:
Network Technologies Division of MFS Network Technologies, Inc. (NT)
MFS Transportation Systems, Inc. (TSI)
MFS TransTech, Inc. (TT)
MFS Network Technologies of the District of Columbia, Inc. (DC)
Collectively, these entities are known as the Division. NT, TSI and DC are
wholly owned by MFS Network Technologies, Inc. (MFSNT). TSI owns 85 percent of
TT. The basis of the 15% minority interest has been reduced to zero due to TT's
significant losses for the periods ended July 2, 1998, June 30, 1997, December
31, 1997, 1996 and 1995. As of January 1, 1995, MFSNT was a wholly owned
subsidiary of MFS Communications Company, Inc. (MFSCC). During 1995, MFSCC
completed a restructuring in which it contributed its subsidiaries to MFSNT.
This transaction has been accounted for at historical cost in a manner similar
to the pooling of interest method. During 1996, MFSCC became a wholly owned
subsidiary of WorldCom, Inc. (WorldCom). All significant accounts and
transactions by and between the entities included in the Division have been
eliminated.
The Division operates as a systems integrator and project developer for
large-scale, facilities-based communications networks and Intelligent
Transportation Systems.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
ACCOUNTING FOR CONSTRUCTION CONTRACTS
The Division uses the percentage of completion method of accounting to account
for revenues and costs, measured by the percentage of budget completed to date
to the total budget. Provision is made for the entire amount of future estimated
determinable losses on contracts in progress; claims for additional contract
compensation, however, are not reflected in the accounts until the year in which
such claims are allowed. Revisions in cost and profit estimates
<PAGE> 127
- 2 -
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.
The Division has entered into two related agreements with a significant
customer. One contract relates to construction services and the other contract
relates to materials purchasing whereby the Division purchases certain materials
for the customer and passes those through at cost. The materials contract was
entered into in conjunction with the construction contract, therefore, the costs
associated with materials are shown as contract costs and revenue is recognized
to the extent of those costs. The revenues and related costs were $36.1 million,
$40.0 million, $57.3 million, $0 for the periods ended June 30, 1997, December
31, 1997, 1996 and 1995, respectively. These amounts are included in the
accompanying financial statements as construction revenues and cost of revenues.
Credit risk is minimal with public (government) owners since the Division
ascertains that funds have been appropriated by the governmental project owner
prior to commencing work on public projects. Most public contracts are subject
to termination at the election of the government. However, in the event of
termination, the Division is entitled to receive the contract price on completed
work and reimbursement of costs, plus a reasonable profit, on uncompleted work.
Credit risk with private owners is minimized because of statutory mechanics
liens, which give the Division high priority in the event of lien foreclosures
following financial difficulties of private owners.
FIXED ASSETS
Fixed assets are stated at cost. Depreciation on leasehold improvements is
provided by the straight-line method over estimated useful lives ranging from 10
to 31.5 years, and depreciation on all other fixed assets is provided on
accelerated methods over the estimated useful lives of the respective assets
ranging from 3 to 8 years. Upon sale or retirement of property and equipment,
the related cost and accumulated depreciation are removed from the accounts, and
any gain or loss is recognized.
INCOME TAXES
The Division is included in the combined income tax returns of WorldCom for the
years ended December 31, 1997 and 1996, and in the combined income tax return of
MFSCC for the year ended December 31, 1995. There is no tax sharing agreement
between the Division and WorldCom or MFSCC, respectively; therefore,
<PAGE> 128
- 3 -
the Division calculates its tax provision on a separate-entity basis. The
accompanying financial statements do not reflect a tax benefit since it is more
likely than not that the deferred tax asset will not be realized.
RESTRICTED ASSETS
Restricted assets consist of government securities held for owners in lieu of
retainage. These government securities are carried at cost which approximates
fair market value.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Division considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
3. ACCOUNTS RECEIVABLE:
Accounts receivable includes retainage which has been billed but is not due
until after the services are rendered and accepted by the customer. Retainage
totaled $4.5 million, $5.0 million and $2.8 million at July 2, 1998, December
31, 1997 and 1996, respectively.
4. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
JULY 2, 1998 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
Furniture, fixtures and office equipment $ 6,817,519 $ 6,059,631 $ 4,336,901
Vehicles 4,556,658 4,436,769 2,821,138
Leasehold improvements 1,066,251 1,042,972 1,056,620
Testing and construction equipment 865,062 754,992 829,013
Other 517,768 723,068 423,261
----------- ----------- -----------
13,823,258 13,017,432 9,466,933
Less- Accumulated depreciation (8,095,956) (6,884,218) (4,812,521)
----------- ----------- -----------
$ 5,727,302 $ 6,133,214 $ 4,654,412
=========== =========== ===========
</TABLE>
5. LEASES:
The Division is leasing premises under various noncancellable operating leases
which, in addition to rental payments, require payments for insurance,
maintenance, property taxes and other executory costs related to the leases.
Certain leases provide for adjustments in lease cost based upon adjustments in
the Consumer Price Index and increases in the landlord's management costs. The
lease agreements have various expiration dates and renewal options through 2003.
<PAGE> 129
- 4 -
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:
JULY 2, 1998 DECEMBER 31, 1997
------------ -----------------
1998 $ 798,822 $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
Rent expense related to noncancellable operating leases for the periods ended
July 2, 1998, June 30, 1997, December 31, 1997, 1996 and 1995, respectively, was
approximately $860,800, $896,700, $1,800,000, $1,429,700 and $862,000.
6. RELATED-PARTY TRANSACTIONS:
Employees of the Division are eligible to participate in the WorldCom employee
benefit plans.
WorldCom manages and performs the treasury functions for the Division.
WorldCom's intention is to support the Division until such time that the
Division can generate sufficient cash flows to fund its operations.
7. COMMITMENT AND CONTINGENCIES:
The Division is subject to a number of lawsuits and claims for various amounts
which arise out of the normal course of its business. In the opinion of
management, the disposition of claims currently pending will not have a material
adverse effect on the Division's financial position or results of operations.
The Division has an agreement with the minority stockholders of TT, under which
the Division obtains permanent exclusive and permanent nonexclusive licenses for
certain toll system patents for an aggregate license fee of $6,000,000 to be
paid in installments through February 1999. At July 2, 1998 and December 31,
1997, the remaining installment payments totalled $333,000 and $1,083,000,
respectively. The Division paid approximately $750,000, $1,417,000, $1,000,000
and $1,000,000 under this agreement during the periods ended July 2, 1998,
December 31, 1997, 1996 and 1995, respectively.
8. SIGNIFICANT CUSTOMERS:
A significant portion of the Company's business, excluding affiliated entities,
was derived from three major customers in 1997, two major customers in 1996 and
two major customers in 1995. Revenues from these customers totaled approximately
$224.6 million, $89.6 million and $39.4 million, or 61%, 40% and 23% of revenues
in years ended December 31, 1997, 1996 and 1995, respectively.
9. SUBSEQUENT EVENTS:
Subsequent to December 31, 1997, the Division incurred and recognized during the
period ended July 2, 1998, approximately $25 million of losses on four contracts
that were in process as of year-end. Division management represented that these
losses were not anticipated at December 31, 1997, and related to matters and
events occurring subsequent thereto. As a result, the losses were not reflected
in the 1997 financial statements prepared by the Division.
In July 1998, Able Telcom Holding Corp. (Able) executed an agreement with
WorldCom to acquire the Division for the net book value of the Division at
March 31, 1998, as defined in the agreement, plus $10 million. Able subsequently
negotiated a significant reduction in the purchase price. The accompanying
financial statements of the Division for both the year ended December 31, 1997,
and the period ended July 2, 1998, have been restated by Able to reflect the
adjustments described in Note 10 which, in the opinion of Able's management,
are necessary to have those financial statements be in accordance with generally
accepted accounting principles.
10. RESTATEMENT OF FINANCIAL STATEMENTS:
Able closed the acquisition of the Division on July 2, 1998, with the
stipulation that it could continue its due diligence assessment and could reopen
negotiation of the purchase price. In September 1998, the cash and notes portion
of the purchase price was reduced from the previously estimated amount of $101.4
million to $58.8 million. The adjusted price paid, including consideration
delivered to the seller in the form of Able equity instruments valued at $4.1
million, was approximately $24.9 million less than the net assets reflected on
the Division's July 2, 1998, unaudited balance sheet.
On November 10, 1999, Able met with the Staff of the Securities and Exchange
Commission. One of the issues discussed with the Staff was the need to restate
the pre-acquisition financial statements of the Division. These financial
statements had been prepared by the predecessor owner. The Staff informed Able
that it had a responsibility to restate the financial statements, if necessary,
to be in accordance with what Able believed represented generally accepted
accounting principles. The potential restatement involved the preacquisition
audited financial statements of the Division for the year ended December 31,
1997, and the unaudited financial statements for the period from January 1, 1998
through July 2, 1998.
As part of the preparation and audit of the October 31, 1999 financial
statements of Able, Able initiated a review of the preacquisition financial
statements of the Division. Management of Able has determined that certain
adjustments to the preacquisition financial statements of the Division for
the year ended December 31, 1997 and the period from January 1, 1998 through
July 2, 1998 are appropriate. The adjustments prepared by Able and reflected in
the accompanying restated financial statements of the Division are described in
more detail below. The adjustments include the correction of accounting errors
discovered during the 1999 audit process and amounts identified in Able's review
of the preacquisition financial statements of the Division.
The effects of the restatements on the previously filed financial statements of
the Division included in prior Able filings is shown below (in thousands):
<TABLE>
<CAPTION>
12/31/97 7/2/98
-------- --------
<S> <C> <C>
Net loss - as previously reported $ (8,317) $(21,515)
Record additional "reserves for losses on
uncompleted contracts"(1) -- (28,200)
Record loss accruals in 1997(2) (5,293) 5,293
Record subcontractors' claims accrual in 1997(3) (4,306) 4,306
Adjust receivables for discounted amount and based
on percent complete(4) (4,417) (560)
Record legal costs in period incurred(5) (1,000) (400)
Record write-down of conduit network assets held
for sale(6) -- (6,559)
Record adjustments related to the NYSTA contract(7) (291) 291
-------- --------
Net loss - as adjusted $(23,624) $(47,344)
</TABLE>
(1) Able has restated loss reserves on the Division's July 2, 1998, unaudited
balance sheet to equal the finalized amount of the loss reserves recognized
by Able in purchase accounting and confirmed by post acquisition activity in
completing loss jobs.
(2) Able reviewed evidence that two electronic toll collection jobs were
forecast to generate losses on completion of as much $13.1 million and
$5.3 million, respectively, as of December 31, 1997. However, through
December 31, 1997, losses recognized were only approximately $13.2 million
for the two jobs. Additional losses were not accrued, apparently because
the Division believed the losses would be mitigated through change orders,
claims and additional revenues generated through those jobs. Those potential
additional revenues were not realized. The guidance for consideration of
unpriced change-orders and contractor claims is provided in paragraphs 62
and 65 of SOP 81-1. Able has restated the loss reserves to accrue for those
unrecognized losses at December 31, 1997. It is Able's policy to not
consider additional revenues that might result from change-orders or claims
until the change-order is approved and signed.
(3) The claims relate to work performed by subcontractors to the Division on
certain jobs. Most of the work performed by these subcontractors occurred
in 1997. These claims were filed in 1997 or prior to July 2, 1998. Because
these claims relate to work performed in 1997 and the claims originated in
1997, Able has restated the Division's financial statements to accrue, at
December 31, 1997, the amounts that such claims have been, or are expected
to be settled.
(4) Able determined that the Division had included in unbilled receivables
(costs and profits in excess of billings) the gross amount of future user
fees to be received over twenty years from two users of the NYSTA network
(see Note 8 to the financial statements included in the Able's 1999 Form
10-K). The fees are payable in installments and should have been recorded
at their discounted present value. Consequently, Able recorded an
adjustment to reallocate the purchase price to recognize a discount on
these long-term receivables. The discounted (at 10%) present value of these
long-term receivables was approximately $3.8 million at October 31, 1999.
Able believes this was an accounting error as reflected in the financial
statements of the Division as of and for the year ended December 31, 1997.
Therefore, Able has restated the financial statements of the Division to
reflect the correction of this error at December 31, 1997.
(5) Able has also restated its own operating results for the first three
quarters of fiscal 1999 (see Note 22 to the financial statements included in
Able's 1999 Form 10-K). The restatement included adjustments for costs to
operate the New Jersey Consortium Violation Processing Center that were
determined to have been improperly deferred. It was determined that
approximately $1.4 million of those costs were incurred before the
acquisition of the Division and should have been expensed in the pre-
acquisition financial statements of the Division. The $1.4 million was for
legal fees and other pre-contract costs related to the award of the contract
to the Division. Able has restated the financial statements of the Division
to expense these costs when incurred in 1997 or early 1998.
(6) The financial statements prepared by the Division reflected NYSTA conduit
network constructed by the Division and held for sale at approximately
$34.6 million. This adjustment reduces the carrying value of that asset to
the approximate net amount realized by Able on its subsequent sale.
(7) This amount is the net effect of adjustments related to the NYSTA contract
to more appropriately value, as of December 31, 1997, the conduit network
held for sale, the related accrual for property taxes, and the reserve for
loss on that contract.
The following entries summarize the effects of the above restatement adjustments
on the previously reported balance sheets of the Division as of December 31,
1997, and July 2, 1998:
<TABLE>
<CAPTION>
December 31, 1997
-----------------
<S> <C> <C>
Network assets $21,110
Accumulated deficit 15,307
Reserves for Losses on Uncompleted Contracts 12,610
Property taxes payable 18,390
Costs and earnings in excess of billings on uncompleted contracts 5,417
<CAPTION>
July 2, 1998 (unaudited)
------------------------
<S> <C> <C>
Network assets $28,044
Accumulated deficit 41,136
Reserves for Losses on Uncompleted Contracts 39,900
Property taxes payable 22,000
Costs and earnings in excess of billings on uncompleted contracts 7,280
</TABLE>
<PAGE> 130
ABLE TELCOM HOLDING CORP.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JULY 31, 1998
<TABLE>
<CAPTION>
7/31/98
ABLE 3/31/98 -5 MOS
HISTORICAL PATTON PRO FORMA
(RESTATED) HISTORICAL ADJUSTMENTS SUB TOTAL
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues $ 115,125 $ 9,339 -- $ 124,464
Costs of revenues 90,222 8,825 -- 99,047
General and administrative 14,703 889 -- 15,592
Depreciation and amortization 4,865 501 12 (A) 5,378
---------- ---------- ----------- ---------
Total costs and expenses 109,790 10,215 12 120,017
---------- ---------- ----------- ---------
Income (loss) from operations 5,335 (876) (12) 4,447
Other (income) expense, net:
Interest expense 2,092 574 (57)(B) 2,609
Interest and dividend income -- -- -- --
Other (income) expense 1,046 (366) 78 (C) 758
---------- ---------- ----------- ---------
Total other (income) expense, net 3,138 208 21 3,367
Minority interest 610 -- -- 610
---------- ---------- ----------- ---------
Income (loss) before income taxes 1,587 (1,084) (33) 470
Income tax expense (benefit) 857 (142) (13)(D) 702
---------- ---------- ----------- ---------
Net income (loss) 730 (942) (20) (232)
Preferred stock dividends and discount
attributable to beneficial conversion
privilege of preferred stock 8,158 -- -- 8,158
---------- ---------- ----------- ---------
Net income (loss) applicable to common stock $ (7,428) $ (942) $ (20) $ (8,390)
========== ========== =========== =========
Earnings per common share - basic $ (0.77)
Earnings per common share - diluted $ (0.77)
Basic weighted average shares 9,660,921
Diluted weighted average shares 9,660,921
<CAPTION>
11/1/97-
6/30/98
MFSNT PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS COMPANY
(RESTATED) (RESTATED) (RESTATED)
---------- ----------- ----------
<S> <C> <C> <C>
Revenues $162,085 -- $ 286,549
Costs of revenues 193,010 -- 292,057
General and administrative 11,939 -- 27,531
Depreciation and amortization 2,146 $ 877 (F) 8,401
---------- ----------- -----------
Total Costs and Expenses 207,095 877 327,989
---------- ----------- -----------
Income (loss) from operations (45,010) (877) (41,440)
Other (income) expense, net:
Interest expense -- 3,421 (E) 6,030
Interest and dividend income (15) -- (15)
Other (income) expense 6 -- 764
---------- ----------- -----------
Total other (income) expense, net (9) 3,421 6,779
Minority interest -- -- 610
---------- ----------- -----------
Income (loss) before income taxes (45,001) (4,298) (48,829)
Income tax expense (benefit) -- (702)(G) --
---------- ----------- -----------
Net income (loss) (45,001) (3,596) (48,829)
Preferred stock dividends and discount
attributable to beneficial conversion
privilege of preferred stock -- 533 (E) 8,691
---------- ----------- -----------
Net income (loss) applicable to common stock $ (45,001) $ (4,129) $ (57,520)
========== =========== ===========
Earnings per common share - basic $ (5.95)
Earnings per common share - diluted $ (5.95)
Basic weighted average shares 9,660,921
Diluted weighted average shares 9,660,921
</TABLE>
<PAGE> 131
NOTES:
(A)
Incremental depreciation of $12,000 attributable to property, plant and
equipment acquired from Patton and recorded at fair value.
(B)
Elimination of the amortization of debt discount of $57,000 for Patton related
to debt repaid by Able.
(C)
Elimination of $78,000 in amortization of deferred financing costs related to
debt repaid by Able, offset by the amortization of goodwill related to the
acquisition of Patton.
(D)
Income tax benefit of $13,000 resulting from pro forma adjustments A, B, and C
based on a rate of 38%.
(E)
Assumes the Company financed the cash purchase price of MFSNT of $63.4 million
($67.5 million less equity valued at $4.1 million) in the following ways (in
thousands):
<TABLE>
<CAPTION>
Net Proceeds
________________________________________________________________________________
<S> <C>
Series B Preferred Stock (1) $18,110
WorldCom Note (2) 30,000
Secured Credit Facility (3) 15,290
________________________________________________________________________________
$63,400
________________________________________________________________________________
</TABLE>
(1) Assumes the $20.0 million Series B Preferred Stock was issued for net
proceeds of $18.1 million on November 1, 1996, resulting in pro forma
adjustments thru July 2, 1998, for dividends at 4 percent or $533,000.
A beneficial conversion charge of $7.9 million related to the issuance
of the Series B Preferred Stock was recognized at the date of issue and
is reflected in the historical financial statements of the Company for
the nine months ended July 2, 1998.
(2) Assumes the 11.5 percent $30.0 million WorldCom Note was issued for net
proceeds of $30.0 million on November 1, 1997, resulting in a pro forma
adjustment for the period from January 1, 1998 to July 2, 1998, to
interest expense of $2.3 million.
(3) Assumes the remainder of the cash purchase price of $15.3 million was
financed through the Company's Secured Credit Facility with a stated
interest rate of 9.5 percent and an estimated effective interest rate
of 11.0 percent, resulting in a pro forma adjustment for the period
from January 1, 1998 to July 2, 1998, to interest expense of $1.1
million.
(F)
The MFSNT goodwill of $26.3 million is being amortized over 20-years resulting
in annual amortization expense of $1.3 million. The pro forma adjustment for
the period from January 1, 1998 to July 2, 1998 is approximately $0.9 million.
(G)
As a result of significant pro forma losses, a pro forma adjustment is necessary
to eliminate income tax expense.
<PAGE> 132
ABLE TELCOM HOLDING CORP.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
10/31/97 10/31/97
ABLE PATTON PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS
---------- ---------- -----------
<S> <C> <C> <C>
Revenues $ 86,334 $30,456 --
Costs of revenues 68,181 26,375 --
General and administrative 8,781 2,415 --
Depreciation and amortization 4,532 1,246 63 (K)
---------- ---------- -----------
Total Costs and Expenses 81,494 30,036 63
---------- ---------- -----------
Income (loss) from operations 4,840 420 (63)
Other expenses (income):
Interest expense 1,565 775 (129) (L)
Interest and dividend income (449) -- --
Other (income) expense (153) (172) 187 (M)
---------- ---------- -----------
Total other expense, net 963 603 58
Minority interest 292 6 --
---------- ---------- -----------
Income (loss) before income taxes 3,585 (189) (121)
Income tax expense (benefit) 727 135 (46) (N)
---------- ---------- -----------
Net income (loss) 2,858 (324) (75)
Preferred stock dividends and discount
attributable to beneficial conversion
privilege of preferred stock 1,526 -- --
---------- ---------- -----------
Net income (loss) applicable to common stock $ 1,332 $ (324) $ (75)
========== ========== ===========
Earnings per common share - basic $ 0.16
Earnings per common share - diluted $ 0.16
Basic weighted average shares 8,504,972
Diluted weighted average shares 8,504,972
<CAPTION>
12/31/97
MFSNT PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS COMPANY
SUB TOTAL (RESTATED) (RESTATED) (RESTATED)
--------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues $ 116,790 $364,917 -- $ 481,707
Costs of revenues 94,556 363,452 -- 458,008
General and administrative 11,196 22,381 -- 33,577
Depreciation and amortization 5,841 2,685 1,315 (P) 9,841
--------- -------- ----------- ---------
Total Costs and Expenses 111,593 388,518 1,315 501,426
--------- -------- ----------- ---------
Income (loss) from operations 5,197 (23,601) (1,315) (19,719)
Other expenses (income):
Interest expense 2,211 -- 5,132 (O) 7,343
Interest and dividend income (449) -- -- (449)
Other (income) expense (138) 23 -- (115)
--------- -------- ----------- ---------
Total other expense, net 1,624 23 5,132 6,779
Minority interest 298 -- -- 298
--------- -------- ----------- ---------
Income (loss) before income taxes 3,275 (23,624) (6,447) (26,796)
Income tax expense (benefit) 816 -- (816) (Q) --
--------- -------- ----------- ---------
Net income (loss) 2,459 (23,624) (5,631) (26,796)
Preferred stock dividends and discount
attributable to beneficial conversion
privilege of preferred stock 1,526 -- 8,709 (O) 10,235
--------- -------- ----------- ---------
Net income (loss) applicable to common stock $ 933 $(23,624) $ (14,340) $ (37,031)
========= ======== =========== =========
Earnings per common share - basic $ (4.35)
Earnings per common share - diluted $ (4.35)
Basic weighted average shares 8,504,972
Diluted weighted average shares 8,504,972
</TABLE>
<PAGE> 133
NOTES:
(K)
Incremental depreciation of $63,000 attributable to recording property, plant
and equipment acquired from Patton and recorded at fair value.
(L)
Elimination of the amortization of debt discount of $129,000 for Patton that
related to debt repaid by Able.
(M)
Elimination of $187,000 in amortization of deferred financing costs related to
debt repaid by Able, offset by the amortization of goodwill related to the
acquisition of Patton.
(N)
Income tax benefit of $46,000 resulting from proforma adjustments K, L, and M
based on a rate of 38%.
(O)
Assumes the Company financed the cash purchase price of MFSNT of $63.4
million ($67.5 million less equity valued at $4.1 million) in the following ways
(in thousands):
<TABLE>
<CAPTION>
Net Proceeds
-------------------------------------------------------------------------------
<S> <C>
Series B Preferred Stock (1) $18,110
WorldCom Note (2) 30,000
Secured Credit Facility (3) 15,290
-------------------------------------------------------------------------------
$63,400
-------------------------------------------------------------------------------
</TABLE>
(1) Assumes the $20.0 million Series B Preferred Stock was issued for net
proceeds of $18.1 million on November 1, 1996, resulting in pro forma
adjustments during fiscal year 1997 for dividends at 4 percent or
$800,000 and a beneficial conversion charge of $7.9 million recognized at
the date of issue.
(2) Assumes the 11.5 percent $30.0 million WorldCom Note was issued for net
proceeds of $30.0 million on November 1, 1996, resulting in a pro forma
adjustment during fiscal year 1997 to interest expense of $3.5 million.
(3) Assumes the remainder of the cash purchase price of $15.3 million was
financed through the Company's Secured Credit Facility with a stated
interest rate of 9.5 percent and an estimated effective interest rate of
11.0 percent, resulting in a pro forma adjustment during fiscal year 1997
to interest expense of $1.7 million.
(P)
The MFSNT goodwill of $26.3 million is being amortized over 20-years resulting
in annual amortization expense of $1.3 million.
(Q)
As a result of significant pro forma losses, a pro forma adjustment is necessary
to eliminate income tax expense.
<PAGE> 134
ABLE TELCOM HOLDING CORP.
AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
On April 1, 1998, the Company purchased all of the outstanding common stock of
Patton Management Corporation ("Patton") for a total purchase price of
approximately $4.0 million. The acquisition was accounted for using the
purchase method of accounting. Goodwill of approximately $4.3 million (as
adjusted) was recorded and is being amortized on a straight-line basis over 20
years. The results of operations of Patton have been included in the Company's
consolidated statements of operations since the date of acquisition.
On July 2, 1998, the Company acquired the Network Technologies Division of MFS
Network Technologies, Inc. ("MFSNT") from a subsidiary of WorldCom, Inc. The
acquisition was accounted for as a purchase and the operations of MFSNT have
been included in the consolidated financial statements of the Company
prospectively from the date of acquisition.
As described in Item 2. of this Form 8-K/A-3, the purchase price for MFSNT
included the following consideration (in millions):
<TABLE>
<S> <C>
Contract price $58.8
Transaction related costs 4.6
WorldCom Option 3.5
WorldCom Phantom Stock Awards 0.6
-----------------------------------------------------------------------------
Total purchase prices $67.5
-----------------------------------------------------------------------------
</TABLE>
The Company's consolidated balance sheet as of October 31, 1998, reflected the
preliminary allocation of the purchase price to the assets acquired and the
liabilities assumed based on initial estimates of their fair values. During the
year ended October 31, 1999, (see Note 5 to the financial statements included in
Able's 1999 Form 10-K) the Company obtained the information needed to complete
its valuation and finalized the allocation as set forth below (in millions):
<TABLE>
<CAPTION>
As
Previously Final
Reported Adjustments Allocation
---------- ----------- ----------
<S> <C> <C> <C>
Accounts receivable $47.0 $(1.4) $45.6
Costs and profits in excess of billings on
uncompleted contracts 93.7 (5.0) 88.7
Assets held for sale 38.8 -- 38.8
Prepaid expenses 1.0 -- 1.0
Property 5.7 -- 5.7
Goodwill 16.5 9.8 26.3
Accounts payable (13.7) (0.5) (14.2)
Billings in excess of costs on uncompleted
contracts and accrued job costs incurred (56.6) -- (56.6)
Reserves for losses on uncompleted
contracts (40.5) 0.6 (39.9)
Accrued restructuring costs (2.0) 0.3 (1.7)
Property taxes payable (15.0) -- (15.0)
Other accrued liabilities (7.4) (3.8) (11.2)
-------------------------------------------------------------------------------
Total allocated purchase price $ 67.5 $ -- $ 67.5
-------------------------------------------------------------------------------
</TABLE>
The accompanying restated pro forma combined statements of operations include
pro forma adjustments that are based on the final allocation of the MFSNT
purchase price.
The accompanying restated pro forma combined statements of operations have been
prepared assuming the purchase of MFSNT and Patton occurred as of November 1,
1996. As described in footnote 10 to the restated historical financial
statements of MFSNT included in this Form 8-K/A-3, those financial statements
have been restated by the Company. The related amounts for MFSNT included in
the pro forma combined financial statements included herein have likewise been
restated as indicated below:
<TABLE>
<CAPTION>
Eight-Months Ended Year Ended
6/30/98 MFSNT Historical 12/31/97 MFSNT Historical
----------------------------------- -----------------------------------
Previously Previously
reported Adjustments Adjusted reported Adjustments Adjusted
---------- ----------- -------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues 162,645 (560) 162,085 369,334 (4,417) 364,917
Costs of Revenues 168,141 24,869 193,010 353,562 9,890 363,452
General and Administrative 11,539 400 11,939 21,381 1,000 22,381
Depreciation and amortization 2,146 0 2,146 2,685 0 2,685
---------- ----------- -------- ---------- ----------- --------
Total Costs and Expenses 181,826 25,269 207,095 377,628 10,890 388,518
---------- ----------- -------- ---------- ----------- --------
Income (loss) from operations (19,181) (25,829) (45,010) (8,294) (15,307) (23,601)
Other (income) expense, net
Interest Expense -- 0 -- -- 0 --
Interest and dividend income (15) 0 (15) -- 0 --
Other (income) expense 6 0 6 23 0 23
---------- ----------- -------- ---------- ----------- --------
Total other (income) expense, net (9) 0 (9) 23 0 23
Minority interest -- 0 -- -- 0 --
---------- ----------- -------- ---------- ----------- --------
Income (loss) before income taxes (19,172) (25,829) (45,001) (8,317) (15,307) (23,624)
Income tax expense (benefit) -- 0 -- -- 0 --
---------- ----------- -------- ---------- ----------- --------
Net income (loss) (19,172) (25,829) (45,001) (8,317) (15,307) (23,624)
Preferred stock dividends and discount
attributable to beneficial conversion
privilege of preferred stock -- 0 -- -- 0 --
---------- ----------- -------- ---------- ----------- --------
Net income (loss) applicable to common stock (19,172) (25,829) (45,001) (8,317) (15,307) (23,624)
---------- ----------- -------- ---------- ----------- --------
</TABLE>
<PAGE> 135
ABLE TELCOM HOLDING CORP.
PROXY AND VOTING INSTRUCTION
2000 ANNUAL MEETING OF SHAREHOLDERS - AUGUST , 2000
This Proxy is solicited on behalf of the Board of Directors
The undersigned hereby appoints ______________ and ______________, or any of
them, as a Proxy or with full power of substitution, to represent the
undersigned at the 2000 Annual Meeting of Shareholders (the "Annual Meeting") of
Able Telcom Holding Corp. (the "Company") to be held at _________________ on
_______, 2000 at ____ a.m. ___________, and at all adjournments or postponements
thereof, and to vote all the shares of Common Stock, $.001 par value per share,
held of record by the undersigned at the close of business on _______ __ , 2000,
with all the power that the undersigned would possess if personally present, as
designated on the reverse side. Your vote is important to us. Feel free to
direct your comments to the Corporate Secretary at (770) 993-1570. Shares will
be voted as specified.
The undersigned also hereby revokes previous Proxies and acknowledges receipt of
the Company's Notice of Annual Meeting and Proxy Statement.
The Board recommends a vote FOR Items 1-7. IF YOU DO NOT SPECIFY HOW YOU INTEND
TO VOTE, THIS PROXY WILL BE VOTED "FOR" EACH PROPOSAL. The proxies or
substitutes may vote accordingly in their discretion upon any other business
that may properly come before the Annual Meeting or any adjournments or
postponements of the Annual Meeting.
1. Election of the Directors
<TABLE>
<S> <C> <C>
Nominees for Directors
Billy V. Ray, Jr. Edwin D. Johnson
Alec McLarty C. Frank Swartz
[ ] FOR ALL THE NOMINEES [ ] WITHHOLD AUTHORITY TO [ ] FOR ALL THE NOMINEES
LISTED ABOVE VOTE FOR THE NOMINEES LISTED ABOVE, EXCEPT
LISTED ABOVE AS FOLLOWS
</TABLE>
List Exceptions:
---------------------------------------------------------------------------
2. Amending the Articles of Incorporation
A. to increase the number of authorized shares of Common Stock from 25
million to 100 million.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
B. to increase the number of authorized shares of Preferred Stock from one
million to five million.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Amending the Articles of Incorporation to change its corporate name for
"ABLE TELCOM HOLDING CORP." to "THE ADESTA GROUP, INC."
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE> 136
4. Amending the Company's 1995 Stock Option Plan, as amended, to
(A) increase the number of shares authorized for issuance from
1,300,000 to 5,500,000;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(B) modify certain terms of the grants of options to Non-Affiliate
Directors which includes:
(i) increasing the number of options granted to Non-Affiliate Directors
from 5,000 (initially), to 10,000 (annually),
(ii) granting additional options, on an annual basis to Non-Affiliate
Directors who serve as Chairman of the Board of the Company, and as
Chairman, and/or as member of a Board committee, and
(iii) extending the exercise period of the date of grants to
Non-Affiliate Directors to the earlier of (A) September 19, 2005, or
(B) the date which is two years after the date that such Non-Affiliate
Director is no longer serving in such capacity.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. Ratifying and approving the issuance of stock options granted to certain
Company Officers and Directors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. Approving possibly issuing more than 1,875,960 shares of Common Stock upon
the exercise of certain options and stock appreciation rights granted to
WorldCom, Inc., which share amount of 1,875,960 represents at least 20% of
our outstanding common stock determined immediately prior to the MFSNT
Agreement dated April 26, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
7. Approving the possible issuance of more than 1,875,960 shares of Common
Stock upon exercising certain Series B warrants issued in connection with
the Series B Offering, which share amount of 1,875,960 represents at least
20% of our outstanding common stock determined immediately prior to the
MFSNT Agreement dated April 26, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
8. Approving possibly issuing more than 3,128,500 shares of Common Stock upon
converting shares of our Series C Convertible Preferred Stock and
exercising certain Series C Warrants issued in our Series C Offering,
which share amount represents at least 20% of the outstanding Common
Stock determined immediately prior to the closing of the Series C Offering
dated February 4, 2000;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
9. Ratifying the appointment of Arthur Andersen LLP as the Company's
independent accountants for the fiscal years ended October 31, 1999
and October 31, 2000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
NOTE: Please sign this Proxy Card as your name appears hereon, including the
title "Executor," "Trustee," etc. if such is indicated. If a joint account, each
joint owner should each sign. If stock is held by a corporation, this Proxy Card
should be executed by a proper officer thereof.
<PAGE> 137
PLEASE DATE AND SIGN THIS PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE.
Dated: ______________________, 1999
-----------------------------------
Shareholder
-----------------------------------
Co-owner, if applicable
