SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
Quarterly Report under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter ended: March 31, 1998 Commission File Number: 0-19589
ARGUSS HOLDINGS, INC.
(Exact name of Registrant as
specified in its Charter)
Delaware 02-0413153
(State of other (I.R.S. Employer
jurisdiction of Identification Number)
incorporation of
organization)
One Church Street, Suite 302, 20850
Rockville, Maryland (Zip Code)
(Address of Principal
Executive Offices)
Registrant's Telephone Number, including Area Code: 301-315-0027
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by section 13 or 15 of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes: X No:___
As of April 9,1998, there were 10,368,685 shares of Common Stock,
$ .01 par value per share, outstanding.
ARGUSS HOLDINGS, INC.
INDEX
Part I - Financial Statements:
Item 1 - Financial Statements
Consolidated Balance Sheets - (Unaudited)
March 31, 1998 and December 31, 1997 3
Consolidated Statements of Operations - (Unaudited)
Three Months Ended March 31, 1998 and March 31, 1997 4
Consolidated Statements of Cash Flows - (Unaudited)
Three Months Ended March 31, 1998 and March 31, 1997 5
Notes to Consolidated Financial Statements
(Unaudited) 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part II - Other Information
Items 1 through 6 14
Signatures 15
Exhibits 16
ARGUSS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, 1998 December 31,1997
Assets
Current assets:
Cash $ 2,340,000 $ 1,215,000
Restricted cash from customer
advances 6,968,000 -
Accounts receivable trade,
including retainage of $1,844,000
and $1,884,000,respectively 20,175,000 13,656,000
Inventories 5,058,000 4,618,000
Other assets, current 1,941,000 1,898,000
----------- ----------
Total current assets 36,482,000 21,387,000
----------- ----------
Property, plant and equipment, net 22,017,000 13,274,000
Goodwill net 51,093,000 24,374,000
----------- ----------
$ 109,592,000 $ 59,035,000
=========== ==========
Liabilities and
Stockholders' Equity
Current liabilities:
Current portion long-term debt $ 5,624,000 $ 1,632,000
Short-term borrowings 5,869,000 4,294,000
Accounts payable 6,446,000 4,141,000
Customer advances 7,000,000 -
Accrued expenses and other
liabilities 4,644,000 4,212,000
----------- ----------
Total current liabilities 29,583,000 14,279,000
----------- ----------
Long-term debt, excluding current
portion 22,453,000 6,995,000
Deferred income taxes 1,549,000 791,000
----------- ----------
Total liabilities 53,585,000 22,065,000
----------- ----------
Stockholders' equity:
Common stock $.01 par value 104,000 85,000
Additional paid-in capital 56,234,000 36,443,000
Retained earnings deficit (331,000) 442,000
----------- ----------
Total stockholders'equity 56,007,000 36,970,000
----------- ----------
$ 109,592,000 $ 59,035,000
=========== ==========
The accompanying notes are an integral part of these financial statements.
ARGUSS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31, 1998 March 31, 1997
Net sales
$24,239,000 $8,976,000
Cost of sales, excluding depreciation 18,791,000 6,514,000
---------- ---------
Gross profit, excluding depreciation 5,448,000 2,462,000
Selling, general and
administrative expenses 3,455,000 1,506,000
Depreciation 1,324,000 208,000
Goodwill amortization 654,000 196,000
Engineering and development
expenses 246,000 260,000
---------- ---------
Income (loss) from operations (231,000) 292,000
---------- ---------
Other income (expense):
Interest income and other 56,000 24,000
Interest expense (678,000) (79,000)
---------- ---------
Income <loss> before tax benefit (853,000) 237,000
Income tax benefit 80,000 381,000
---------- ---------
Net <loss> income ($773,000) $618,000
========== =========
Income <loss> per share - basic ($.07) $.09
========== =========
Weighted average number of
shares - basic 10,361,000 7,271,000
========== =========
Income <loss> per share - diluted ($.07) $.08
========== =========
Weighted average number of
shares - diluted 10,361,000 7,496,000
========== =========
The accompanying notes are an integral part of these financial statements.
ARGUSS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31, 1998 March 31, 1997
Cash flows from operating activities:
Net <loss> income ($773,000) $618,000
Adjustments to reconcile net <loss> income
to net cash provided by used in operating
activities:
Depreciation 1,324,000 208,000
Goodwill amortization 654,000 196,000
Non cash stock compensation 411,000 -
Deferred income taxes 100,000 -
Changes in assets and liabilities:
Accounts receivable (809,000) 1,174,000
Inventories (440,000) (476,000)
Other current assets 332,000 (627,000)
Accounts payable 1,260,000 1,160,000
Accrued expenses and other
liabilities (1,927,000) (1,436,000)
---------- ----------
Net cash provided by operating
activities 132,000 817,000
---------- ----------
Cash flows from investing activities:
Net additions to property, plant
and equipment (4,674,000) (506,000)
Purchase of cable construction
companies (13,799,000) (8,879,000)
----------- ----------
Net cash used in investing
activities (18,473,000) (9,385,000)
----------- ----------
Cash flows from financing activities:
Advance on TCI contracts 7,000,000 -
Proceeds from lines of credit 22,425,000 339,000
Repayments of financing debt (3,309,000) (846,000)
Issuance of common stock 318,000 -
----------- ----------
Net cash provided by used in
financing activities 26,434,000 (507,000)
----------- ----------
Net increase <decrease> in cash
and restricted cash 8,093,000 (9,075,000)
----------- ----------
Cash at beginning of period 1,215,000 10,318,000
----------- ----------
Cash and restricted cash at end
of period $9,308,000 $1,243,000
=========== ==========
ARGUSS HOLDINGS, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOW (continued)
(Unaudited)
Three Months Ended
March 31, 1998 March 31, 1997
Supplemental disclosures of cash paid for:
Interest $ 678,000 $79,000
Corporate income taxes 198,000 -
Supplemental disclosure of
investing and financing activities:
Fair value of assets acquired:
Accounts receivable $ 5,710,000 $4,404,000
Inventory - 290,000
Other current assets 375,000 74,000
Property and equipment 5,398,000 3,676,000
---------- ---------
Total non cash assets 11,483,000 8,444,000
---------- ---------
Liabilities (3,620,000) (4,843,000)
Long term debt (1,888,000) (2,111,000)
---------- ----------
Net non cash assets acquired 5,975,000 1,490,000
Cash acquired 1,725,000 15,000
---------- ----------
Fair value of net assets acquired 7,700,000 1,505,000
Excess of costs over fair value
of net assets acquired 27,373,000 15,700,000
---------- ----------
Purchase price $35,073,000 $17,205,000
========== ==========
Common stock issued $21,274,000 $ 8,642,000
Cash paid 15,524,000 8,578,000
Cash acquired (1,725,000) (15,000)
---------- ----------
Purchase price $35,073,000 $17,205,000
========== ==========
The accompanying notes are an integral part of these financial statements.
ARGUSS HOLDINGS, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
A) Organization
Prior to May 1997, Arguss Holdings, Inc. (the "Company") operated
as a single entity under the name Conceptronic, Inc. On May 9,
1997, the shareholders of the Company approved a plan providing
for the internal restructuring of the Company whereby the Company
became a holding company and its operating assets were held by
wholly owned operating subsidiaries. Accordingly, on May 9, 1997,
the Company transferred substantially all of its Conceptronic,
Inc. operating assets to a newly formed, wholly owned subsidiary
of the Company, and the Company changed its name to "Arguss
Holdings, Inc." The subsidiary then adopted the name
"Conceptronic, Inc." ("Conceptronic"). The Company's other
wholly owned operating subsidiary is White Mountain Cable
Construction Corp. ("WMC").
The Company conducts its operations through its wholly owned
subsidiaries, WMC and Conceptronic. WMC is engaged in the
construction, reconstruction, maintenance, repair and expansion
of communications systems, cable television and data systems,
including providing aerial and underground construction and
splicing of both fiber optic and coaxial cable to major
communications customers. WMC operates through its divisions -
White Mountain, Can-Am, TCS, Rite and Schenck. Conceptronic
manufactures and sells highly advanced, computer-controlled
equipment used in the SMT circuit assembly industry.
B) Basis for Presentation
As permitted by the rules of the Securities and Exchange
Commission (the "Commission") applicable to quarterly reports on
Form 10-QSB, these notes are condensed and do not contain all
disclosures required by generally accepted accounting principles.
Reference should be made to the financial statements and related
notes included in the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1997, filed with the Commission on
March 24, 1998.
In the opinion of the Company, the accompanying unaudited
financial statements contain all adjustments considered necessary
to present fairly the financial position of the Company as of
March 31, 1998 and the results of operations and cash flows for
the periods presented. The Company prepares its interim financial
information using the same accounting principles as it does for
its annual financial statements.
The Company's cable construction operations are expected to have
seasonally weaker results in the first and fourth quarters of the
year, and may produce stronger results in the second and third
quarters. This seasonality is primarily due to the effect of
winter weather on outside plant activities in the northern areas
served by WMC, as well as reduced daylight hours and customer
budgetary constraints. Certain customers tend to complete
budgeted capital expenditures before the end of the year, and
postpone additional expenditures until the subsequent fiscal
period.
Research and development expenses incurred and expensed were
$173,000 and $114,000, respectively, for the quarters ended March
31, 1998 and 1997.
In June 1997, the Financial Accounting Standards Board ("FASB")
issued Statement No. 130, "Reporting Comprehensive Income". This
Statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses,
gains and losses) in a full set of general-purpose financial
statements. This Statement requires that an enterprise (a)
classify items of other comprehensive income by their nature in a
financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and
additional paid in capital in the equity section of a statement
of financial position. The impact of this statement on the
Company's financial statements is not significant because the
company has no elements of comprehensive income at this time.
In June 1997, the FASB issued Statement No. 131, "Disclosures
about Segments and Relations Information". This Statement
establishes standards for the way that public business
enterprises report information about operating segments in annual
financial statements and requires that those enterprises report
selected information about operating segments in interim
financial reports issued to shareholders. It also establishes
standards for related disclosures.
Certain amounts in the 1997 financial statements have been
reclassified for comparability with the 1998 presentation.
(C) Earnings per Share
In December 1997, retroactive to January 1, 1997, the Company
adopted FASB Statement No. 128, "Earnings Per Share" ("SFAS
128"). All previously reported earnings per share information
reported as of December 31, 1997 for comparative purposes has
been restated to reflect the impact of adopting SFAS 128.
Under SFAS 128, basic earnings per common share are computed by
dividing net earnings available to common stockholders by the
weighted average number of common shares outstanding for the
period. Diluted earnings per common share reflect the maximum
dilution that would have resulted from the exercise of stock
options and warrants. Diluted earnings per common share are
computed by dividing net income by the weighted average number of
common shares and all dilutive securities. During the quarter
ended March 31, 1998, the Company reported a loss. Consequently,
the Company did not give the effect to stock options and warrants
in the calculation of earnings per share as the result would be
anti-dilutive.
March 31, 1998 March 31, 1997
Earnings
Loss Net Earnings Net
per Shares Share Loss per Share Shares Income
Basic ($.07) 10,361,000 ($773,000) $.09 7,271,000 $618,000
Effect of stock
options and
warrants - - - .01 225,000 -
------- ---------- --------- ---- --------- --------
Diluted $.07 10,361,000 ($773,000) $.08 7,496,000 $618,000
======= ========== ========= ==== ========= ========
D) Accounts Receivable
The retained and unbilled accounts receivable which represent
amounts withheld by contract with respect to WMC accounts
receivable was $1,844,000 and $502,000, respectively, at March
31, 1998 and 1997. At March 31, 1998, the Company expects to
collect such retainage within one year.
E) Acquisitions
In the first quarter of 1998, the Company acquired Can-Am
Construction, Inc. ("Can-Am") and Schenck Communications, Inc.
("Schenck") which provide aerial and underground construction and
splicing services for both fiber optic and coaxial cable to major
telecommunications customers.
The purchase price was approximately $35 million and consisted of
1,809,000 shares of common stock of the Company and approximately
$15 million in cash. The Company has classified as goodwill
approximately $27.4 million which represents the cost in excess
of the fair value of the net assets acquired. Goodwill is being
amortized using the straight-line method over 20 years. The
Schenck purchase agreement contains provision for additional
payments by the Company to Schenck shareholders to be satisfied
by the issuance of the Company's common stock and cash, if
certain adjusted EBITDA thresholds are met for the year ending
December 31, 1998. There is no cap for such provisional
payments. One-half of the additional payment to Schenck
shareholders will be satisfied by the issuance of shares of
common stock valued at $9.75 per share. The second half of the
payment will be in cash. Any additional payments earned under
the terms of the agreement will be recorded as an increase in
goodwill.
F) Enterprise Segment Information
The Company's operations have been classified into two business
segments for the quarter ended March 31, 1998, Communications and
Manufacturing. Summary financial information for the two
segments is as follows:
Three Months Ended March 31, 1998
Manufacturing Communications Total
Net sales $ 5,049,000 $19,190,000 $ 24,239,000
Cost of sales, excluding
depreciation 3,440,000 15,351,000 18,791,000
--------- ---------- ----------
Gross profit, exlcuding
depreciation 1,609,000 3,839,000 5,448,000
Operating expenses,
excluding depreciation 1,481,000 1,809,000 3,290,000
Goodwill amortization - 654,000 654,000
Non cash stock compensation - 386,000 386,000
Depreciation expense 55,000 1,269,000 1,324,000
--------- --------- ----------
Interest and other income 4,000 46,000 50,000
Interest expense (50,000) (628,000) (678,000)
--------- --------- ----------
Pretax income <loss> $ 27,000 ($861,000) ($834,000)(1)
========= ========= ==========
Capital expenditures $ 24,000 $ 4,704,000 $ 4,728,000
========= ========= ==========
Property, plant and
equipment, net $ 1,345,000 $20,637,000 $ 21,982,000
========= ========== ==========
Total assets $10,713,000 $97,533,000 $108,246,000
========== ========== ===========
Total liabilities $ 5,442,000 $46,787,000 $ 52,229,000(2)
========== ========== ===========
(1) Segment information does not reconcile to consolidated net
income before tax due to net unallocated corporate expense of
$19,000 which is the net of $6,000 in interest income and $25,000
in stock option expense.
(2) Excludes inter-company payables of $1,155,000 for
manufacturing and $1,108,000 for communications
segments, respectively.
G) Long-Term Debt
On January 2, 1998, the Company expanded its credit facilities
with NationsBank, NA. In connection with its acquisition of Can-
Am and Schenck, the Company entered into an aggregate of
$15,016,000 in new acquisition financing facilities. The
facilities have a five-year amortization rate for repayment of
the principal and include a balloon payment of approximately $3
million of the acquisitions financing facilities in December 1999
with the remaining principal amount of the facilities being
repaid in equal monthly payments through December 31, 2002. The
acquisition financing bears an interest rate of LIBOR, plus 275
basis points.
In addition, the Company expanded both its WMC revolving credit
facility from $4 million to $8 million, and equipment financing
facility from $3,500,000 to $6 million under the same interest
rates and covenants as the original lines of credit.
Further, the Company consummated a term loan to refinance
existing equipment financing facilities at Can-Am and Schenck.
The proceeds of this line were $2,400,000, are payable over 48
months, and bear an interest rate at LIBOR, plus 165 basis
points.
To hedge the variable term loan interest rate risk for $10
million in notional amount of the acquisitions financing
facilities and the $2,400,000 in notional amount of the
refinancing term loan, the Company during the three months ended
March 31, 1998 entered into various interest rate swaps pursuant
to which it pays fixed interest rates and receives variable
interest rates on the same notional amount. During the three
months ended March 31, 1998, the Company payment under the two
new interest rate swaps aggregated $7,000. The Company had no
receipts pursuant to the new interest rate swaps.
H) Litigation
On December 13, 1991, the Company was served with a complaint
from Vitronics Corporation ("Vitronics"), one of the Company's
competitors, alleging patent infringement involving its reflow
soldering ovens. Vitronics sought an injunction, together with
unspecified damages and costs. The claim was filed in the United
States Federal District Court, District of New Hampshire.
In August 1995, the U.S. District Court issued a directed verdict
of non-infringement in the Company's favor regarding method
patent #4,654,502. Additionally, a decision was reached on the
apparatus patent #4,833,301 by a jury which found non-
infringement on all past and current Conceptronic ovens.
Vitronics appealed the directed verdict on patent #4,654,502 and
the United States Court of Appeals for the First Circuit ("Court
of Appeals") subsequently reversed and remanded the case for
further proceedings. In October 1997, the Court of Appeals
administratively dismissed the case.
In related actions, in April 1997, the United States Patent
Office ("PTO") rejected certain claims of Vitronics' patent
#4,654,502 as being unpatentable. This decision by the PTO, if
upheld on appeal, should terminate the pending lawsuit. In
December 1996, the Company named Vitronics and its Chairman and
CEO, James Manfield in a lawsuit, filed in Superior Court of the
State of New Hampshire, citing malicious prosecution and abuse of
process. The suit claims that Vitronics, when it initiated the
1991 patent infringement case against Conceptronic, knew or
should have known that the suit was without merit and that claim
1 of U.S. Patent #4,883,301 was invalid, unenforceable and, as a
consequence, the patent was not infringed. In November 1997,
Dover Industries purchased Vitronics and succeeded in their
interest.
In the opinion of counsel, the ultimate outcome of this
litigation cannot presently be determined. Management of the
Company believes that Vitronics' claim is without merit and that
the Company will ultimately prevail. Accordingly, no provision
has been made in the accompanying financial statements for any
potential liability that might result.
ARGUSS HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF CONSOLIDATED OPERATIONS
Results of Operations
Prior to May 1997, Arguss Holdings, Inc. (the "Company") operated
as a single entity under the name Conceptronic, Inc. On May 9,
1997, the shareholders of the Company approved a plan providing
for the internal restructuring of the Company whereby the Company
became a holding company and its operating assets were held by
wholly owned operating subsidiaries. Accordingly, on May 9, 1997,
the Company transferred substantially all of its Conceptronic,
Inc. operating assets to a newly formed, wholly owned subsidiary
of the Company, and the Company changed its name to "Arguss
Holdings, Inc." The subsidiary then adopted the name
"Conceptronic, Inc." ("Conceptronic"). The Company's other
wholly owned operating subsidiary is White Mountain Cable
Construction Corp. ("WMC"). WMC operates through its divisions -
White Mountain, Can-Am, Rite, TCS and Schenck.
The Company conducts its operations through its wholly owned
subsidiaries, WMC and Conceptronic. WMC is engaged in the
construction, reconstruction, maintenance, repair and expansion
of communications systems, cable television and data systems,
including providing aerial and underground construction and
splicing of both fiber optic and coaxial cable to major
communications customers. Conceptronic manufactures and sells
highly advanced, computer-controlled equipment used in the SMT
circuit assembly industry.
Three Months Ended March 31, 1998, Compared to Three Months Ended
March 31, 1997
The Company had a consolidated net loss of approximately $773,000
for the three months ended March 31, 1998, compared to net income
of $618,000 for the three months ended March 31, 1997. The net
loss is primarily due to losses incurred by WMC. The Company's
results for the first quarter of 1998 are seasonally weaker due
to the impact of severe winter weather on cable construction
operations, primarily in the northeastern United States, and due
to the fact that WMC has been focusing its resources to commence
several significant, regional, multiple-year contracts with major
telecommunications companies. During the three months ended
March 31, 1998, WMC incurred transition costs to relocate crews
and equipment and set up operations in several new locations.
Consolidated net sales, as well as operating cost efficiencies,
are expected to be favorably impacted during the second quarter
and future periods as these contracts reach their revenue
potential. (See discussion of gross profit below.)
For Conceptronic, the pre-tax income for the three months ended
March 31, 1998 was $27,000, a $466,000 increase in income from
the same period in 1997. For WMC, pre-tax loss for the three
months ended March 31, 1998 was $861,000. Consolidated net income
for the quarter ended March 31, 1998 was significantly effected
by goodwill amortization of $654,000 and non cash stock
compensation of $411,000 due primarily to stock options granted
below market value to rank and file employees of newly acquired
cable construction companies. Conceptronic's income performance
in the first quarter of 1998 resulted from improved equipment
sales.
Consolidated net sales in the first quarter of 1998 were
approximately $24,239,000, compared to approximately $8,976,000
for the first quarter of 1997, an increase of nearly three-fold
due primarily to the acquisitions of Can-Am, Schenck, TCS and
Rite (collectively "Acquisitions"), which accounted for
$12,401,000 of the increase. Operations of WMC owned for at
least one year had a net sales increase of $1,495,000 or 28% for
the three months ended March 31, 1998. For Conceptronic, net
sales for the three months ended March 31, 1998 were $5,049,000,
a 41%, or $1,467,000 increase over the comparable quarter in 1997
due to continued strength in the SMT industry. For all WMC
operations, net sales for the three months ended March 31, 1998
were $19,190,000.
Consolidated gross profit margin, excluding depreciation, was 23%
of sales in the first quarter of 1998 compared to 27% for the
first quarter of 1997. The decrease in margins is attributed to
WMC, which has its seasonally lowest gross profit performance
during the winter months and is in the start-up phase for several
large regional cable construction contracts. The impact of
adverse weather conditions, in comparison to mild 1997 weather
conditions, reduced WMC's gross profit margins from operations
owned for at least one full year by 6% or approximately $400,000.
With respect to TCS which is commencing significant, multiple-
year projects in Orlando, Florida and Denver, Colorado, TCS
experienced reduced gross profit margins from historical
percentages by approximately $600,000. The reduced margins from
the communications segment more than offset improved margins at
Conceptronic, which increased from 29% in the three months ended
March 31, 1997 to 32% in the comparable period in 1998, due
primarily to a favorable mix of margins on equipment sold.
Consolidated selling, general and administrative expenses for the
first quarter of 1998 were $3,455,000 compared to $1,506,000 for
the first quarter of 1997. The increase was largely due to the
Acquisitions, which had $1,593,000 in selling, general and
administrative expenses for the three months ended March 31,
1998.
Depreciation expense increased to $1,324,000 for the three months
ended March 31, 1998, compared to $208,000 for the three months
ended March 31, 1998 due primarily to WMC which made fixed asset
acquisitions of $6,967,000 during calendar year 1997, and
$4,700,000 during the three months ended March 31, 1998. The
capital assets are amortized over sixty months. Further, the
Acquisitions had $836,000 in depreciation for the three months
ended March 31, 1998. Goodwill amortization increased to
$654,000 from $196,000 in the comparable period one year ago due
to the Acquisitions.
Net interest expense for the three months ended March 31, 1998
was $622,000, compared to $55,000 for the comparable period of
1997. The WMC net interest expense increased to $582,000 for the
three months ended March 31, 1998, compared to $46,000 in 1997,
due to the Acquisitions whose purchases were partially financed
through bank financing and due to equipment financing lines for
the above expanded capital assets acquisition program. (See
discussion of expanded bank credit facilities in Liquidity and
Capital Resources.)
Income tax benefit decreased to $80,000 for the three months
ended March 31, 1998 from $381,000 in the comparable period one
year ago. The quarter ended March 31, 1997 reflects the reversal
of valuation allowances primarily recorded against deferred tax
assets.
Liquidity and Capital Resources
In the first quarter of 1998, the Company acquired Can-Am and
Schenck which provide aerial and underground construction and
splicing services for both fiber optic and coaxial cable to major
telecommunications customers.
The purchase price was approximately $35 million and consisted of
1,809,000 shares of common stock of the Company and approximately
$15 million in cash. The Company has classified as goodwill
approximately $27.4 million which represents the cost in excess
of the fair value of the net assets of WMC which was accounted
for as a purchase transaction. Goodwill is being amortized using
the straight-line method over 20 years. The Schenck purchase
agreement contains provision for additional payments by the
Company to Schenck shareholders to be satisfied by the issuance
of the Company's common stock and cash, if certain adjusted
EBITDA thresholds are met for the year ending December 31, 1998.
There is no cap for such provisional payments. One-half of the
additional payment to Schenck shareholders will be satisfied by
the issuance of shares of common stock valued at $9.75 per share.
The second half of the payment will be in cash. Any additional
payments earned under the terms of the agreement will be recorded
as an increase in goodwill.
Consolidated net cash provided by operations for the three months
ended March 31, 1998 was $132,000, compared to net cash provided
by operations of $817,000 in the first quarter of 1997. The
change in cash flow from operations is due to net loss from cable
construction operations and the greater volume of construction
activity which caused an increase in WMC receivables. Net cash
used for investing activities in the first quarter of 1998 was
$26,434,000, compared to $9,385,000 in the first quarter of 1997.
The increase in investing activities is primarily due to the
Acquisitions, which required $13,799,000 in cash, as well as
significant expenditures for capital assets for new construction
contracts which used $4,700,000 in cash. Net cash flows provided
by financing activities was $27,774,000 for the three months
ended March 31, 1998, compared to net cash flows used by
financing activities of $507,000 for the same period in 1997.
The increase in net cash flows from financing activities reflects
proceeds of approximately $7,000,000 from advances provided by
Tele-Communications, Inc (TCI) in connection with turn key
contracts in Dallas, Texas and Denver, Colorado.
The Acquisitions significantly impacted various balance sheet
accounts during 1998. Accounts receivable increased $6,519,000,
primarily due to the consolidation of Acquisitions' receivables.
Accounts payable increased by $2,305,000 due to the Acquisitions.
Long-term debt increased $15,458,000 due primarily to the use of
$15,016,000 in bank acquisition financing to acquire Can-Am and
Schenck.
On January 2, 1998, the Company expanded its credit facilities
with NationsBank, NA. In connection with its acquisition of Can-
Am and Schenck, the Company entered into an aggregate of
$15,016,000 in new acquisition financing facilities. The
facilities have a five-year amortization rate for repayment of
the principal and include a balloon payment of approximately $3
million in December 1999 with the remaining principal amount of
the facilities being repaid in equal monthly payments through
December 31, 2002. The acquisition financing bears an interest
rate of LIBOR, plus 275 basis points.
In addition, the Company expanded both its WMC revolving credit
facility from $4 million to $8 million, and equipment financing
facility from $3,500,000 to $6 million under the same interest
rates and covenants as the original lines of credit.
Further, the Company consummated a term loan to refinance
existing equipment financing facilities at Can-Am and Schenck.
The proceeds of this line were $2,400,000, are payable over 48
months, and bear an interest rate at LIBOR, plus 165 basis
points.
To hedge the variable term loan interest rate risk for $10
million in notional amount of the acquisitions financing
facilities and the $2,400,000 in notional amount of the
refinancing term loan, the Company during the three months ended
March 31, 1998 entered into various interest rate swaps pursuant
to which it pays fixed interest rates and receives variable
interest rates on the same notional amount. During the three
months ended March 31, 1998, the Company payment under the two
new interest rate swaps aggregated $7,000. The Company had no
receipts pursuant to the interest rate swaps.
The Company had $9,500,000 in revolving lines of credit with
commercial banks of which $5,869,000 was drawn down as of March
31, 1998 to fund increased inventories, capital equipment
purchases and working capital.
The Company continues to actively pursue acquisitions in the
telecommunications construction and other industries. Subject to
due diligence and other considerations, the Company's commercial
credit facilities for equipment financing, revolving lines of
credit and acquisition financing facilities may be expanded. In
the event that one or more satisfactory acquisition candidates
are located, the Company may seek to expand its existing credit
facilities or issue additional equity or subordinated debt.
The Company believes it has sufficient cash flow from operations,
cash on hand and availability under its credit line to meet its
liquidity needs.
The Company's cable construction operations are expected to have
seasonally weaker results in the first and fourth quarters of the
year, and may produce stronger results in the second and third
quarters. This seasonality is primarily due to the effect of
winter weather on outside plant activities in the northern areas
served by WMC, as well as reduced daylight hours and customer
budgetary constraints. Certain customers tend to complete
budgeted capital expenditures before the end of the year, and
postpone additional expenditures until the subsequent fiscal
period.
Year 2000 Date Conversion
The Year 2000 problem is the result of computer programs being
written with two digits, instead of four digits to define the
applicable year. The Company's management has initiated a
company-wide program to prepare the Company's computer systems
for the Year 2000. A comprehensive review of the Company's
computer systems and software has been conducted to identify the
systems and software that could be affected by this issue. A
plan to resolve this issue is currently being developed and
implemented. The Company presently believes that with
modifications to existing systems and software, and converting to
new systems and software as part of the Company's effort to
streamline its operations, the Year 2000 problem as it applies to
the Company's own systems and software should not pose a
significant operational problem to the Company. The financial
impact to the Company of systems' upgrades to become Year 2000-
compliant is not believed to be significant. The Company plans
to review the impact of the Year 2000 problem on its customers
and suppliers. There can be no guarantee that the systems of
other companies on which the Company's systems rely will be
converted on a timely basis or that a failure to convert by
another company, or a conversion that is incompatible with the
Company's systems, would not have a material adverse effect on
the Company.
Forward Looking Statements
Statements made in the quarterly report that are not historical
or current facts are "forward-looking statements" made pursuant
to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Investors are cautioned that
actual results may differ substantially from such forward-looking
statements. Forward looking statements may be subject to certain
risks and uncertainties, including - but not limited to -
continued acceptance of the Company's products and services in
the marketplace, uncertainties surrounding new acquisitions,
floating rate debt, risks of the construction industry, including
weather and an inability to plan and schedule activity levels,
doing business overseas and risks inherent in concentration of
business in certain customers. All of these risks are detailed
from time to time in the Company's filings with the Securities
and Exchange Commission. Accordingly, the actual results of the
Company could differ materially from such forward-looking
statements.
ARGUSS HOLDINGS, INC.
PART II
Other Information
Items 1,2, 3, 4 and 5: Not Applicable.
Item 6: Exhibits and Reports on form 8-K
10(y) Second Amendment to Financing and Security Agreement,
dated January 2, 1998, by and among Arguss Holdings, Inc.,
White Mountain Cable Construction Corp., Conceptronic, Inc.
and NationsBank, N.A.
10(z) third Amendment to Financing and Security
Agreement, dated May 11, 1998, by and among Arguss Holdings,
Inc., White Mountain Cable Construction Corp., Conceptronic,
Inc. and NationsBank, N.A.
(a) 11 Statement Regarding Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
In a Report on Form 8-K, dated January 2, 1998, the Company
reported under Item 2, "Acquisition or Disposition of Assets",
the acquisition by the Company, through a wholly owned subsidiary
of Can-Am Construction, Inc., Schenck Communications, Inc. and
Rite Cable Construction, Inc., and included in such Report the
following financial statements:
Financial statements of businesses acquired: Audited balance
sheet of Can-Am as of July 31, 1997, and related statements
of income, retained earnings and cash flow for the year then
ended.
Unaudited, separate company financial information of Can-Am
as of September 30, 1997, and related statements of income
and cash flow for the nine months then ended.
Audited balance sheet of Schenck as of September 30, 1997
and related statements of income, retained earnings and cash
flow for the year then ended.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Arguss Holdings, Inc.
May 11, 1998 By: \\ Rainer H. Bosselmann
Rainer H. Bosselmann
Chief Executive Officer
May 11, 1998 By: \\ Arthur F. Trudel
Arthur F. Trudel
Principal Financial Officer
and Principal Accounting
Officer
SECOND AMENDMENT TO FINANCING AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO FINANCING AND SECURITY AGREEMENT
(this "Agreement") is made as of the 2nd day of January, 1998 by
and among ARGUSS HOLDINGS, INC., a Delaware corporation
("Arguss"), WHITE MOUNTAIN CABLE CONSTRUCTION CORP., a Delaware
corporation ("White Mountain"), CONCEPTRONIC, INC., a Delaware
corporation ("Conceptronic"; together with Arguss and White
Mountain, the "Borrowers" and each a "Borrower") and
NATIONSBANK, N.A., a national banking association, its successors
and assigns (the "Lender").
RECITALS
A. The Lender has made certain loans available to the
Borrowers consisting of (i) a term loan to White Mountain and
Arguss (the "White Mountain Borrowers") in the principal amount
of Four Million Two Hundred Fifty Thousand and No/100 Dollars
($4,250,000.00) (the "Facility 1 Loan") to be used to refinance
existing debt of the White Mountain Borrowers, (ii) a line of
credit in favor of the White Mountain Borrowers in the maximum
principal amount of Three Million Five Hundred Thousand and
No/100 Dollars ($3,500,000.00) (the "Facility 2 Loan") to be used
to finance capital expenditures; (iii) a revolving line of credit
in favor of the White Mountain Borrowers in the maximum principal
amount of Four Million and No/100 Dollars ($4,000,000.00)(the
"Facility 3 Loan") to be used for working capital; and (iv) a
credit facility in the amount of One Million Five Hundred
Thousand and No/100 Dollars ($1,500,000.00) (the "Facility 4
Loan") to Arguss and Conceptronic (the "Conceptronic Borrowers")
to be used for working capital.
B. The Loans are governed by that certain Financing and
Security Agreement by and among the Borrowers and the Lender
dated September 11, 1997, which Financing and Security Agreement
has been amended by that certain First Amendment to Financing and
Security Agreement dated October 6, 1997, by and among the
Borrowers and the Lender (the Financing and Security Agreement,
as amended from time to time is hereinafter called, the
"Financing Agreement").
C. All capitalized terms used herein and not otherwise
defined shall have the meanings given to such terms in the
Financing Agreement.
D. Ronald D. Pierce, Can-Am Construction, Inc., a
California corporation ("Can-Am"), Arguss and White Mountain have
entered into an Agreement and Plan of Merger (together with any
and all amendments, modifications, and supplements thereto,
restatements thereof, and substitutes therefor, the "Can- Am
Purchase Agreement"), pursuant to which Arguss will acquire Can-
Am by means of a merger of Can-Am with and into White Mountain
so that White Mountain is the sole surviving corporate entity
(the "Can- Am Purchase Transaction").
E. Edward A. Schenck, Imel L. Wheat, Jr, Kevin E. Schenck,
Schenck Construction of Alaska, Inc., an Alaska corporation
("Schenck"), Arguss and White Mountain have entered into an
Agreement and Plan of Merger (together with any and all
amendments, modifications, and supplements thereto, restatements
thereof, and substitutes therefor, the "Schenck Purchase
Agreement"; together with the Can-Am Purchase Agreement, the
"Purchase Agreements") pursuant to which, Arguss will acquire
Schenck by means of a merger of Schenck into White Mountain so
that White Mountain is the sole surviving corporate entity (the
"Schenck Purchase Transaction"). In connection with the Can-Am
Purchase Transaction and the Schenck Purchase Transaction
(collectively, the "Purchase Transaction"), the Borrowers have
requested that the Lender (i) increase the Facility 2 Loan from
Three Million Five Hundred Thousand and No/100 Dollars
($3,500,000.00) to Six Million and No/100 Dollars ($6,000,000.00)
to finance new capital expenditures related to non-real estate
fixed assets, (ii) increase the principal amount of the Facility
3 Loan from Four Million and No/100 Dollars ($4,000,000.00) to
Eight Million and No/100 Dollars ($8,000,000.00) to temporarily
finance certain shortfalls in working capital, (iii) make a term
loan ("Facility 5 Loan") in the principal amount of Ten Million
and No/100 Dollars ($10,000,000.00) to finance a portion of the
cost of the Purchase Transaction, (iv) make a term loan
("Facility 6 Loan") in the principal amount of Five Million
Sixteen Thousand Nine Hundred Eleven Dollars and No/100
($5,016,911.00) to finance a portion of the cost of the Purchase
Transaction; and (v) make a term loan ("Facility 7 Loan") in the
principal amount of Two Million Four Hundred Thousand and No/100
Dollars ($2,400,000.00) to refinance existing long-term debt
related to non-real estate fixed assets acquired in the Purchase
Transaction, and the Lender has agreed, on the condition, among
others, that this Agreement be executed and delivered by the
Borrowers.
NOW, THEREFORE, in consideration of the premises, the mutual
agreements herein contained, and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the Borrowers and the Lender hereby agree as
follows:
1. Recitals. The parties hereto acknowledge and agree
that the above Recitals are true and correct in all respect and
that the same are incorporated herein and made a part hereof by
reference.
2. Defined Terms. From and after the effective date
hereof, the definitions of "Loan", "Loans", "Note" and "Notes"
set forth in Section 1.01 of the Financing Agreement are hereby
amended and restated in their entirety as follows:
"Loan" means a Facility 1 Loan, a Facility 2 Loan, any
Facility 2 Term Loan, a Facility 3 Loan, a Facility 4 Loan,
a Facility 5 Loan, a Facility 6 Loan, or a Facility 7 Loan,
as the case may be, and "Loans" mean the Facility 1 Loan,
the Facility 2 Loan, each Facility 2 Term Loan, the Facility
3 Loan, the Facility 4 Loan, the Facility 5 Loan, the
Facility 6 Loan and the Facility 7 Loan.
"Note" means the Facility 1 Note, the Facility 2 Note,
each Facility 2 Term Note, the Facility 3 Note, the Facility
4 Note, the Facility 5 Note, the Facility 6 Note, or the
Facility 7 Note, as the case may be, and "Notes" mean
collectively the Facility 1 Note, the Facility 2 Note, each
Facility 2 Term Note, the Facility 3 Note, the Facility 4
Note, the Facility 5 Note, the Facility 6 Note, and the
Facility 7 Note, and any other promissory note which may
from time to time evidence the Obligations.
Except as modified hereby Section 1.01 shall remain unchanged.
3. Facility 2 Loan. From and after the effective date
hereof, Section 2.02(a) of the Financing Agreement is amended and
restated in its entirety as follows:
SECTION 2.02 The Facility 2 Loan. (a)The Lender agrees
to lend to the White Mountain Borrowers on a revolving basis
from time to time the maximum principal amount of Six
Million and No/100 Dollars ($6,000,000.00) (the "Facility 2
Loan"). The joint and several obligation of the White
Mountain Borrowers to repay the advances under the Facility
2 Loan shall be evidenced by the White Mountain Borrowers'
Facility 2 Note dated as of January 2, 1998 (the "Facility 2
Note") payable to the Lender in the form attached hereto as
EXHIBIT A-2. Advances under the Facility 2 Loan shall be
converted to one or more term loans (the "Facility 2 Term
Loans" and each a "Facility 2 Term Loan") at the times and
in such amounts as required pursuant to the terms of this
Agreement. At the time of each conversion of principal
outstanding under the Facility 2 Loan to a Facility 2 Term
Loan (each such date being called a "Conversion Date"), the
White Mountain Borrowers shall execute and deliver to the
Lender a Facility 2 Term Note (each a "Facility 2 Term Note"
and collectively, the "Facility 2 Term Notes") payable to
the Lender in the form attached hereto as EXHIBIT A-3. The
White Mountain Borrowers agree that the outstanding
principal amount under the Facility 2 Note shall be
converted into fully amortizing term loans on the earlier of
(i) the date on which the outstanding balance thereof
exceeds Two Million and No/100 Dollars ($2,000,000.00), or
(ii) the date which is six (6) months from the date of the
execution and delivery of the Facility 2 Note or the
immediately preceding Conversion Date. The Facility 2 Note
and each Facility 2 Term Note shall bear interest and shall
be repaid by the White Mountain Borrowers in the manner and
at the times set forth in the Facility 2 Note and each
Facility 2 Term Note, as the case may be.
4. Facility 3 Loan. From and after the effective date
hereof, Section 2.03(a) of the Financing Agreement is amended and
restated in its entirety as follows:
SECTION 2.03 The Facility 3 Loan. (a) The Lender agrees
to lend to the White Mountain Borrowers on a revolving basis
from time to time the maximum principal amount of Eight
Million and No/100 Dollars ($8,000,000.00) (the "Facility 3
Loan"). The joint and several obligation of the White
Mountain Borrowers to repay the advances under the Facility
3 Loan shall be evidenced by the White Mountain Borrowers'
Facility 3 Note dated September 11, 1997, as increased,
amended and restated in its entirety by that certain Amended
and Restated Revolving Promissory Note dated October 6, 1997
from the White Mountain Borrowers in favor of the Lender,
and as further increased, amended and restated in its
entirety by that certain Second Amended and Restated
Revolving Promissory Note dated January 2, 1998 from the
White Mountain Borrowers in favor of the Lender in the
maximum principal amount of Eight Million and No/100 Dollars
($8,000,000.00) (the "Facility 3 Note") payable to the
Lender in the form attached hereto as EXHIBIT A-4. The
Facility 3 Note shall bear interest and shall be repaid by
the White Mountain Borrowers in the manner and at the times
set forth in the Facility 3 Note.
5. Facility 5 Loan, Facility 6 Loan and Facility 7 Loan.
From and after the effective date hereof, the following Sections
are added immediately after Section 2.04 as Sections 2.04.1,
2.04.2 and 2.04.3 of the Financing Agreement:
SECTION 2.04.1 The Facility 5 Loan. (a)The Lender
agrees to lend to the Borrowers and the Borrowers agree to
borrow from the Lender the principal sum of Ten Million and
No/100 Dollars ($10,000,000.00) (the "Facility 5 Loan").
The joint and several obligation of the Borrowers to repay
the Facility 5 Loan shall be evidenced by the Borrowers'
Promissory Note dated January 2, 1998 (the "Facility 5
Note") payable to the Lender in the form attached hereto as
EXHIBIT A-6. The Facility 5 Note shall bear interest and
shall be repaid by the Borrowers in the manner and at the
times set forth in the Facility 5 Note.
(b) The proceeds of the Facility 5 Loan shall be
used by the Borrowers to finance the acquisition of Can-AM
and Schenck, and, unless prior written consent of the Lender
is obtained, for no other purpose.
(c) The Borrowers may prepay the principal sum
outstanding on the Facility 5 Loan only in accordance with
the terms of the Facility 5 Note. Sums borrowed and repaid
may not be readvanced.
SECTION 2.04.2 The Facility 6 Loan. (a) The Lender
agrees to lend to the Borrowers and the Borrowers agree to
borrow from the Lender the principal sum of Five Million
Sixteen Thousand Nine Hundred Eleven Dollars and No/100
($5,016,911.00) (the "Facility 6 Loan"). The joint and
several obligation of the Borrowers to repay the Facility 6
Loan shall be evidenced by the Borrowers' Promissory Note
dated January 2, 1998 (the "Facility 6 Note") payable to the
Lender in the form attached hereto as EXHIBIT A-7. The
Facility 6 Note shall bear interest and shall be repaid by
the Borrowers in the manner and at the times set forth in
the Facility 6 Note.
(b) The proceeds of the Facility 6 Loan shall be
used by the Borrowers to finance the acquisition of Can-Am
and Schenck, and, unless prior written consent of the Lender
is obtained, for no other purpose.
(c) Sums borrowed and repaid may not be
readvanced.
(d) In addition to the principal payments
required under the Facility 6 Note, the Borrowers shall,
make the following mandatory principal prepayments on the
Facility 6 Note (each a "Facility 6 Mandatory Prepayment"
and collectively, the "Facility 6 Mandatory Prepayments"):
(i) On March 31, 1999, the Borrowers shall
make a payment in the amount of the Excess Cash Flow for
the preceding fiscal year; and
(ii) At the time of the completion of the
sale of all or substantially all of the assets or stock of
Conceptronic, the Borrower shall make a payment in the
amount of Five Million and No/100 Dollars ($5,000,000.00).
The Borrowers shall pay to the Lender on the date of each
Facility 6 Mandatory Prepayment accrued interest to such
date on the amount prepaid. Each Facility 6 Mandatory
Prepayment shall be applied to the balance of the Facility 6
Loan due at maturity and then to principal against the
principal installments in the inverse order of their
maturity. For purposes hereof, "Excess Cash Flow" means for
any annual period of determination thereof, an amount equal
to fifty percent (50%) of the Borrowers' consolidated net
income, plus non-cash charges, less scheduled principal
repayments of long term debt for such period, as shown on
the annual financial statements for the 1998 fiscal year,
furnished to the Lender in accordance with Section 7.01 (a)
of this Agreement; or in the event that the Borrowers fail
to deliver such financial statements to the Lender as and
when required, or the Lender determines in the exercise of
its good faith and reasonable discretion, that such
financial statements do not accurately reflect the
Borrowers' financial position for the period covered, the
Lender shall estimate, in its sole and absolute discretion,
the amount of Excess Cash Flow for such period.
SECTION 2.04.3 The Facility 7 Loan. (a) The Lender
agrees to lend to the Borrowers and the Borrowers agree to
borrow from the Lender the principal sum of Two Million Four
Hundred Thousand and No/100 Dollars ($2,400,000.00) (the
"Facility 7 Loan"). The joint and several obligation of the
Borrowers to repay the Facility 7 Loan shall be evidenced by
the Borrowers' Promissory Note dated January 2, 1998 (the
"Facility 7 Note") payable to the Lender in the form
attached hereto as EXHIBIT A-8. The Facility 7 Note shall
bear interest and shall be repaid by the Borrowers in the
manner and at the times set forth in the Facility 7 Note.
(b) The proceeds of the Facility 7 Loan shall be
used by the Borrowers to finance existing long term debt for
non-real estate assets of Can Am and Schenck, and, unless
prior written consent of the Lender is obtained, for no
other purpose.
(c) The Borrowers may prepay the principal sum
outstanding on the Facility 7 Loan only in accordance with
the terms of the Facility 7 Note. Sums borrowed and repaid
may not be readvanced.
6. Fees. In consideration of the Lender's agreement to
make the Loans described in this Agreement, the Borrowers shall
pay the Lender on the date hereof the following fees (the
"Additional Fees"):
(a) A fee in the amount of one quarter of one
percent (1/4%) of the increase in amount of the Facility 2 Loan
($6,250);
(b) A fee in the amount of one quarter of one
percent (1/4%) of the increase in amount of the Facility 3 Loan
($10,000);
(c) A fee in the amount of one percent (1.0%) of
the Facility 5 Loan ($100,000);
(d) A fee in the amount of one half of one percent
(1/2%) for the Facility 6 Loan ($25,845.55) (the "Facility 6 Loan
Fee"); and
(e) A fee in the amount of one quarter of one percent
(1/4%) for the Facility 7 Loan ($6,000).
Prior to the date hereof, the Borrowers have already paid $5,500
of the Additional Fees. The Additional Fees are considered earned
when paid and are not refundable. Notwithstanding the foregoing,
the Lender agrees that if the unpaid principal balance of the
Facility 6 Loan is curtailed by not less than $5,000,000 in
excess of the regularly scheduled principal payments on the
Facility 6 Loan, on or before July 1, 1998, the Lender will
recalculate the Facility 6 Loan Fee as of July 1, 1998, to an
amount equal to one half of one percent (1/2%) of the then
outstanding principal balance and the Lender will promptly return
the amount of the Facility 6 Loan Fee paid in excess of such
amount to the Borrowers.
7. Grant of Security Interest. The Borrowers hereby
assign, pledge and grant to the Lender, and agrees that the
Lender shall have a perfected and continuing security interest
in, and lien on, all assets of acquired by any of the Borrowers
pursuant to the Purchase Transaction, including, without
limitation: (a) Accounts, chattel paper, Equipment, General
Intangibles, Motor Vehicles, documents, instruments and
Inventory, Leases (whether or not designated with initial capital
letters), as those (whether or not designated with initial
capital letters), as those terms are defined in the Uniform
Commercial Code as presently adopted and in effect in the State
and shall also cover, without limitation, any and all property
specifically included in those respective terms in this Agreement
or in the Financing Documents; (b) returned, rejected or
repossessed goods, the sale or lease of which shall have given or
shall give rise to an Account or Chattel Paper; (c) insurance
policies relating to the foregoing; (d) books and records in
whatever media (paper, electronic or otherwise) recorded or
stored, with respect to the foregoing and all Equipment and
General Intangibles necessary or beneficial to retain, access
and/or process the information contained in those books and
records; and (e) cash and non-cash proceeds and products of the
foregoing.
8. Solvency. The Borrowers represent that the fair
saleable value of each Borrower's assets (including goodwill
minus disposition costs) after completion of the Purchase
Transaction exceeds the fair value of its liabilities; no
Borrower is left with unreasonably small capital after the
transactions contemplated by this Agreement; and each Borrower is
able to pay its debts (including trade debts) as they mature.
9. Additional Reporting Requirements. Notwithstanding
anything set forth in the Financing Agreement, the Borrowers
agree to provide the Lender with complete copies of titles of all
motor vehicles and other titled equipment now or hereafter
acquired by any Borrower on a semi-annual basis commencing June
30, 1998.
10. Additional Representations with Respect to Bulk
Transfer. The parties to the Purchase Agreements have each
complied with any and all Laws governing the transfer of all or
substantially all of the assets of Can-Am and Schenck, including,
without limitation, any and all bulk transfer laws, so that as of
the date hereof, the assets described in the Purchase Agreements
shall be transferred to White Mountain free from all claims,
Liens, encumbrances, and security interests of any nature whatso
ever, except as otherwise permitted by the Purchase Agreements
and as otherwise disclosed in writing to the Lender.
11. Replacement Notes. EXHIBITS A-2 and A-4 to the
Financing Agreement are being replaced in their entirety with
EXHIBITS A-2 and A-4 attached hereto. The White Mountain
Borrowers shall execute and deliver to the Lender on the date
hereof their Amended and Restated Revolving Promissory Note in
the form of EXHIBIT A-2 attached hereto and incorporated herein
by reference (the "Replacement Facility 2 Note") and their Second
Amended and Restated Replacement Revolving Promissory Note in the
form of EXHIBIT A-4 attached hereto and incorporated herein by
reference (the "Replacement Facility 3 Note") in substitution for
and not satisfaction of, the issued and outstanding Facility 2
Note and Facility 3 Note; and the Replacement Facility 2 Note
shall be the "Facility 2 Note" for all purposes of the Financing
Documents and the Replacement Facility 3 Note shall be the
"Facility 3 Note" for all purposes of the Financing Documents.
The Notes being substituted pursuant to this Agreement shall be
marked "Replaced" and returned to the White Mountain Borrowers
promptly after the execution and delivery of the Replacement
Facility 2 Note and Replacement Facility 3 Note to the Lender.
12. Conditions Precedent. This Agreement shall become
effective on the date the Lender receives the following
documents, each of which shall be satisfactory in form and
substance to the Lender:
(a) The Replacement Facility 2 Note issued and
delivered by the White Mountain Borrowers;
(b) The Replacement Facility 3 Note issued and
delivered by the White Mountain Borrowers;
(c) The Facility 5 Note issued and delivered by the
Borrowers;
(d) The Facility 6 Note issued and delivered by the
Borrowers;
(e) The Facility 7 Note issued and delivered by the
Borrowers;
(f) All documents and instruments (including,
without limitation, UCC-1 and UCC-3 statements) required to be
filed, registered or recorded in order to create, in favor of the
Lender, a perfected Lien in the Collateral (subject only to the
Permitted Liens) in form and in sufficient number for filing,
registration, and recording in each office in each jurisdiction
in which such filings, registrations and recordations are
required, and (b) delivered such evidence as the Lender may deem
satisfactory that all necessary filing fees and all recording and
other similar fees, and all Taxes and other expenses related to
such filings, registrations and recordings will be or have been
paid in full.
(g) A true correct and complete copy of the executed
Purchase Agreements and any and all other agreements, documents
or instruments, previously, now or hereafter executed and
delivered by the Borrower, or any other Person in connection with
the Purchase Agreement Transaction (the "Purchase Agreement
Documents"), together with a certificate signed by the Borrowers
certifying that the Purchase Agreement Documents furnished to the
Lender are true, correct, in full force and effect, the
provisions thereof have not been in any way modified, amended or
waived and the Purchase Agreement Transaction has been effected,
closed and consummated pursuant to, and in accordance with, the
terms and conditions of the Purchase Agreements.
(h) True and complete copies of the Articles of Merger
between White Mountain and Can- Am.
(i) True and complete copies of the Articles of Merger
between White Mountain and Schenck.
(j) The favorable opinion of counsel for the Borrowers
satisfactory to the Lender.
(k) Copies of the canceled stock certificates of
Schenck and Can-Am from White Mountain.
(l) Such other information, instruments, opinions,
documents, certificates and reports as the Lender may deem
necessary.
13. Counterparts. This Agreement may be executed in any
number of duplicate originals or counterparts, each of which
duplicate original or counterpart shall be deemed to be an
original and all taken together shall constitute one and the same
instrument.
14. Financing Documents; Governing Law; Etc. This
Agreement is one of the Financing Documents defined in the
Financing Agreement and shall be governed and construed in
accordance with the laws of the State of Maryland. The headings
and captions in this Agreement are for the convenience of the
parties only and are not a part of this Agreement.
15. Acknowledgments. The Borrowers hereby confirm to the
Lender the enforceability and validity of each of the Financing
Documents. In addition, the Borrowers hereby agree to the
execution and delivery of this Agreement and the terms and
provisions, covenants or agreements contained in this Agreement
shall not in any manner release, impair, lessen, modify, waive or
otherwise limit the liability and obligations of the Borrowers
under the terms of any of the Financing Documents, except as
otherwise specifically set forth in this Agreement. The
Borrowers issue, remake, ratify and confirm the representations,
warranties and covenants contained in the Financing Documents.
Nothing in this Agreement shall be deemed to waive any defaults
existing under any of the Financing Documents as of the date
hereof.
16. Modifications. This Agreement may not be supplemented,
changed, waived, discharged, terminated, modified or amended,
except by written instrument executed by the parties.
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed and delivered under seal by the duly authorized
representatives as of the date and year first written above.
WITNESS/ATTEST: ARGUSS HOLDINGS, INC.
__________________________
By:_____________________________(SEAL)
Arthur F. Trudel
Chief Financial Officer
WITNESS/ATTEST: WHITE MOUNTAIN CABLE
CONSTRUCTION CORP.
__________________________
By:_____________________________(SEAL)
Arthur F. Trudel
Vice President
WITNESS/ATTEST: CONCEPTRONIC, INC.
__________________________
By:_____________________________(SEAL)
Arthur F. Trudel
Vice President
WITNESS: NATIONSBANK, N.A.
__________________________
By:_____________________________(SEAL)
Paul A. Broni
Assistant Vice President
THIRD AMENDMENT TO FINANCING AND SECURITY AGREEMENT
THIS THIRD AMENDMENT TO FINANCING AND SECURITY AGREEMENT
(this "Agreement") is made as of the 11th day of May, 1998 by and
among ARGUSS HOLDINGS, INC., a Delaware corporation ("Arguss"),
WHITE MOUNTAIN CABLE CONSTRUCTION CORP., a Delaware corporation
("White Mountain"), CONCEPTRONIC, INC., a Delaware corporation
("Conceptronic"; together with Arguss and White Mountain, the
"Borrowers" and each a "Borrower") and NATIONSBANK, N.A., a
national banking association, its successors and assigns (the
"Lender").
RECITALS
A. The Lender has made certain loans available to the
Borrowers, which Loans are governed by that certain Financing and
Security Agreement by and among the Borrowers and the Lender
dated September 11, 1997, which Financing and Security Agreement
has been amended by that certain First Amendment to Financing and
Security Agreement dated October 6, 1997, by and among the
Borrowers and the Lender and by that certain Second Amendment to
Financing and Security Agreement dated as of January 2, 1998 by
and among the Borrowers and the Lender (the Financing and
Security Agreement, as amended from time to time is hereinafter
called, the "Financing Agreement").
C. All capitalized terms used herein and not otherwise
defined shall have the meanings given to such terms in the
Financing Agreement.
D. The Borrowers have requested that the Lender consent to
White Mountain encumbering certain property belonging to White
Mountain and the Lender has agreed, on the condition, among
others, that this Agreement be executed and delivered by the
Borrowers.
NOW, THEREFORE, in consideration of the premises, the mutual
agreements herein contained, and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the Borrowers and the Lender hereby agree as
follows:
1. Recitals. The parties hereto acknowledge and agree
that the above Recitals are true and correct in all respect and
that the same are incorporated herein and made a part hereof by
reference.
2. Definitions. From and after the effective date hereof,
the definition of "EBIDTA" in Section 1.01 of the Financing
Agreement is amended and restated in its entirety as follows:
"EBIDTA" shall mean the sum of the Borrowers' net
income (increased or reduced, as the case may be, by the
amount of any non-cash stock compensation expenses or
gains), plus interest expense, plus income tax expense, plus
depreciation expense, plus amortization expense.
3. Indebtedness. From and after the effective date
hereof, the following as added to the Financing Agreement as
Section 8.01(A):
SECTION 8.01(A) Indebtedness. The Borrowers will
not, and will not permit any Subsidiary to, create, incur,
assume or suffer to exist any Indebtedness for Borrowed
Money, or permit any Subsidiary so to do, except:
(a) the Obligations;
(b) current accounts payable arising in the
ordinary course;
(c) Indebtedness secured by Permitted Liens;
and
(d) Indebtedness created,
incurred, or assumed in connection with
any Acquisition in an aggregate amount
not to exceed $500,000 for any
Acquisition.
4. Counterparts. This Agreement may be executed in any
number of duplicate originals or counterparts, each of which
duplicate original or counterpart shall be deemed to be an
original and all taken together shall constitute one and the same
instrument.
5. Financing Documents; Governing Law; Etc. This
Agreement is one of the Financing Documents defined in the
Financing Agreement and shall be governed and construed in
accordance with the laws of the State of Maryland. The headings
and captions in this Agreement are for the convenience of the
parties only and are not a part of this Agreement.
6. Acknowledgments. The Borrowers hereby confirm to the
Lender the enforceability and validity of each of the Financing
Documents. In addition, the Borrowers hereby agree to the
execution and delivery of this Agreement and the terms and
provisions, covenants or agreements contained in this Agreement
shall not in any manner release, impair, lessen, modify, waive or
otherwise limit the liability and obligations of the Borrowers
under the terms of any of the Financing Documents, except as
otherwise specifically set forth in this Agreement. The
Borrowers issue, remake, ratify and confirm the representations,
warranties and covenants contained in the Financing Documents.
Nothing in this Agreement shall be deemed to waive any defaults
existing under any of the Financing Documents as of the date
hereof.
7. Modifications. This Agreement may not be supplemented,
changed, waived, discharged, terminated, modified or amended,
except by written instrument executed by the parties.
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed and delivered under seal by the duly authorized
representatives as of the date and year first written above.
WITNESS/ATTEST: ARGUSS HOLDINGS, INC.
__________________________
By:_____________________________(SEAL)
Arthur F. Trudel
Chief Financial Officer
WITNESS/ATTEST: WHITE
MOUNTAIN CABLE
CONSTRUCTION CORP.
__________________________
By:_____________________________(SEAL)
Arthur F. Trudel
Vice President
WITNESS/ATTEST: CONCEPTRONIC, INC.
__________________________
By:_____________________________(SEAL)
Arthur F. Trudel
Vice President
WITNESS: NATIONSBANK, N.A.
__________________________
By:_____________________________(SEAL)
Maria Manos
Vice President
Exhibit 11
ARGUSS HOLDINGS, INC.
STATEMENT REGARDING COMPUTATION
OF PER SHARE EARNINGS
Three Months Ended
March 31, 1998 March 31, 1997
Net Income <Loss> ($773,000) $618,000
Weighted Average Common Shares
Outstanding - Basic 10,361,000 7,271,000
Stock Options and Warrants - 225,000
Weighted Average Common Shares
Outstanding - Diluted 10,361,000 7,496,000
Net Income <Loss> Per Share - Basic ($.07) $.09
Net Income <Loss> Per Share -
Diluted ($.07) $.08
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,340,000
<SECURITIES> 0
<RECEIVABLES> 20,175,000
<ALLOWANCES> 0
<INVENTORY> 5,058,000
<CURRENT-ASSETS> 36,482,000
<PP&E> 25,522,000
<DEPRECIATION> (3,505,000)
<TOTAL-ASSETS> 109,592,000
<CURRENT-LIABILITIES> 29,583,000
<BONDS> 0
0
0
<COMMON> 56,338,000
<OTHER-SE> (331,000)
<TOTAL-LIABILITY-AND-EQUITY> 109,592,000
<SALES> 24,239,000
<TOTAL-REVENUES> 24,239,000
<CGS> 18,791,000
<TOTAL-COSTS> 18,791,000
<OTHER-EXPENSES> 5,679,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 678,000
<INCOME-PRETAX> (853,000)
<INCOME-TAX> 80,000
<INCOME-CONTINUING> (773,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (773,000)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
