-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Plwqq0jgFNSzPLlJH9bx050iTduqhvJyQpWyVEpX/5AJjeV74D+w/v73rpRfWHYw 80AZ0yYyzYTTiGMrJSUJiQ== 0000950144-97-011359.txt : 19971031 0000950144-97-011359.hdr.sgml : 19971031 ACCESSION NUMBER: 0000950144-97-011359 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19971030 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DYCOM INDUSTRIES INC CENTRAL INDEX KEY: 0000067215 STANDARD INDUSTRIAL CLASSIFICATION: WATER, SEWER, PIPELINE, COMM AND POWER LINE CONSTRUCTION [1623] IRS NUMBER: 591277135 STATE OF INCORPORATION: FL FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: S-3/A SEC ACT: SEC FILE NUMBER: 333-36883 FILM NUMBER: 97703443 BUSINESS ADDRESS: STREET 1: 4440 PGA BLVD. STE 600 STREET 2: FIRST UNION CENTER CITY: PALM BEACH GARDENS STATE: FL ZIP: 33410 BUSINESS PHONE: 5616277171 MAIL ADDRESS: STREET 1: P O BOX 3524 STREET 2: SUITE 860 CITY: WEST PALM BEACH STATE: FL ZIP: 33402 FORMER COMPANY: FORMER CONFORMED NAME: MOBILE HOME DYNAMICS INC DATE OF NAME CHANGE: 19820302 S-3/A 1 DYCOM INDUSTRIES, INC. S-3/A #1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 30, 1997 REGISTRATION NO. 333-36883 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- AMENDMENT NO. 1 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- DYCOM INDUSTRIES, INC. (Exact name of Registrant as specified in its charter) --------------------- FLORIDA 59-1277135 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
FIRST UNION CENTER 4440 PGA BOULEVARD, SUITE 600 PALM BEACH GARDENS, FLORIDA 33410 (561) 627-7171 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) THOMAS R. PLEDGER FIRST UNION CENTER 4440 PGA BOULEVARD, SUITE 600 PALM BEACH GARDENS, FLORIDA 33410 (561) 627-7171 (Name, address, including zip code, and telephone number, including area code, of agent for service) --------------------- COPIES TO: L. FRANK CHOPIN, ESQUIRE HENRY D. KAHN, ESQUIRE CHOPIN, MILLER & YUDENFREUND PIPER & MARBURY L.L.P. 440 ROYAL PALM WAY, SUITE 200 36 SOUTH CHARLES STREET PALM BEACH, FLORIDA 33480 BALTIMORE, MARYLAND 21201-3018 (561) 655-9500 (410) 539-2530
--------------------- Approximate date of commencement of proposed sale to public: as soon as practicable after this registration statement becomes effective. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] --------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ 2 Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. SUBJECT TO COMPLETION, DATED OCTOBER 30, 1997 2,700,000 SHARES LOGO COMMON STOCK Of the 2,700,000 shares of Common Stock, offered hereby, 1,573,378 shares are being sold by Dycom Industries, Inc. ("Dycom" or the "Company") and 1,126,622 shares are being sold by certain stockholders of the Company (the "Selling Stockholders"). The Company will not receive any proceeds from the sale of shares by the Selling Stockholders. See "Principal and Selling Stockholders." The Company's Common Stock is traded on the New York Stock Exchange under the symbol "DY". On October 27, 1997, the last reported sale price of the Common Stock on the New York Stock Exchange was $22 3/4 per share. See "Price Range of Common Stock and Dividend Policy." SEE "RISK FACTORS" COMMENCING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ================================================================================
Price to Underwriting Proceeds to Proceeds to Selling Public Discount(1) Company(2) Stockholders(2) - ---------------------------------------------------------------------------------------------- Per Share.................... $ $ $ $ Total(3)..................... $ $ $ $ ==============================================================================================
(1) See "Underwriting" for information concerning indemnification of the Underwriters and other matters. (2) Before deducting offering expenses payable by the Company, estimated at $310,000, and by the Selling Stockholders, estimated at $190,000. (3) The Company has granted to the Underwriters a 30-day option to purchase up to 405,000 additional shares of Common Stock solely to cover over-allotments, if any. If the Underwriters exercise this option in full, the Price to Public will total $ , the Underwriting Discount will total $ and the Proceeds to Company will total $ . See "Underwriting". The shares of Common Stock are offered by the several Underwriters named herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. It is expected that delivery of the certificates representing such shares will be made against payment therefor at the office of NationsBanc Montgomery Securities, Inc. on or about , 1997. ------------------------ NATIONSBANC MONTGOMERY SECURITIES, INC. MORGAN KEEGAN & COMPANY, INC. THE ROBINSON-HUMPHREY COMPANY , 1997 3 [MAP OF THE UNITED STATES SHOWING LOCATION OF DYCOM OFFICES] CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH TRANSACTIONS MAY INCLUDE STABILIZING THE PURCHASE OF COMMON STOCK TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." 2 4 PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and the Consolidated Financial Statements, including the Notes thereto, appearing elsewhere in this Prospectus and incorporated by reference into this Prospectus including information under "Risk Factors." Unless otherwise indicated, the information in this Prospectus assumes no exercise of the Underwriters' over-allotment option. Unless the text otherwise requires, all references to the "Company" or "Dycom" in this Prospectus shall include Dycom Industries, Inc. and its subsidiaries. THE COMPANY Dycom is a leading provider of engineering, construction and maintenance services to telecommunications providers that operate throughout the United States. The Company's comprehensive range of telecommunications infrastructure services include the engineering, placement and maintenance of aerial, underground, and buried fiber-optic, coaxial and copper cable systems owned by local and long distance communications carriers, competitive local exchange carriers, and cable television multiple system operators. Additionally, the Company provides similar services related to the installation of integrated voice, data, and video local and wide area networks within office buildings and similar structures. Dycom also performs underground utility locating and electric utility contracting services. For the fiscal year ended July 31, 1997, telecommunications services contributed approximately 87% of the Company's contract revenues, underground utility locating services contributed 6%, and electric utility contracting services contributed 7%. Through its nine active wholly-owned subsidiaries, Dycom has established relationships with many leading local exchange carriers, long distance providers, competitive access providers, cable television multiple system operators and electric utilities. Such key customers include BellSouth Telecommunications, Inc., Comcast Cable Communications, Inc., The Southern New England Telephone Company, GTE Corporation, U.S. West Communications, Inc., and Florida Power & Light Company. Approximately 40% of the Company's revenues come from multi-year master service agreements with large telecommunications providers and electric utilities. In July 1997, Dycom acquired Communications Construction Group, Inc. ("CCG"), a Pennsylvania-based provider of construction services to cable television multiple system operators (the "CCG Acquisition"). CCG generated revenues of $67.7 million in its fiscal year 1997. This transaction diversified Dycom's telephone company customer base to include a broader mix of work for cable television multiple system operators. The acquisition also created a greater geographic presence for Dycom in the Mid-Atlantic, Midwest and Northeast regions of the United States. The telecommunications industry is undergoing rapid change due to deregulation, increased competition and growing consumer demand for enhanced telecommunications services, thereby creating the need for construction of additional telecommunications infrastructure for new and existing providers. To meet the increasing need for telecommunications infrastructure, telecommunications providers have been increasingly outsourcing their infrastructure engineering, construction and maintenance requirements. As the industry becomes more competitive, outsourcing allows providers to reduce costs and focus on their core competencies. Dycom has a four pronged internal growth strategy: (i) increase the volume of services to existing customers; (ii) expand the scope of services to existing customers; (iii) broaden its customer base; and (iv) geographically expand its service area. The competitive pressures of deregulation have prompted several existing customers to increase the outsourcing of noncore activities which can provide opportunities for the Company to enhance internal growth without necessarily requiring the Company to achieve market share gains from competitors. In addition to internal growth, Dycom believes a variety of attractive consolidation opportunities exist within its industry. Historically, the telecommunications engineering, construction and maintenance services industry has been highly fragmented, largely consisting of small, privately-held companies with annual revenues of less than $100 million. For its acquisition targets, the Company's key acquisition criteria are profitability in excess of industry standards, stable and growing customer bases, proven operational and technical competence, and experienced management that fits within Dycom's decentralized operating structure. Dycom also seeks to use its acquisition strategy to provide geographic as well as customer diversification. 3 5 THE OFFERING Common Stock offered by the Company... 1,573,378 Shares Common Stock offered by Selling Stockholders.......................... 1,126,622 Shares Total Shares to be offered.......... 2,700,000 Shares Common Stock outstanding after the Offering.............................. 12,443,630 Shares(1) Use of proceeds....................... To fund the Company's growth strategy, including acquisitions, working capital and capital expenditures and for other general corporate purposes. The Company may also reduce certain indebtedness, subject to reborrowing. New York Stock Exchange Symbol........ DY SUMMARY CONSOLIDATED FINANCIAL DATA (in thousands, except share and per share data)
YEAR ENDED JULY 31, ----------------------------------------- 1995 1996 1997 ----------- ----------- ----------- CONSOLIDATED STATEMENT OF OPERATIONS DATA: Total revenues.................................... $ 188,333 $ 195,260 $ 243,923 Income before income taxes........................ 8,874 11,381 19,042 Net income........................................ 5,141 7,664 11,219 Fully diluted earnings per common and common equivalent share................................ $ 0.49 $ 0.70 $ 1.02 Shares used in computing earnings per common and common equivalent share......................... 10,588,766 10,928,284 10,994,500
AT JULY 31, 1997 AT JULY 31, 1997 AS ADJUSTED(2) ----------------- ----------------- CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents................................ $ 6,646 $ 40,162 Working capital.......................................... 16,219 49,735 Total assets............................................. 88,162 121,678 Long-term debt, including current portion................ 11,979 11,979 Total stockholders' equity............................... 33,752 67,268
- --------------- (1) As of September 26, 1997; 647,980 shares of Common Stock reserved for issuance under the Company's 1991 Incentive Stock Option Plan, under which options to purchase 455,921 shares of Common Stock have been granted, 91,778 of which are currently exercisable. (2) Adjusted to reflect the sale of 1,573,378 shares of Common Stock offered by the Company hereby at an assumed offering price of $22 3/4 and the anticipated application of the estimated net proceeds therefrom. See "Use of Proceeds" and "Capitalization." --------------- The Company's executive offices are located at 4440 PGA Boulevard, Palm Beach Gardens, Florida 33410 and its telephone number is (561) 627-7171. 4 6 RISK FACTORS Certain statements included in this Prospectus, including, without limitation, statements regarding the effects of recent legislation on the telecommunications industry, the continuation of trends favoring outsourcing of telecommunications engineering, construction and maintenance services, the Company's objective to grow through strategic acquisitions, the Company's internal growth strategy, the Company's ability to realize cost savings upon the completion of acquisitions that may occur in the future, the Company's ability to expand and diversify its customer base, trends in the Company's future operating performance and statements as to the Company's or management's beliefs, expectations, opinions and the like are forward-looking statements. The factors discussed below and elsewhere in this Prospectus could cause actual results and developments to be materially different from those expressed in or implied by such statements. Accordingly, in addition to the other information contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations," elsewhere in this Prospectus and in other documents filed by the Company with the Securities and Exchange Commission and incorporated by reference herein, the following factors should be considered carefully in evaluating an investment in the shares of Common Stock offered by this Prospectus. FLUCTUATIONS IN QUARTERLY OPERATING RESULTS The Company has experienced and expects to continue to experience quarterly variations in revenues, income before income taxes and net income as a result of many factors, including the timing and volume of customers' construction and maintenance projects, the budgetary spending patterns of customers, the commencement of new master service agreements, the termination of existing master service agreements, costs incurred by the Company to support growth by acquisition or otherwise, the change in mix of customers and business, fluctuations in insurance expense accruals due to changes in claims experience and actuarial assumptions, the effect of the change of business between negotiated contracts as opposed to bid contracts and the timing of additional general and administrative expenses to support the growth of the business. Revenues and income before income taxes in the Company's second quarter and occasionally third quarter have in the past been, and may in the future be, adversely affected by weather conditions and the year-end budgetary spending patterns of its customers. SUBSTANTIAL RELIANCE ON KEY CUSTOMERS; DEPENDENCE ON MAJOR CONTRACTS; UNCERTAINTIES RELATING TO BACKLOG The Company's customer base is highly concentrated, with its top three customers in fiscal years 1995, 1996 and 1997 accounting in the aggregate for approximately 66.8%, 72.8% and 64.0%, respectively, of the Company's total revenues. During fiscal 1997, approximately 34.3% of the Company's total revenues were derived from BellSouth Telecommunications, Inc., 23.3% from Comcast Cable Communications, Inc. and 6.4% from GTE Corporation. The Company believes that a substantial portion of its total revenues and operating income will continue to be derived from a concentrated group of customers. The loss of any of such customers, if not replaced, could have a material adverse effect on the Company's business, financial condition and results of operations. The Company derives a substantial portion of its revenues from its customers pursuant to multi-year master service agreements. The Company is currently a party to 15 master service agreements with its customers, including 12 such agreements with BellSouth Telecommunications, Inc. and GTE Corporation, collectively. Under the terms of such agreements the customer can typically terminate the agreement on 90 days prior written notice. The termination or renegotiation of any such contracts or the Company's failure to enter into new master service agreements with its customers could have a material adverse effect on the Company's business, financial condition and results of operations. The Company's current backlog generally consists of estimates of the services to be provided to customers under master service agreements. The master service agreements are generally exclusive requirement contracts with certain exceptions, including the customer's option to perform the services with its own regularly employed personnel. Accordingly, there can be no assurance as to the customer's requirements during a particular period or that management's estimates of such requirements, including those used to formulate backlog, at any point in time are accurate. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business -- Customer Relationships" and "-- Backlog." 5 7 RISKS ASSOCIATED WITH ACQUISITIONS An element of the Company's growth strategy is to pursue strategic acquisitions that expand, complement or diversify the Company's business. The Company regularly reviews various strategic acquisition opportunities and periodically engages in discussions regarding such possible acquisitions. Currently, the Company is not a party to any agreements, understandings, or arrangements regarding any material acquisitions; however, as a result of the Company's process of regularly reviewing acquisition prospects, negotiations may occur from time to time if appropriate opportunities arise. There can be no assurance that the Company will be able to identify additional acquisition candidates on terms favorable to the Company or in a timely manner, enter into acceptable agreements or close any such transactions. There can be no assurance that the Company will be able to achieve its acquisition strategy, and any failure to do so could have a material adverse effect on the Company's ability to sustain growth and maintain its competitive position. In addition, the Company believes that it will compete for attractive acquisition candidates with other companies or investors in the telecommunications services industry. Increased competition for such acquisition candidates could have the effect of increasing the cost to the Company of pursuing this growth strategy or could reduce the number of attractive candidates to be acquired. Future acquisitions could divert management's attention from the daily operations of the Company and otherwise require additional management, operational and financial resources. Moreover, there is no assurance that the Company will successfully integrate acquired companies or their management teams into its decentralized operating structure, retain management teams of acquired companies on a long term basis, or operate acquired companies profitably. Acquisitions may also involve a number of other risks, including adverse short-term effects on the Company's operating results, dependence on retaining key personnel and customers, amortization of acquired intangible assets, and risks associated with unanticipated liabilities or contingencies. See "Business -- Growth Strategy." In the past, the Company has experienced difficulties in integrating and managing certain of its acquisitions. Most recently, the Company determined to write-off intangible assets, including goodwill, of $24.3 million in 1993 and $1.4 million in 1994 in connection with four acquisitions, contributing to a net loss of $31.0 million for the fiscal year ended July 31, 1993 and a net loss of $7.5 million for the fiscal year ended July 31, 1994. Litigation with the management team of two acquired operating subsidiaries and related shareholder litigation and a governmental investigation also had a material adverse effect on the Company for several years through and including the fiscal year ended July 31, 1994. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Selected Financial Data contained in the Company's Annual Report on Form 10-K for the year ended July 31, 1997 incorporated by reference herein. While the Company believes that it has improved its acquisition due diligence process and its supervision of acquired companies, no assurance can be given that the Company will not experience difficulties in the future with its acquired companies, whether or not similar to those discussed herein. The Company may require additional debt or equity financing for future acquisitions, which may not be available on terms favorable to the Company, if at all. To the extent the Company utilizes its capital stock for all or a portion of the consideration to be paid for future acquisitions, dilution may be experienced by existing stockholders. If the Company is not able to use its capital stock as consideration for acquisitions or does not have sufficient cash resources, its growth through acquisitions could be limited. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." COMPETITION The telecommunications services industry in which the Company operates is highly competitive, requiring substantial resources and skilled and experienced personnel. The Company competes with other independent contractors in most of the markets in which it operates, several of which are large domestic companies that have greater financial, technical and marketing resources than the Company. In addition, there are relatively few, if any, barriers to entry into the markets in which the Company operates and, as a result, any organization that has adequate financial resources and access to technical expertise may become a competitor to the Company. A significant portion of the Company's revenues are currently derived from master service agreements and price is often an important factor in the award of such agreements. 6 8 Accordingly, the Company could be outbid by its competitors in an effort to procure such business. There can be no assurance that the Company's competitors will not develop the expertise, experience and resources to provide services that achieve or that are superior in both price and quality to the Company's services, or that the Company will be able to maintain or enhance its competitive position. The Company may also compete for business opportunities against the in-house service organizations of its existing or prospective customers, including telecommunications providers, which employ personnel who perform some of the same types of services as those provided by the Company. There can be no assurance that existing or prospective customers of the Company will continue to outsource telecommunications infrastructure services in the future. RISKS ASSOCIATED WITH THE TELECOMMUNICATIONS INDUSTRY The Company's future success, financial condition and results of operations will depend to a significant degree upon purchasing decisions by existing and new telecommunications providers and other prospective customers of the Company within the telecommunications industry. The purchasing decisions by telecommunications providers and other telecommunications companies with respect to services provided by the Company may be affected by a number of factors, including without limitation, the regulatory environment within the telecommunications industry, the public's demand for Internet access and other interactive multimedia services, the preference toward outsourcing telecommunications infrastructure services and their ability to raise the capital necessary to develop telecommunications networks. Although the regulatory environment within the telecommunications industry does not affect the Company directly, the effects of such regulation on the Company's customers may, in turn, adversely impact the Company's business and results of operations. For example, although the Telecommunications Act of 1996 (the "Telecom Act") lifted certain restrictions on telecommunications providers' ability to provide enhanced telecommunications services, which would appear to be favorable, the rules to implement the new statutory provisions of the Telecom Act are still being considered by the Federal Communications Commission and other regulatory agencies and it is uncertain at this time how the regulatory environment will affect telecommunications providers' demand for the Company's services. The demand for the Company's services could also be adversely affected to the extent that the public's demand for Internet access and other interactive multimedia services is less than currently anticipated. Additionally, the demand for the Company's services is affected by the extent to which telecommunications providers and other organizations determine to outsource their telecommunications infrastructure services needs. To the extent that the current trend favoring outsourcing of such services is reversed or reduced, the Company's business, financial condition and results of operations may be materially adversely affected. RISKS ASSOCIATED WITH TECHNOLOGICAL CHANGE The telecommunications industry is subject to rapid changes in technology. Wireline systems used for transmission of video, voice and data face potential displacement by various technologies, including wireless technologies. In addition, the demand for the Company's services could be adversely affected in the event that alternative technologies are developed and implemented that enable telecommunications providers or other organizations to provide enhanced telecommunications services without significantly upgrading their networks. RISKS ASSOCIATED WITH SELF-INSURANCE The Company is primarily self-insured, up to certain limits, for automobile, general liability, workers' compensation and employee group health claims. A liability for unpaid claims and associated expenses, including incurred but not reported losses, is actuarially determined and reflected in the Company's consolidated balance sheet as an accrued liability. The determination of such claims and expenses and the extent of the accrued liability are continually reviewed and updated. If the Company were to experience numerous claims in significant amounts for which it is self-insured, or if significant increases in insurance costs occur which are not able to be offset by increases in contract revenues earned, the Company's results of operations and financial condition could be materially adversely affected. 7 9 DEPENDENCE ON KEY PERSONNEL The Company is highly dependent upon the continued services and experience of its senior management team, including Thomas R. Pledger, the Company's Chairman and Chief Executive Officer, Steven E. Nielsen, the Company's President and Chief Operating Officer and one or more managers of key operating subsidiaries. The loss of the services of these individuals or other members of the Company's senior management could have a material adverse effect on the business, financial condition and results of operations of the Company. See "Management." CONTROL BY CERTAIN STOCKHOLDERS Upon completion of the Offering, executive officers and directors of the Company will beneficially own an aggregate of approximately 13.5% of the outstanding shares of Common Stock (approximately 13.1% if the Underwriters' over-allotment option is exercised in full). Accordingly, such persons, if they were to act in concert, would likely be in a position to influence significantly the outcome of matters requiring a stockholders' vote, including the election of members of the Board of Directors, and thereby exercise a significant degree of control over the affairs and management of the Company. See "Principal and Selling Stockholders." VOLATILITY OF STOCK PRICE The market price of the shares of Common Stock has been, and may continue to be, highly volatile. Numerous factors, such as announcements of fluctuations in the Company's or competitors' operating results, market conditions for telecommunications or telecommunications services company stocks in general, changes in recommendations or earnings estimates by securities analysts, announcements of new contracts or customers by the Company or its competitors, the timing and announcement of acquisitions by the Company or its competitors and government regulatory action, could have a significant effect on the market price of the Common Stock. In addition, the stock market in recent years has experienced significant price and volume fluctuations that often have been unrelated or disproportionate to the operating performance of companies. These broad fluctuations may adversely affect the market price of the Common Stock. There can be no assurance that purchasers of Common Stock in this Offering will be able to resell their Common Stock at prices equal to or greater than the offering price hereunder. SHARES ELIGIBLE FOR FUTURE SALE Sales of substantial amounts of the Common Stock in the public market, whether by purchasers in the Offering or other stockholders of the Company, or the perception that such sales could occur, may adversely affect the market price of the Common Stock and could impair the Company's future ability to raise capital through an offering of its equity securities. Upon completion of this Offering, the Company will have outstanding 12,443,630 shares of Common Stock, plus 455,921 shares of Common Stock reserved for issuance upon exercise of outstanding options, including 91,778 options which are currently exercisable. Substantially all of the shares of Common Stock to be outstanding after completion of this Offering will be either freely salable or salable subject to certain volume and manner of sale restrictions pursuant to Rule 144 of the Securities Act of 1933, as amended (the "Securities Act"). The Company and its directors, executive officers and the Selling Stockholders, who will beneficially own in the aggregate 3,495,301 shares of Common Stock, 28.1% of the shares outstanding after the Offering, have agreed not to offer, sell or otherwise dispose of any shares of Common Stock for a period of 180 days after the closing of the Offering without the prior written consent of NationsBanc Montgomery Securities, Inc. 8 10 ANTI-TAKEOVER PROVISIONS The Company's Articles of Incorporation (the "Articles") and By-Laws (the "By-Laws") contain provisions which may be deemed to be "anti-takeover" in nature in that such provisions may deter, discourage or make more difficult the assumption of control of the Company by another corporation or person through a tender offer, merger, proxy contest or similar transaction. The Articles permit the Board of Directors to establish the rights, preferences, privileges and restrictions of, and to issue, up to 1,000,000 shares of Preferred Stock without stockholder approval. The Articles also provide for the staggered election of directors to serve for successive three-year terms. The Company has also adopted a Shareholder Rights Plan and executed certain change of control agreements with key officers which may make it more difficult to effect a change in control of the Company and replace incumbent management. In addition, the Company is subject to certain anti-takeover provisions of the Florida Business Corporation Act. The provisions of the Company's Articles and By-Laws, the existence of the Shareholder Rights Plan and the change of control agreements and the application of the anti-takeover provisions of the Florida Business Corporation Act could have the effect of discouraging, delaying or preventing a change of control of the Company not approved by the Board of Directors, which could adversely affect the market price of the Company's Common Stock. See "Description of Capital Stock -- Anti-takeover Provisions." 9 11 USE OF PROCEEDS The net proceeds to the Company from the sale of the Common Stock offered by the Company, at an assumed public offering price of $22 3/4 per share, are estimated to be $33.5 million ($42.2 million if the Underwriters' over-allotment option is exercised in full) after deduction of the underwriting discount and the estimated offering expenses payable by the Company. The Company will not receive any of the net proceeds of the sale of Common Stock by the Selling Stockholders. See "Principal and Selling Stockholders." The net proceeds of the Offering to the Company will be used to fund the Company's growth strategy, including acquisitions, working capital and capital expenditures and for other general corporate purposes. The Company may also reduce certain indebtedness, subject to reborrowing. These facilities have been used for working capital purposes and equipment purchases. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" and Note 7 of the Notes to Consolidated Financial Statements for a further description of the Company's indebtedness, including these facilities. PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY The Common Stock is traded on the New York Stock Exchange under the symbol "DY." The following table sets forth, for the periods indicated, the high and low closing sale prices of the Common Stock as reported on the New York Stock Exchange.
HIGH LOW ------- ------- FISCAL YEAR ENDED JULY 31, 1996 First Quarter............................................... $ 8 $ 6 3/8 Second Quarter.............................................. 7 1/8 5 Third Quarter............................................... 9 1/4 5 7/8 Fourth Quarter.............................................. 13 1/8 8 7/8 FISCAL YEAR ENDED JULY 31, 1997 First Quarter............................................... 14 3/8 11 1/2 Second Quarter.............................................. 12 1/4 9 1/4 Third Quarter............................................... 12 1/4 10 Fourth Quarter.............................................. 18 1/8 9 7/8 FISCAL YEAR ENDED JULY 31, 1998 First Quarter............................................... 27 7/16 16 9/16 (through October 27, 1997)
On October 27, 1997, the closing sale price of the Common Stock as reported on the New York Stock Exchange was $22 3/4 per share. The number of shareholders of record on September 29, 1997 was approximately 660. The Company currently intends to retain future earnings, and since 1982, no cash dividends have been paid by the Company. The Board of Directors will determine any future change in dividend policies based on financial conditions, profitability, cash flow, capital requirements, and business outlook, as well as other factors relevant at the time. The Company's credit facilities expressly limit the payment of cash dividends to fifty percent of each fiscal year's after-tax profits. The credit facilities' restrictions regarding the Company's debt to equity, quick and current ratios also affect the Company's ability to pay dividends. 10 12 CAPITALIZATION The following table sets forth the actual capitalization of the Company as of July 31, 1997 and the capitalization as adjusted to reflect the sale of 1,573,378 shares of Common Stock offered hereby, at an assumed public offering price of $22 3/4 per share, and the application of the estimated net proceeds therefrom as described in "Use of Proceeds." The information set forth in the table below should be read in conjunction with the Consolidated Financial Statements of the Company and the notes thereto included elsewhere in this Prospectus.
JULY 31, 1997 -------------------------- ACTUAL AS ADJUSTED ----------- ------------ Long-term debt, including current portion(1)................ $11,978,898 $ 11,978,898 Stockholders' equity: Preferred Stock, $1.00 par value, 1,000,000 shares authorized; no shares issued and outstanding........... -- -- Common Stock, $0.33 1/3 par value; 50,000,000 shares authorized; 10,867,877 shares issued and outstanding; 12,441,255 shares issued and outstanding as adjusted(2)............................................ 3,622,625 4,147,084 Additional paid-in capital................................ 25,421,701 58,412,902 Retained earnings......................................... 4,707,930 4,707,930 ----------- ------------ Total stockholders' equity........................ 33,752,256 67,267,916 ----------- ------------ Total capitalization......................... $45,731,154 $ 79,246,814 =========== ============
- --------------- (1) Long-term debt, including current maturities of $2,966,832. For information concerning the Company's long-term debt, see Note 7 of the Notes to Consolidated Financial Statements. (2) Excludes 647,980 shares of Common Stock reserved for issuance under the Company's 1991 Incentive Stock Option Plan, under which options to purchase 455,921 shares of Common Stock have been granted, 91,778 of which are currently exercisable. 11 13 SUMMARY CONSOLIDATED FINANCIAL DATA The following table summarizes certain summary consolidated financial data and is qualified by reference to and should be read in conjunction with the Company's Consolidated Financial Statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere herein and with the Selected Financial Data contained in the Company's Annual Report on Form 10-K for the fiscal year ended July 31, 1997 incorporated by reference herein. The selected consolidated financial data for each of the years in the three-year period ended July 31, 1997 are derived from consolidated financial statements included herein and incorporated by reference from the Company's Annual Report on Form 10-K for the year ended July 31, 1997 and that have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report, which is included herein and incorporated herein by reference. The financial statements of CCG (consolidated with those of the Company) have been audited by Nowalk & Associates, independent auditors, as stated in their reports, which are included herein and incorporated herein by reference.
YEAR ENDED JULY 31, --------------------------------------- 1995 1996 1997 ----------- ----------- ----------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues: Contract revenues earned.............................. $ 186,957 $ 194,053 $ 242,958 Other, net............................................ 1,376 1,207 966 ----------- ----------- ----------- Total revenues................................ 188,333 195,260 243,924 ----------- ----------- ----------- Expenses: Cost of earned revenues, excluding depreciation....... 153,284 155,770 192,412 General and administrative............................ 19,010 20,485 23,780 Depreciation and amortization......................... 7,165 7,624 8,690 ----------- ----------- ----------- Total expenses................................ 179,459 183,879 224,882 ----------- ----------- ----------- Income before income taxes.............................. 8,874 11,381 19,042 Provision for income taxes.............................. 3,733 3,717 7,823 ----------- ----------- ----------- Net income.............................................. $ 5,141 $ 7,664 $ 11,219 =========== =========== =========== Earnings per common and common equivalent share: Primary............................................... $ 0.49 $ 0.71 $ 1.02 =========== =========== =========== Fully diluted......................................... $ 0.49 $ 0.70 $ 1.02 =========== =========== =========== Shares used in computing earnings per common and common equivalent share: Primary............................................... 10,588,766 10,859,819 10,948,689 =========== =========== =========== Fully diluted......................................... 10,588,766 10,928,284 10,994,500 =========== =========== =========== CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents............................... $ 4,419 $ 3,928 $ 6,646 Working capital......................................... 6,631 8,223 16,219 Total assets............................................ 64,218 66,195 88,162 Long-term debt, including current portion............... 21,380 13,701 11,979 Total stockholders' equity.............................. 13,319 21,182 33,752
12 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Dycom derives most of its contract revenues earned from engineering, construction and maintenance services to the telecommunications industry. In addition, contract revenues earned are derived from underground utility locating services and from maintenance and construction services provided to the electric utility industry. The Company currently performs work for more than 25 local exchange carriers, cable television multiple system operators, long distance carriers, competitive access providers, and electric utilities, principally in the Southeast, Northeast, Midwest and Mid-Atlantic United States. The Company expects that future growth in contract revenues earned will be generated from (i) increasing the volume of services to existing customers; (ii) expanding the scope of services to existing customers; (iii) broadening its customer base; and (iv) geographically expanding its service area. Growth is expected to result from internal sources as well as through acquisitions. Other revenues include gain on sale of surplus equipment and interest income. In July 1997, Dycom completed the CCG Acquisition in a transaction accounted for as a pooling of interest. CCG's revenues for fiscal 1997 were approximately $67.7 million. CCG provides engineering, construction, and maintenance services for cable television multiple system operators. Its principal customer is Comcast Cable Communications, Inc., which accounted for 81.0% of CCG's revenues and 23.3% of Dycom's contract revenues in fiscal 1997. Dycom's financial statements and all financial and operating data derived therefrom have been combined for all periods presented herein to include the financial condition and results of operations of CCG. Dycom provides services to its customers pursuant to master service agreements and contracts for particular projects. Under master service agreements, Dycom agrees to provide, for a period of several years, all specified service requirements to its customer within a given geographical territory. The customer, with certain exceptions, agrees to purchase such requirements from Dycom. Materials to be used in these jobs are generally provided by the customer. Master service agreements generally provide that Dycom will furnish a specified unit of service for a specified unit price (e.g., fiber optic cable will be installed underground for a specified rate of dollars per foot). The Company recognizes revenue under master service agreements on the percentage of completion basis. Dycom is currently party to 15 master service agreements, which accounted for approximately 40% of the Company's fiscal 1997 revenues. Master service agreements are typically bid initially and may be extended by negotiation. The remainder of Dycom's services are provided pursuant to contracts for particular jobs, which are generally from three to four months in duration from the contract date, depending upon the size of the project. These contracts may be either bid or negotiated. Cost of earned revenues includes all direct costs of providing services under the Company's contracts, other than depreciation on fixed assets owned by the Company or utilized by the Company under capital leases, which are included in depreciation and amortization expense. Cost of earned revenues includes all costs of construction personnel, subcontractor costs, all costs associated with operation of equipment, excluding depreciation, materials not supplied by the customer and insurance. Because the Company is primarily self-insured for automobile, general liability, workers' compensation, and employee group health claims, a change in experience or actuarial assumptions that did not affect the rate of claims payments could nonetheless materially adversely affect results of operations in a particular period. General and administrative costs include all costs of holding company and subsidiary management personnel, rent, utilities, travel and centralized costs such as insurance administration, interest on debt, professional costs and certain clerical and administrative overhead. The Company's management personnel, including subsidiary management, undertake all sales and marketing functions as part of their management responsibilities, and, accordingly, the Company does not incur material selling expenses. Dycom, founded in 1969, witnessed significant growth during the 1980's as the result of increasing competitive growth in the long distance telephone market and the needs of the long distance carriers to replace their copper cabling with fiber optic cable. Through 1990, Dycom acquired nine operating subsidiaries. As long distance carriers completed most of their long haul lines in the late 1980's, the Company shifted its focus to the local exchange carrier market. During the early 1990's, Dycom's results of operations were materially 13 15 adversely affected by a number of internal developments, including (i) adjustments taken to insurance reserves in 1991, (ii) write-offs of intangible assets, including goodwill, of $24.3 million and $1.4 million in 1993 and 1994, respectively, incurred in connection with four acquisitions, which contributed to net losses in those years, and (iii) significant costs and distraction of management attention associated with a range of litigation and a governmental investigation, including shareholder litigation and protracted litigation with a former officer involved in a takeover effort. See Selected Financial Data for the five years ended July 31, 1997 in the Company's Annual Report on Form 10-K for the year ended July 31, 1997 incorporated by reference herein. All of these matters were concluded in or before the 1995 fiscal year. Management of the Company does not believe that any of the events or circumstances it faced in the early 1990's are indicative of the manner in which the Company currently operates or the Company's future prospects. RESULTS OF OPERATIONS The following table sets forth, as a percentage of contract revenues earned, certain items in the Company's statement of operations for the periods indicated:
YEAR ENDED JULY 31, ------------------------ 1995 1996 1997 ------ ------ ------ Revenues: Contract revenues earned.................................. 100.0% 100.0% 100.0% Other, net................................................ 0.7 0.6 0.4 ------ ------ ------ Total revenues.................................... 100.7 100.6 100.4 Expenses: Cost of earned revenue, excluding depreciation............ 82.0 80.3 79.2 General and administrative................................ 10.2 10.6 9.8 Depreciation and amortization............................. 3.8 3.9 3.6 ------ ------ ------ Total expenses.................................... 96.0 94.8 92.6 ------ ------ ------ Income before income taxes.................................. 4.7 5.8 7.8 Provision for income taxes.................................. 2.0 1.9 3.2 ------ ------ ------ Net income.................................................. 2.7% 3.9% 4.6% ====== ====== ======
YEAR ENDED JULY 31, 1997 COMPARED TO YEAR ENDED JULY 31, 1996 Revenues. Contract revenues increased $48.9 million, or 25.2%, to $243.0 million in fiscal 1997 from $194.1 million in fiscal 1996. Of this increase, $40.7 million was attributable to the telecommunications services group, $6.1 million was attributable to the electric services group and $2.1 million was attributable to the underground utility locating services group, reflecting an increased overall market demand for the Company's services. During fiscal 1997, the Company recognized $210.4 million of contract revenues from the telecommunications services group as compared to $169.7 million in fiscal 1996. The increase in the Company's telecommunications services group reflects an increased volume of projects and activity in fiscal 1997 associated with the cable television services group, which increased by $19.4 million to $70.6 million in fiscal 1997 from $51.2 million in fiscal 1996, the design and installation of broadband networks, telephone engineering services and premise wiring services, which was partially offset by a slight decline in contract revenues from services performed under master service agreements. Contract revenues from master service agreements, however, continue to be a significant source of the Company's revenues, representing approximately 40% of total contract revenues in fiscal 1997 as compared to 47.2% in fiscal 1996. The Company recognized contract revenues of $16.8 million from electric utilities services in fiscal 1997 as compared to $10.7 million in fiscal 1996, an increase of 57.0%. The Company recognized contract revenues of $15.8 million from underground utility locating services in fiscal 1997 as compared to $13.7 million in fiscal 1996, an increase of 15.2%. Cost of Earned Revenues. Cost of earned revenues increased $36.6 million to $192.4 million in fiscal 1997 from $155.8 million in fiscal 1996, but decreased as a percentage of contract revenues to 79.2% 14 16 from 80.3%. Direct labor, subcontractor and materials costs declined slightly as a percentage of contract revenues as a result of improved productivity in the labor force and the utilization of more modern equipment. Additionally, insurance costs declined by approximately $1.6 million as a result of fewer claims arising in fiscal 1997. General and Administrative Expenses. General and administrative expenses increased $3.3 million to $23.8 million in fiscal 1997 from $20.5 million in fiscal 1996, but decreased as a percentage of contract revenues to 9.8% from 10.6%. The increase in general and administrative expenses was primarily attributable to a $2.1 million increase in administrative salaries, bonuses, employee benefits and payroll taxes and an increase of $300,000 in the provision for doubtful accounts. The Company also incurred professional and related expenses associated with the CCG Acquisition of $400,000 in fiscal 1997. Depreciation and Amortization. Depreciation and amortization expense increased $1.1 million to $8.7 million in fiscal 1997 from $7.6 million in fiscal 1996, but decreased as a percentage of contract revenues to 3.6% from 3.9%. The increase in amount reflects the depreciation of additional capital expenditures incurred in the ordinary course of business. Income Taxes. The provision for income taxes was $7.8 million in fiscal 1997 as compared to $3.7 million in fiscal 1996. The provision for income taxes for fiscal 1996 reflects a reduction of $1.1 million in a valuation allowance relative to certain deferred tax assets. The Company's effective tax rate was 41.1% in fiscal 1997 as compared to 32.7% in fiscal 1996. The effective tax rate differs from the statutory tax rate due to state income taxes, the amortization of intangible assets that do not provide a tax benefit, other non-deductible expenses for tax purposes and, in fiscal 1996, the reduction in a valuation allowance relative to certain deferred tax assets. Net Income. Net income increased to $11.2 million in fiscal 1997 from $7.7 million in fiscal 1996, a 46.4% increase. YEAR ENDED JULY 31, 1996 COMPARED TO YEAR ENDED JULY 31, 1995 Revenues. Contract revenues increased $7.1 million, or 3.8%, to $194.1 million in fiscal 1996 from $187.0 million in fiscal 1995. For fiscal 1996, the telecommunications services group contract revenues increased by $8.8 million, which was offset by declines in contract revenues from the underground utility locating services and the electrical services groups of $1.1 million and $600,000, respectively. During fiscal 1996, the Company recognized $169.7 million of contract revenues from the telecommunications services group as compared to $160.9 million in fiscal 1995. The telecommunications services group experienced an increased volume of projects and activity in fiscal 1996 associated with the design and installation of broadband networks, telephony engineering and design services and premise wiring services, which was partially offset by a decline in contract revenues from services performed under master service agreements. Contract revenues from master service agreements represented 47.2% of contract revenues in fiscal 1996 as compared to 52.1% in fiscal 1995. The Company recognized contract revenues from electrical services of $10.7 million in fiscal 1996 as compared to $11.3 million in fiscal 1995, a decrease of 5.3%, as a result of lower volume from bid contracts, partially offset by improved volume and pricing under certain existing contracts. The Company recognized contract revenues from underground utility locating services of $13.7 million in fiscal 1996 as compared to $14.8 million in fiscal 1995, a decrease of 7.4%, as a result of the loss of a certain underground utility locating contract during the competitive bid process, partially offset by the realization of certain new underground utility locating business. Cost of Earned Revenues. Cost of earned revenues increased $2.5 million to $155.8 million in fiscal 1996 from $153.3 million in fiscal 1995, but decreased as a percentage of contract revenues to 80.3% from 82.0%. Direct labor, subcontractor and materials costs declined slightly as a percentage of contract revenues as a result of improved productivity in the labor force and the utilization of more modern equipment on projects. Additionally, insurance costs increased by approximately $900,000 as a result of more claims arising in fiscal 1996. General and Administrative Expenses. General and administrative expenses increased $1.5 million to $20.5 million in fiscal 1996 from $19.0 million in fiscal 1995, and increased as a percentage of contract revenues to 10.6% from 10.2%. The increase in general and administrative expenses was primarily attributable 15 17 to a $1.1 million increase in administrative salaries, wages and related payroll taxes and an increase of $300,000 in professional expenses. Depreciation and Amortization. Depreciation and amortization expense increased $459,000 to $7.6 million in fiscal 1996 from $7.2 million in fiscal 1995, and increased slightly as a percentage of contract revenues to 3.9% from 3.8%. The increase reflected the depreciation of additional capital expenditures incurred in the ordinary course of business. Income Taxes. The provision for income taxes was $3.7 million in fiscal 1996, as well as in fiscal 1995. The provision for income taxes for 1996 reflects a reduction of $1.1 million in a valuation allowance relative to certain deferred tax assets. The Company's effective tax rate was 32.7% in fiscal 1996 as compared to 42.1% in fiscal 1995. The effective tax rate differed from the statutory tax rate due to state income taxes, the amortization of intangible assets that do not provide a tax benefit, other non-deductible expenses for tax purposes and, in fiscal 1996, the reduction in a valuation allowance relative to certain deferred tax assets. Net Income. Net income increased to $7.7 million in fiscal 1996 from $5.1 million in fiscal 1995, a 49.1% increase. QUARTERLY RESULTS OF OPERATIONS The following table sets forth historical financial data for the fiscal quarters of 1996 and 1997. This quarterly information is unaudited, but has been prepared on a basis consistent with the Company's audited financial statements presented elsewhere herein and, in the Company's opinion, includes all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the information for the quarters presented. The operating results for any quarter are not necessarily indicative of the results for any future period.
QUARTER ENDED ------------------------------------------------------------------------------------- OCT. 31, JAN. 31, APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30, JULY 31, 1995 1996 1996 1996 1996 1997 1997 1997 -------- -------- -------- -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Total revenues............................ $50,854 $45,290 $45,215 $53,901 $56,414 $57,275 $63,181 $67,053 Expenses: Cost of earned revenues................. 40,939 36,666 36,039 42,126 45,010 46,255 49,707 51,440 General and administrative.............. 5,276 4,895 4,981 5,332 5,351 5,405 6,659 6,365 Depreciation and amortization........... 1,920 1,946 1,689 2,069 2,073 2,040 2,114 2,463 ------- ------- ------- ------- ------- ------- ------- ------- Total expenses.................... 48,135 43,507 42,709 49,527 52,434 53,700 58,480 60,268 ------- ------- ------- ------- ------- ------- ------- ------- Income before income taxes................ 2,719 1,783 2,506 4,374 3,980 3,575 4,701 6,785 Provision for income taxes................ 1,197 669 1,062 790 1,745 1,261 1,882 2,934 ------- ------- ------- ------- ------- ------- ------- ------- Net income................................ $ 1,522 $ 1,114 $ 1,444 $ 3,584 $ 2,235 $ 2,314 $ 2,819 $ 3,851 ======= ======= ======= ======= ======= ======= ======= ======= Earnings per share Primary................................. $ 0.14 $ 0.11 $ 0.14 $ 0.33 $ 0.20 $ 0.21 $ 0.26 $ 0.35 Fully diluted........................... $ 0.14 $ 0.11 $ 0.14 $ 0.33 $ 0.20 $ 0.21 $ 0.26 $ 0.35 AS A PERCENTAGE OF TOTAL REVENUES: Total revenues............................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Expenses: Cost of earned revenues................. 80.5 81.0 79.7 78.2 79.8 80.8 78.7 76.7 General and administrative.............. 10.4 10.8 11.0 9.9 9.5 9.4 10.5 9.5 Depreciation and amortization........... 3.8 4.3 3.7 3.8 3.7 3.6 3.4 3.7 ------- ------- ------- ------- ------- ------- ------- ------- Total expenses.................... 94.7 96.1 94.4 91.9 93.0 93.8 92.6 89.9 ------- ------- ------- ------- ------- ------- ------- ------- Income before income taxes................ 5.3 3.9 5.6 8.1 7.0 6.2 7.4 10.1 Provision for income taxes................ 2.3 1.5 2.4 1.5 3.0 2.2 3.0 4.4 ------- ------- ------- ------- ------- ------- ------- ------- Net income................................ 3.0% 2.4% 3.2% 6.6% 4.0% 4.0% 4.4% 5.7% ======= ======= ======= ======= ======= ======= ======= =======
The Company has historically experienced variability in revenues, income before income taxes and net income on a quarterly basis. A significant amount of this variability is due to the fact that the Company's business is subject to seasonal fluctuations, with activity in its second and occasionally third fiscal quarter (the quarters ended January 31 and April 30 in a given fiscal year) being adversely affected by winter weather. For example, the Company's revenues, income before income taxes and net income for the second and third fiscal quarters of 1996 were adversely affected by severe winter weather, including significant snowfall, experienced at that time. In addition, budgetary spending patterns of significant customers, which often run on a calendar year basis, have resulted in greater volatility of second fiscal quarter results. The Company has witnessed 16 18 increased sales of engineering services in recent years, and an increase in the level of such services may offset the effect of these seasonal factors, although no assurance can be given. The Company has experienced and expects to continue to experience quarterly fluctuations in revenues, income before income taxes and net income as a result of other factors, including the timing and volume of customers' construction and maintenance projects, the commencement, renewal or termination of master service agreements, safety performance and the timing of additional costs to support growth by acquisition or otherwise. LIQUIDITY AND CAPITAL RESOURCES The Company's needs for capital are attributable primarily to its needs for equipment to support its contractual commitments to customers and its needs for working capital sufficient for general corporate purposes. Capital expenditures have been financed by operating and capital leases and by bank borrowings. To the extent that the Company seeks to grow by acquisitions that involve consideration other than Company stock, the Company's capital requirements may increase, although the Company is not currently subject to any commitments or obligations with respect to any acquisitions. The Company's sources of cash have historically been from operating activities, bank borrowings and from proceeds arising from the sale of idle and surplus equipment and real property. For fiscal 1997, net cash provided by operating activities was $9.8 million compared to $13.8 million for fiscal 1996 and $12.3 million for fiscal 1995. The decrease in fiscal 1997 was due primarily to an increase in accounts receivable. For fiscal 1997, net cash used in investing activities for capital expenditures was $12.1 million, compared to $10.7 million in fiscal 1996 and $8.7 million in fiscal 1995. For fiscal 1997, these expenditures were for the normal replacement of equipment and the buyout of certain operating leases on terms favorable to the Company. For fiscal 1996, these expenditures were for normal equipment replacement and for expansion in the underground utility locating group's geographic market. In addition to equipment purchases, the Company obtained approximately $3.3 million of equipment in fiscal 1997, $3.0 million of equipment in fiscal 1996, and $4.4 million of equipment in fiscal 1995 under noncancellable operating leases. On April 28, 1997, the Company signed a new $35 million credit agreement arranged by a group of banks led by Dresdner Bank Lateinamerika AG. The Company utilized $10.2 million of the new facilities to satisfy its then outstanding long-term debt, $4.2 million to finance its increased working capital requirements, and $800,000 for capital equipment expenditures. The new credit agreement, in total, provides for a (i) $10.0 million revolving working capital facility, (ii) $10.0 million standby letter of credit facility, (iii) $9.0 million five-year term loan, and (iv) $6.0 million revolving equipment acquisition facility. The new credit agreement increased the level of available financing by $11.2 million over the limits set in the Company's previous credit facility. The Company sought this increased borrowing to facilitate its ability to meet its working capital needs in order to sustain its current level of internal growth. The new credit agreement requires the Company to maintain certain financial covenants and conditions such as not more than a 3.0:1 debt-to-equity ratio, a current ratio of not less than 1.4:1, a quick ratio of not less than 0.75:1, and net profit levels of $4.0 million in the first year, increasing thereafter in $750,000 increments, as well as placing restrictions on encumbrances of assets and creation of additional indebtedness. The new credit agreement also limits the payment of cash dividends to 50% of the fiscal net after tax profits. At July 31, 1997, the Company was in compliance with all covenants and conditions under the credit facility. The revolving working capital facility is available for a one-year period and bears interest, at the option of the Company, at the bank's prime interest rate minus 1.00% or LIBOR plus 1.50%. As of July 31, 1997, the Company had borrowed $4.2 million against the revolving working capital facility to meet current working capital requirements, leaving an available borrowing capacity of $5.8 million. At July 31, 1997, the interest rate on the outstanding balance was at LIBOR plus 1.50% (7.56%). The term loan facility has a five-year maturity and bears interest at the bank's prime interest rate minus 0.50% (8.00% at July 31, 1997). The term loan principal and interest is payable in quarterly installments 17 19 through April, 2002. The Company used $9.0 million of the facility to refinance the indebtedness under the previous revolving credit facility. During fiscal 1997, the Company repaid $500,000 on this facility. The revolving equipment acquisition facility is available for a one-year period and bears interest, at the option of the Company, at the bank's prime interest rate minus 0.75% or LIBOR plus 1.75%. Advances against this facility are converted into term loans with maturities not to exceed 48 months. The outstanding principal on the equipment acquisition term loans is payable in monthly installments through January 2001. As of July 31, 1997, the Company had borrowed $1.2 million to refinance the indebtedness under the previous equipment acquisition term loans and an additional $0.8 million to finance the acquisition of new equipment. The Company repaid $100,000 and has remaining available borrowing capacity of $4.1 million under this facility. At July 31, 1997, the interest rate on the outstanding equipment acquisition term loans was at LIBOR plus 1.75% (7.81%). The standby letter of credit facility is available for a one-year period. At July 31, 1997, the Company had $9.2 million in outstanding standby letters of credit issued as security to the Company's insurance administrators as part of its self-insurance program, leaving $0.8 million of available borrowing capacity. CCG maintains a $6.6 million working capital bank credit facility. The interest rate on this credit facility is at the bank's prime rate plus 0.75% and is collateralized by 75% of the eligible trade accounts receivable and inventories. During 1997, certain financial covenants were breached and the bank waived such violations. At July 31, 1997, CCG was in compliance with the bank credit facility covenants and conditions. At July 31, 1997, the outstanding principal balance was $5.9 million. This credit facility was an existing arrangement made prior to the CCG Acquisition. Net days of contract revenues in trade accounts receivable, including retainage, was 52 days at July 31, 1997, compared to 41 days at July 31, 1996 and 48 days at July 31, 1995. The Company foresees its capital resources together with existing cash balances to be sufficient to meet its financial obligations, including the scheduled debt payments under the new credit agreement and operating lease commitments, and to support the Company's normal replacement of equipment at its current level of business for at least the next twelve months. The Company's future operating results and cash flows may be affected by a number of factors including the Company's success in bidding on future contracts and the Company's continued ability to effectively manage controllable costs. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In February 1997, the FASB issued SFAS No. 128 "Earnings per Share" which changes the method of calculating earnings per share and is effective for fiscal years ending after December 15, 1997. SFAS No. 128 requires the presentation of "basic" earnings per share and "diluted" earnings per share on the face of the income statement. Basic earnings per share is computed by dividing the net income available to common shareholders by the weighted average shares of outstanding common stock. The calculation of diluted earnings per share is similar to basic earnings per share except the denominator includes dilutive common stock equivalents such as stock options and warrants. The Company will adopt SFAS No. 128 in fiscal 1998 as early adoption is not permitted. The disclosure of earnings per share under SFAS No. 128 is not expected to be materially different than the current disclosure of earnings per share. In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income" which establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general purpose financial statements. This statement requires that an enterprise classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. This statement is effective for fiscal years beginning December 15, 1997. In June 1997, the FASB issued SFAS No. 131 "Disclosure about Segments of an Enterprise and Related Information" which establishes standards for public business enterprises to report information about operating segments in annual financial statements and requires those enterprises to report selected information about 18 20 operating segments in interim financial reports issued to shareholders. It also establishes the standards for related disclosures about products and services, geographic areas, and major customers. This statement requires that a public business enterprise report financial and descriptive information about its reportable operating segments. The financial information is required to be reported on the basis that it is used internally for evaluating segment performance and deciding how to allocate resources to segments. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. This statement is effective for financial statements for periods beginning after December 15, 1997. Management is currently evaluating the requirements of SFAS No. 130 and No. 131, respectively. 19 21 BUSINESS OVERVIEW Dycom is a leading provider of engineering, construction and maintenance services to telecommunications providers that operate throughout the United States. The Company's comprehensive range of telecommunications infrastructure services include the engineering, placement and maintenance of aerial, underground, and buried fiber-optic, coaxial and copper cable systems owned by local and long distance communications carriers, competitive local exchange carriers, and cable television multiple system operators. Additionally, the Company provides similar services related to the installation of integrated voice, data, and video local and wide area networks within office buildings and similar structures. Dycom also performs underground utility locating and electric utility contracting services. For the fiscal year ended July 31, 1997, telecommunications services contributed approximately 87% of the Company's contract revenues, underground utility locating services contributed 6%, and electric utility contracting services contributed 7%. Through its nine active wholly-owned subsidiaries, Dycom has established relationships with many leading local exchange carriers, long distance providers, competitive access providers, cable television multiple system operators and electric utilities. Such key customers include BellSouth Telecommunications, Inc., Comcast Cable Communications, Inc., The Southern New England Telephone Company, GTE Corporation, U.S. West Communications, Inc., and Florida Power & Light Company. Approximately 40% of the Company's revenues come from multi-year master service agreements with large telecommunications providers and electric utilities. In July 1997, Dycom acquired CCG, a Pennsylvania-based provider of construction services to cable television multiple system operators. CCG generated revenues of $67.7 million in its fiscal year 1997. This transaction diversified Dycom's telephone company customer base to include a broader mix of work for cable television multiple system operators. The acquisition also created a greater geographic presence for Dycom in the Mid-Atlantic, Midwest and Northeast regions of the United States. INDUSTRY OVERVIEW The telecommunications industry is undergoing rapid change. Deregulation, competitive deployment of networks and growth in consumer demand for enhanced telecommunications services create the need for the construction of additional telecommunications infrastructure for new and existing providers. As a result of this increased need for upgraded and expanded telecommunications infrastructure and the focus on reducing costs, telecommunications providers have been outsourcing and are expected to continue to outsource, telecommunications infrastructure engineering, construction and maintenance services. Deregulation. The Telecom Act, enacted on February 8, 1996, substantially revised the Federal Communications Act of 1934. It established a dual federal-state regulatory framework for eliminating certain barriers to competition faced by competitors of incumbent local exchange carriers. Among other things, it preempts state and local government control over access to the telecommunications market and opens such market to new entrants. The elimination of entry barriers will lead to increased construction of competing telecommunications networks as competitive telecommunications providers, existing as well as new, expand into new markets and offer services that once were reserved for incumbents. The competition generated by the Telecom Act is expected to continue to spur existing service providers to expand and improve their existing facilities. While the Telecom Act significantly removed barriers to competition, many state regulatory commissions have modified regulation of telecommunications providers. Historically, telecommunications providers were limited by state regulations to earning a predetermined return on capital investments. Since 1994, a significant majority of the states have repealed such regulations, substituting in their place regulations which limit the price telecommunications providers may charge consumers, while eliminating the caps on the profits they may earn. These new state regulatory frameworks eliminate profit guarantees for telecommunications providers, while offering the potential for enhanced profitability. The combined effect of increased competition and the 20 22 prospects for greater profitability will lead new and existing telecommunications providers to become increasingly efficient in constructing and maintaining telecommunications infrastructure. Competitive Deployment of Networks. Telecommunications providers and cable television multiple system operators are actively expanding networks to provide their customers with a combined offering of voice, video and data communications services. Additionally, electric utilities are currently using fiber optic technology to develop and maintain demand monitoring systems. These systems can be used as a means of controlling the need to build additional generation capacity and also provide electric utilities opportunities to market excess communications capacity to telecommunications providers. Once built, these systems will require continuous maintenance and periodic upgrading. Such additional telecommunications infrastructure will also permit long distance carriers and content providers to connect customers without the need to pay exchange access fees to their competitors, local exchange carriers or cable companies. While data specific to the telecommunications engineering, construction and maintenance industry is not readily available, one indication of the industry's growth opportunity is the level of sales of fiber optic cable. According to KMI Corporation, an independent industry research firm, approximately 11 million kilometers of fiber optic cable were sold in 1996 in North America, an increase of 22% from slightly over 9 million kilometers in 1995. By 2001, annual fiber optic demand is expected to exceed 20 million kilometers. KMI estimates that capital expenditures relating to the purchase of fiber optic cable will grow from $2.1 billion in 1997 to $3.3 billion in 2001. Growth in Consumer Demand. Increasing consumer demand is also spurring growth in the telecommunications industry. Not only has the amount of traditional telephone voice traffic increased, but the growth of personal computers and modems has created significant data traffic from a wide variety of sources. For example, businesses with multiple locations increasingly require geographically dispersed local area networks to be linked in sophisticated wide area networks handling large volumes of telecommunications traffic. In addition, the Internet has expanded beyond its traditional data transmission and file-sharing functions to offer e-mail, new data sources, commercial services, transaction processing, independent bulletin boards, the World Wide Web and voice transmission. To handle the growing volume of communications traffic and to provide faster and higher quality transmission, telecommunications providers will be required to upgrade and expand their telecommunications networks and related infrastructure. Consumer demand for services provided over fiber optic cable has resulted in a demand for broader bandwidth. Limited by the size of the cable or other facilities through which communications flow, bandwidth controls both the speed and breadth of voice, video and data communications. Because of the physical limitations of the existing network facilities, there is an immediate need to upgrade facilities with new and innovative technology, expanding and, in many cases, replacing existing telecommunications infrastructure to allow for increased bandwidth and the resultant faster and greater volume of communications flow. Even local governments are increasingly becoming directly involved in telecommunications network construction because of the perception that telecommunications infrastructure is essential to economic growth. Local governments spur increased demand for cable television construction services by imposing requirements for improved services as a precondition to renewal of franchises. Additionally, in some cases, local governments view the construction of such infrastructure as an appropriate governmental response to private enterprises' failure to act in a timely manner, and the cost of expanding and upgrading telecommunications infrastructure is appearing more frequently in governmental budgets. Increased Outsourcing. The need to upgrade and expand telecommunications infrastructure as a result of deregulation, competitive deployment of networks and the growth in consumer demand for enhanced telecommunications services have stimulated, and are expected to continue to stimulate, telecommunications providers to increase the current level of outsourcing to the telecommunications engineering, construction and maintenance services industry. The outsourcing trend has largely been driven by the efforts of telecommunications providers to reduce costs and to focus on their core competencies. Independent contractors, such as the Company, typically have lower cost structures than the telecommunications providers, primarily as a result of the independent contractors' lower direct and overhead cost structures. In addition, the Company believes that 21 23 telecommunications providers are seeking comprehensive solutions to their infrastructure needs by utilizing fewer qualified contractors to provide a full range of telecommunications infrastructure services. Participant Consolidation. Historically, the telecommunications engineering, construction and maintenance services industry has been highly fragmented. Although industry annual revenues are estimated to be several billions of dollars, few of these companies are publicly traded. Most engineering, construction and maintenance service companies are small, privately-held companies with annual revenues of less than $100 million. While the industry has attracted some participation in the past from pipeline and power plant construction firms, to date these firms have not significantly impacted the industry. In response to the newly deregulated operating environment, the industry has experienced some increase in business combinations among the smaller private firms. The resulting combinations, for the most part, however, may be unable, due to resource constraints, to adequately meet the standards demanded by telecommunications providers seeking to outsource their telecommunications infrastructure services function. Going forward, service firms will need significant management expertise, technical capabilities and capital resources to provide the level of service necessary to gain significant market share. As a result, the Company believes that the industry will experience consolidation in the future and that strategic acquisition opportunities will continue to become available. THE DYCOM SOLUTION Dycom provides a comprehensive solution to telecommunications providers operating throughout the United States who need to deploy large and complex telecommunications infrastructure quickly and with a high level of quality. The Company's ability to serve a wide and diverse geographic area and its demonstrated expertise in engineering and construction project management give Dycom a distinct competitive advantage in obtaining customer service contracts. As telecommunications providers begin to offer new and expanded services on a global basis, the time to market for these services is a critical factor in their success. Dycom is able to rapidly mobilize its capital equipment, financial assets and personnel resources to effectively respond to the increasing scale and time constraints of customer demands. Dycom has offered its telecommunications engineering, construction and maintenance services solution on a national basis to local and long distance communications carriers, competitive access providers, cable television multiple system operators and electric utilities since 1984. BUSINESS STRATEGY Dycom's objective is to be a leading high quality and cost effective provider of engineering, construction and maintenance services to the telecommunications industry. To meet this objective, Dycom has identified the following key business strategies: Leverage Expertise and Leadership Position. Dycom believes that in this highly fragmented industry, its technical expertise and reputation should give it a competitive advantage in securing new business from its current customers, as well as from new customers. The Company believes that its reputation for quality and reliability, operating efficiency, financial and personnel resources, and technical expertise (e.g., ability to serve a wide geographic area and ability to provide customers with a comprehensive solution) provide it with a competitive advantage in bidding for and winning new contracts. The Company intends to pursue the larger, more technically complex telecommunications infrastructure projects where its technical expertise and reputation should have a greater impact. Effectively Utilize Decentralized Management. In order to enhance customer service, the Company maintains a focused, decentralized management structure. Dycom's holding company structure emphasizes the importance of local subsidiary-based management teams, which are granted significant operating flexibility in running their business. The Company believes that this decentralized operating structure enables management to make decisions and mobilize resources more quickly based on knowledge of the local markets and the specific needs of their customers. The Company complements the decentralized operating structure by sharing operating information among its subsidiaries. 22 24 Reduce Operating Costs and Increase Productivity. Dycom believes that the cost savings in centralizing administrative tasks, such as insurance, asset management, and information technology through Dycom's holding company structure, combined with decentralized operating management, enables the Company to be a more cost-effective provider of telecommunications engineering, construction and maintenance services. As a service provider, the productivity of its own work force and the work of its subcontractors has the single largest impact on the Company's cost structure. High quality, decentralized management assists the Company in maintaining quality performance from its work force, as well as managing its costs. In order to respond to peak demands for its services and to control labor expenses, Dycom also redeploys manpower among its subsidiaries. Refine and Enhance Formal Estimating Process. The Company utilizes proprietary software to collect, maintain and statistically analyze extensive amounts of historical cost and pricing information. The Company's operating subsidiaries collect detailed cost and pricing information on a state by state, customer by customer and job by job basis. The Company uses this data and analysis as part of a formal estimating process when reviewing new business opportunities. Dycom believes that, as a result of this process, it is able to price jobs more accurately and more effectively allocate its resources. The Company will continually seek to enhance the effectiveness of its proprietary software system by expanding the amount of information that it gathers and improving the analysis of the data. GROWTH STRATEGY As a result of the increased demand for telecommunications engineering, construction and maintenance services, greater emphasis on outsourcing of such services by telecommunications providers, and the fragmented nature of the industry, the Company believes there are significant opportunities to expand its business internally and through acquisitions. Internal Growth. Dycom is focused on generating internal growth by: (i) increasing the volume of services to existing customers; (ii) expanding the scope of services to existing customers; (iii) broadening its customer base; and (iv) geographically expanding its service area. The Company is also seeking to reduce operating expenses and improve operating margins by centralizing costs such as insurance administration, asset management and information technology, thereby eliminating redundancies at the subsidiary level. Additionally, the competitive pressures of deregulation have prompted several existing customers to increase the outsourcing of noncore activities, which can provide opportunities for enhancing internal growth without necessarily requiring the Company to achieve market share gains. Growth Through Acquisitions. Dycom intends to capitalize on the current opportunity to make strategic acquisitions of engineering, construction and maintenance services companies serving the telecommunications industry. Dycom believes that as competition intensifies, smaller companies will seek to consolidate with companies such as Dycom. Dycom will target acquisitions that provide complementary services in existing Dycom markets or allow expansion into new geographic areas. For its acquisition targets, the Company's key criteria are profitability in excess of industry standards, stable and growing customer bases, proven operational and technical competence, and experienced management that fits within Dycom's decentralized operating structure. Further, the Company seeks the opportunity to realize cost savings through the elimination of redundant costs and economies of scale in certain items such as insurance, information technologies and administrative functions. Dycom believes that significant revenue and earnings growth are attainable through acquisitions; however, there can be no assurance that the Company will be able to acquire and integrate such businesses successfully or that such acquisitions will have a positive effect on the Company's operating results. The Company believes that a variety of attractive consolidation opportunities exist within the currently fragmented telecommunications engineering, construction and maintenance services industry. The Company believes that additional acquisition opportunities may be available to implement its acquisition strategy upon completion of this Offering. See "Use of Proceeds." 23 25 SERVICES Telecommunications Services Engineering. Dycom provides outside plant engineers and drafters to local exchange carriers and competitive access providers. The Company designs aerial, buried and underground fiber optic and copper cable systems from the telephone central office to the ultimate consumer's home or business. Engineering services for local exchange carriers include the design of service area concept boxes, terminals, buried and aerial drops, transmission design and the proper administration of feeder and distribution cable pairs. For competitive access providers, Dycom designs building entrance laterals, fiber rings and conduit systems. The Company obtains rights of way and permits in support of engineering activities, and provides construction management and inspection personnel in conjunction with engineering services or on a stand alone basis. For cable television multiple system operators, Dycom performs make ready studies, strand mapping, field walk out, computer-aided radio frequency design and drafting, and fiber cable routing and design. Construction and Maintenance. The services provided by the Company include the placing and splicing of cable, excavation of trenches in which to place the cable, placement of related structures such as poles, anchors, conduits, manholes, cabinets and closures, placement of drop lines from the main distribution lines to the customer's home or business, and maintenance and removal of these facilities. The Company has the capacity to directionally bore the placement of cables, a highly specialized and increasingly necessary method of placing buried cable networks in congested urban and suburban markets where trenching is highly impractical. Premise Wiring. The Company also provides premise wiring services to a variety of large corporations and certain governmental agencies. These services, unlike the engineering, construction and maintenance services provided under various master service agreements and to cable television multiple system operators, are limited to the installation, repair and maintenance of telecommunications infrastructure within improved structures. Projects include the placement and removal of various types of cable within buildings and individual offices. These services generally include the development of communication networks within a company or government agency related primarily to the establishment and maintenance of computer operations, telephone systems, Internet access and communications monitoring systems established for purposes of monitoring environmental controls or security procedures. Underground Utility Locating Services The Company is a provider of underground utility locating services, primarily to telecommunications providers. Under a variety of state laws, excavators are required to locate underground utilities prior to excavating. Utilities located include telephone, cable television, power and gas. Recently, excavators performing telecommunications network upgrades and expansions have generated significant growth in requests for underground utility locating, and the Company expects this trend to continue. The Company is currently a party to 30 underground utility locating contracts. These services are offered throughout the United States. Electrical Construction and Maintenance Services The Company performs electrical construction and maintenance services for electric companies. This construction is performed primarily as a stand alone service, although at times it is performed in conjunction with services for telecommunications providers. These services include installing and maintaining electrical transmission and distribution lines, setting utility poles and stringing electrical lines, principally above ground. The work performed often involves high voltage splicing and, on occasion, the installation of underground high voltage distribution systems. The Company also provides the repair and replacement of lines which are damaged or destroyed as a result of weather conditions. 24 26 Revenues by Service Group For the fiscal years ended July 31, 1995, 1996 and 1997, the percentages of the Company's total contract revenues earned were derived from telecommunications services, underground utility locating services and electrical construction and maintenance services as set forth below.
YEAR ENDED JULY 31, -------------------- 1995 1996 1997 ---- ---- ---- Telecommunications services................................. 86% 87% 87% Underground utility locating services....................... 8 7 6 Electrical construction and maintenance services............ 6 6 7 --- --- --- Total............................................. 100% 100% 100% === === ===
CUSTOMER RELATIONSHIPS Dycom's current customers include local exchange carriers such as BellSouth Telecommunications, Inc., SBC Communications, Inc., U.S. West Communications, Inc., Sprint Corporation, Ameritech Corporation, GTE Corporation, The Southern New England Telephone Company, Citizen Utilities and Cincinnati Bell Telephone. Dycom also currently provides telecommunications engineering, construction and maintenance services to a number of cable television multiple system operators including Comcast Cable Communications Inc., Cablevision, Inc., Falcon Cable Media, Time Warner, Inc. and MediaOne, Inc. Dycom also provides its services to long distance carriers such as MCI Telecommunications Corporation and AT&T Corporation, as well as to competitive access providers such as MFS Communications Company, Inc. and Brooks Fiber Corporation. Premise wiring services have been provided to, among others, Lucent Technologies, Inc., Duke University, International Business Machines Corporation, and several state governments. The Company also provides construction and maintenance support to Lee County Electrical Cooperative, Florida Power & Light Company, and Florida Power Corporation. The Company's customer base is highly concentrated, with its top three customers in fiscal years 1995, 1996 and 1997 accounting in the aggregate for approximately 66.8%, 72.8% and 64.0%, respectively, of the Company's total revenues. During fiscal 1997, approximately 34.3% of the Company's total revenues were derived from BellSouth Telecommunications, Inc., 23.3% from Comcast Cable Communications, Inc. and 6.4% from GTE Corporation. The Company believes that a substantial portion of its total revenues and operating income will continue to be derived from a concentrated group of customers. The loss of any of such customers could have a material adverse effect on the Company's business, financial condition and results of operations. A significant amount of the Company's business is performed under master service agreements. These agreements with telecommunications providers are generally exclusive requirement contracts, with certain exceptions, including the customer's option to perform the services with its own regularly employed personnel. The agreements are typically three to five years in duration, although the terms typically permit the customer to terminate the agreement upon 90 days prior written notice. Each agreement contemplates hundreds of individual construction and maintenance projects valued generally at less than $10,000 each. Other jobs are bid by the Company on a nonrecurring basis. Although historically master service agreements have been awarded through a competitive bidding process, recent trends have been toward securing or extending such contracts on negotiated terms. With the rapid expansion of the telecommunications market and the immediate need for upgrading existing, as well as constructing new, telecommunications infrastructure, the Company believes that more master service agreements will be awarded on the basis of negotiated terms as opposed to the competitive bidding process. Sales and marketing efforts of the Company are the responsibility of the management of Dycom and its operating subsidiaries. 25 27 BACKLOG The Company's backlog at July 31, 1997 was $314.4 million. As of July 31, 1997, the Company expected to complete approximately 66% of this backlog within the next fiscal year. Due to the nature of its contractual commitments, in many instances the Company's customers do not commit to the volume of services to be purchased under the contract, but rather commit the Company to perform these services if requested by the customer and commit to obtain these services from the Company if they are not performed internally. Many of the contracts are multi-year agreements, and the Company includes the full amount of services projected to be performed over the life of the contract. The Company includes all services projected to be performed over the life of the contract in its backlog due to its historical relationships with its customers and experience in procurements of this nature. Historically, the Company has not experienced a material variance between the amount of services it expects to perform under a contract and the amount actually performed for a specified period. There can be no assurance, however, as to the customer's requirements during a particular period or that such estimates at any point in time are accurate. SAFETY AND RISK MANAGEMENT The Company is committed to ensuring that its employees perform their work in the safest possible manner. The Company regularly communicates with its employees to promote safety and to instill safe work habits. Dycom's risk manager, a holding company employee, reviews all accidents and claims throughout the operating subsidiaries, examines trends and implements changes in procedures or communications to address any safety issues. The primary claims rising in the Company's business are workers' compensation and other personal injuries, various general liabilities, and vehicle liability (personal injury and property damage). The Company is self-insured for automobile liability up to $1.0 million, for general liability up to $1.0 million, and for workers' compensation, in states where the Company elects to do so, up to $1.0 million per occurrence and $2.0 million in the aggregate. The Company has umbrella coverage up to a policy limit of $30.0 million. The Company carefully monitors claims and participates actively in claims estimates and adjustments. The estimated costs of self-insured claims, which include estimates for incurred but not reported claims, are accrued as liabilities on the Company's balance sheet. Due to changes in the Company's loss experience in recent years, insurance accruals have varied from year to year and have had an effect on operating margins. See "Management's Discussion and Analysis of Financial Condition and Results of Operation" and Note 1 of the Notes to Consolidated Financial Statements. COMPETITION The telecommunications engineering, construction and maintenance services industry in which the Company operates is highly competitive, requiring substantial resources and skilled and experienced personnel. The Company competes with other independent contractors in most of the markets in which it operates, several of which are large domestic companies that have greater financial, technical and marketing resources than the Company. In addition, there are relatively few, if any, barriers to entry into the markets in which the Company operates and, as a result, any organization that has adequate financial resources and access to technical expertise may become a competitor to the Company. A significant portion of the Company's revenues are currently derived from master service agreements and price is often an important factor in the award of such agreements. Accordingly, the Company could be outbid by its competitors in an effort to procure such business. There can be no assurance that the Company's competitors will not develop the expertise, experience and resources to provide services that are equal or superior in both price and quality to the Company's services, or that the Company will be able to maintain or enhance its competitive position. The Company may also face competition from the in-house service organizations of its existing or prospective customers, including telecommunications providers, which employ personnel who perform some of the same types of services as those provided by the Company. Although a significant portion of these services is currently outsourced, there can be no assurance that existing or prospective customers of the Company will continue to outsource telecommunications engineering, construction and maintenance services in the future. 26 28 The Company believes that the principal competitive factors in the market for telecommunications engineering, construction and maintenance services include technical expertise, reputation, price, quality of service, availability of skilled technical personnel, geographic presence, breadth of service offerings, adherence to industry standards and financial stability. The Company believes that it competes favorably with its competitors on the basis of these competitive factors. EMPLOYEES As of July 31, 1997, the Company employed 2,864 persons. The number of employees of the Company and its subsidiaries varies according to the work in progress. As a matter of course, the Company maintains a nucleus of technical and managerial personnel from which it draws to supervise all projects. Additional employees are added as needed to complete specific projects. None of the Company's employees are represented by a labor union. CCG is currently a party to two collective bargaining agreements with local bargaining units in Philadelphia, Pennsylvania, and New York, New York, although none of its current employees are subject to the agreements. The Company has never experienced a work stoppage or strike. The Company believes that its employee relations are good. FACILITIES The Company leases its executive offices in Palm Beach Gardens, Florida. The Company's subsidiaries operate from owned or leased administrative offices, district field offices, equipment yards, shop facilities and temporary storage locations. The Company owns facilities in Phoenix, Arizona; Durham, North Carolina; Pinellas Park, Florida; and West Palm Beach, Florida. It also leases, pursuant to long-term noncancelable leases, facilities in West Chester, Pennsylvania; Bridgeport and Wallingford, Connecticut; Knoxville, Tennessee; and Greensboro, North Carolina. The Company also leases and owns other smaller properties as necessary to enable it to efficiently perform its obligations under master service agreements and other specific contracts. The Company believes that its facilities are adequate for its current operations. LEGAL PROCEEDINGS In September 1995, the State of New York commenced a sales and use tax audit of CCG for the years 1989 through 1995. As a result of the audit, certain additional taxes were paid by CCG in fiscal 1996. The State of New York has claimed additional amounts due from CCG for sales taxes and interest for the periods through August 31, 1995. See Note 15 of the Notes to Consolidated Financial Statements. In the normal course of business, certain subsidiaries of the Company have other pending and unasserted claims. Although the ultimate resolution and liability of these claims cannot be determined, management believes the final disposition of these claims will not have a material adverse impact on the Company's consolidated financial condition or results of operations. 27 29 MANAGEMENT EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES The table below sets forth the names and ages of the directors, executive officers and key employees of the Company as well as the positions and offices held by such persons. A summary of the background and experience of each of these individuals is set forth after the table. Each director holds office for a three year term and until his successor has been elected and qualified. A number of key employees, including officers, have employment agreements, while others serve at the discretion of the Company's Board of Directors. There are no family relationships among the directors or officers of the Company.
NAME AGE POSITION - ---- --- -------- Thomas R. Pledger....................... 59 Chairman of the Board of Directors and Chief Executive Officer Steven E. Nielsen....................... 34 President, Chief Operating Officer and Director Louis W. Adams, Jr...................... 59 Director Walter L. Revell........................ 62 Director Ronald L. Roseman....................... 60 Director Ronald P. Younkin....................... 55 Director Douglas J. Betlach...................... 45 Vice President, Chief Financial Officer and Treasurer Darline M. Richter...................... 36 Vice President and Controller Patricia B. Frazier..................... 62 Corporate Secretary George H. Tamasi........................ 49 President and Chief Executive Officer of CCG, a Company subsidiary Thomas J. Polis......................... 53 Executive Vice President, Secretary and Treasurer of CCG, a Company subsidiary
Thomas R. Pledger is Chairman of the Board of Directors and Chief Executive Officer of Dycom. Mr. Pledger has been in the industry since 1960, and in 1968 became President of Burnup & Sims, Inc., which went public that year and was acquired by MasTec, Inc. in 1994. Mr. Pledger left Burnup & Sims in 1976. Mr. Pledger's relationship with Dycom began in 1979 as a consultant. He became a Director in 1981 and President and Chief Executive Officer in 1984. His current employment contract as Chief Executive Officer with the Company expires November 30, 2000. He serves on the Board's Executive and Nominating Committees, as well as on the Board of Directors for each of the Company's subsidiaries. Steven E. Nielsen is President and Chief Operating Officer of Dycom. His employment contract expires on March 10, 1999. Mr. Nielsen has held this position since August 1996 and has been with Dycom since 1993. As a member of Dycom's Board of Directors since 1996, he serves on the Board's Executive Committee and on the Board of Directors of CCG. He previously served as President of Ansco & Associates, Inc. and Fiber Cable, Inc., two of Dycom's subsidiaries. Prior to joining the Company, Mr. Nielsen was Division Manager/Regional Manager of Henkels & McCoy, Inc., a gas, power and telephone utility contractor, from 1991 to 1993, and was employed in various positions with this company or a predecessor since 1985. Louis W. Adams, Jr. is a retired attorney and formerly a partner with the law firm of Adams & Adams. Mr. Adams has been on the Board since 1969 and currently serves on the Board's Audit and Compensation, Executive, Nominating and Finance Committees. Mr. Adams is also a member of the Board of Directors of each of the Company's subsidiaries, other than CCG. Walter L. Revell has been a Director since 1993 and currently serves on the Board's Audit and Compensation, and Finance Committees. He has been Chairman and Chief Executive Officer of H.J. Ross Associates, Inc. since 1991. The firm provides consulting engineering, architectural and planning services. Mr. Revell also serves on the Board of Directors of RISCORP, Inc., which provides managed care workers' compensation, St. Joe Corporation, a diversified corporation in sugar and real estate, and Hotelecopy, Inc., an international fax mail service company. 28 30 Ronald L. Roseman has been a Director since 1982. He formerly served as President and Chief Operating Officer of Dycom from August 1, 1993 through August 26, 1996. He has been President of Coastal Electric Constructors, Inc. since 1991. Ronald P. Younkin is President of Greenlawn Mobile Home Sales, Inc., which sells mobile homes and operates mobile home parks. Mr. Younkin has been a Director of the Company since 1975. Mr. Younkin serves on the Board's Audit and Compensation, Finance, and Nominating Committees. Douglas J. Betlach is Vice President, Chief Financial Officer and Treasurer. Mr. Betlach has been with Dycom since 1992. He previously served as Controller for Cal-Central Marketing Corporation, Del Monte Processed Foods and RJR Nabisco, Inc. Darline M. Richter has been Vice President and Controller since 1996. She has been employed by the Company since 1991 and previously was employed by Deloitte & Touche LLP as a tax accountant. Patricia B. Frazier has been employed by Dycom since 1983. She has served as Corporate Secretary since 1984. She previously served as Corporate Secretary at Rubin Construction Company and Burnup & Sims, Inc. George H. Tamasi is President and Chief Executive Officer of CCG, the Company's newly acquired subsidiary. Mr. Tamasi has entered into a five year employment contract with CCG, which may be canceled upon mutual consent after July 29, 2000. Mr. Tamasi also serves on the Board of Directors of CCG. Thomas J. Polis is Executive Vice President, Secretary and Treasurer of CCG. Also a Director of CCG, Mr. Polis has a five year employment contract with CCG, which may be canceled upon mutual consent after July 29, 2000. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS CCG, the Company's newly-acquired subsidiary, leases administrative office facilities from a partnership of which Mr. Tamasi and Mr. Polis, officers of CCG, are general partners. The properties are located in West Chester, Pennsylvania, and West Palm Beach, Florida. The leases expire on August 1, 2000 and February 1, 2002 and the rental rates are consistent with prevailing rates in the respective markets. During fiscal 1997, CCG incurred annual expenses of $115,200 in connection with the leases. 29 31 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth, as of September 26, 1997, and adjusted at that date to reflect the sale of the Company's Common Stock offered hereby, information with respect to the beneficial ownership of the Company's Common Stock by, as indicated by the letter next to each such beneficial owner, (a) each Selling Stockholder, (b) each person known to the Company to beneficially own more than 5% of the outstanding shares of the Company's Common Stock, (c) each director of the Company and each executive officer, and (d) all executive officers and directors of the Company as a group. Unless otherwise indicated, each such stockholder has (i) sole voting and investment power with respect to the shares beneficially owned by such stockholder and (ii) the same address as the Company.
SHARES BENEFICIALLY SHARES BENEFICIALLY OWNED BEFORE THE OWNED AFTER THE OFFERING(1) NUMBER OF OFFERING ------------------------ SHARES BEING ------------------- NAME OF OWNER NUMBER PERCENT(1) OFFERED NUMBER PERCENT - ------------- --------- ---------- ------------ --------- ------- Thomas J. Polis (a), (b)................... 1,026,621(2) 9.4% 513,311 513,310 4.1% 235 East Gay Street West Chester, PA 19380 George H. Tamasi (a), (b).................. 1,026,621(2) 9.4% 513,311 513,310 4.1% 235 East Gay Street West Chester, PA 19380 Mary Irene Younkin, Individually........... 881,378(3) 8.1% 100,000 781,278 6.3% and as Executor of the Estate of Floyd E. Younkin (a), (b) 555 Greenlawn Avenue Columbus, OH 43223 Thomas R. Pledger (b), (c)................. 698,027(4) 6.4% 0 698,027 5.6% Steven E. Nielsen (c)...................... 23,950(5) * 0 23,950 * Louis W. Adams, Jr. (c).................... 12,234(5) * 0 12,234 * 3108 Vistamar Street, Apt. 7 Ft. Lauderdale, FL 33304 Walter L. Revell (c)....................... 13,000(5) * 0 13,000 * 3770 S.W. 8th Street, Suite 200 Coral Gables, FL 33134 Ronald L. Roseman (b), (c)................. 742,546 6.8% 0 742,546 6.0% 4708 West Cayuga, Suite D Tampa, FL 33614 Ronald P. Younkin (c)...................... 161,597(6)(7) 1.5% 0 161,597 1.3% 555 Greenlawn Avenue Columbus, OH 43223 Douglas J. Betlach (c)..................... 7,004(5) * 0 7,004 * Darline M. Richter (c)..................... 1,684(5) * 0 1,684 * Patricia B. Frazier (c).................... 27,361(5) * 0 27,361 * All executive officers and directors as a group(d)................................. 1,687,403(5) 15.5% 0 1,687,403 13.5%
- --------------- * Less than 1% (1) Class includes outstanding shares and presently exercisable stock option held by directors and executive officers. (2) Shares were acquired by Messrs. Tamasi and Polis through the exchange of stock as a result of the CCG Acquisition. 30 32 (3) Includes 565,461 shares from the Estate of Floyd E. Younkin inherited by Mary Irene Younkin, Mr. Younkin's wife, as well as 315,917 shares previously owned by Mrs. Younkin. Mrs. Younkin disclaims any beneficial interest in the 161,597 shares owned by her son, Ronald P. Younkin, a director of the Company, and 12,661 shares owned by Ronald P. Younkin's wife and children. Mrs. Younkin serves as the Executor of the Estate of her late husband, Floyd E. Younkin. Mr. Younkin served as the President and Chief Executive Officer of the Company from 1969 until 1971 and from 1972 until 1984. He also served on the Board of Directors from 1969 until 1990. (4) Excludes 12,252 shares owned by Thomas R. Pledger, Jr., Mr. Pledger's son, as to which Mr. Pledger disclaims any beneficial interest. (5) Includes shares that may be acquired within 60 days after September 15, 1997 upon exercise of stock options as follows: Mr. Nielsen 18,250 shares; Mr. Adams 12,000 shares; Mr. Revell 12,000 shares; Mr. Betlach 2,375 shares; Ms. Richter 750 shares; Ms. Frazier 750 shares; and all directors and officers as a group 46,125 shares. (6) Mr. Younkin exercised 4,000 shares of an exercisable stock option which was granted to him as a director of the Company. Mr. Younkin gifted said exercised shares and disclaims any beneficial ownership. (7) Excludes 12,661 shares owned by Mr. Younkin's wife and children, as to which Mr. Younkin disclaims any beneficial interest. Excludes 881,378 shares owned beneficially by Mary Irene Younkin, individually and as Executor of the Estate of Floyd E. Younkin as to which Mr. Younkin disclaims any beneficial interest. Mr. Younkin is the son of Mary Irene Younkin. 31 33 DESCRIPTION OF CAPITAL STOCK The authorized capital stock of the Company consists of 50,000,000 shares of Common Stock, $0.33 1/3 par value, and 1,000,000 shares of preferred stock, $1.00 par value per share (the "Preferred Stock"). Upon completion of the Offering, there will be 12,443,630 shares of Common Stock issued and outstanding. No shares of Preferred Stock are outstanding. COMMON STOCK At September 29, 1997, there were 10,870,252 shares of Common Stock outstanding held by approximately 660 stockholders. The holders of Common Stock are entitled to one vote per share on all matters submitted to a vote of the stockholders. Holders of Common Stock do not have cumulative rights, so that holders of more than 50% of the shares of Common Stock are able to elect all of the Company's directors eligible for election in a given year. The holders of Common Stock are entitled to dividends and other distributions if and when declared by the Board of Directors out of assets legally available therefor. See "Price Range of Common Stock and Dividend Policy." Upon the liquidation, dissolution or winding up of the Company, the holders of shares of Common Stock are entitled to share pro rata in the distribution of all of the Company's assets remaining available for distribution after satisfaction of all the Company's liabilities, including any prior rights of any Preferred Stock which may be outstanding. There are no redemption or sinking fund provisions applicable to the Common Stock. Immediately upon consummation of this Offering, all of the then outstanding shares of Common Stock will be validly issued, fully paid and nonassessable. The transfer agent and registrar for the Common Stock is First Union National Bank of North Carolina, Charlotte, North Carolina. PREFERRED STOCK The Company is authorized to issue up to 1,000,000 shares of Preferred stock, $1.00 par value. There are no shares of Preferred Stock outstanding. Series of the Preferred Stock may be created and issued from time to time by the Board of Directors, with such rights and preferences as may be determined by the Board. The Board of Directors may, without stockholder approval, issue a series of Preferred Stock with voting and conversion rights which could have the effect of discouraging a takeover and which could adversely affect the rights of holders of Common Stock, as it could be used by incumbent management to make a change in control of the Company more difficult. Under certain circumstances such shares could be used to create voting impediments or to frustrate persons seeking to effect a takeover or otherwise gain control of the Company. ANTI-TAKEOVER PROVISIONS On June 1, 1992, the Company approved a Shareholder Rights Plan. All stockholders of record on June 15, 1992 were issued a Right for each outstanding share of the Company's Common Stock. Each Right entitles the holder to purchase one-half share of Common Stock for an exercise price of $18, subject to adjustment to reflect any stock split, stock dividend or similar transaction. The Right is exercisable only when a triggering event occurs. The triggering events, among others, are a person or group's (1) acquisition of 20% or more of Dycom's Common Stock, (2) commencement of a tender offer which would result in the person or group owning 20% or more of Dycom's Common Stock, or (3) acquisition of at least 10% of Dycom's Common Stock and such acquisition is determined to have effects adverse to the Company. The Company can redeem the Rights at $0.01 per Right, subject to adjustment to reflect any stock split, stock dividend or similar transaction, at any time prior to ten days after a triggering event occurs. Certain officers of the Company have change of control agreements with the Company, which provide for extraordinary compensation (in general terms, double the officer's salary and bonuses paid the previous year), upon a change of control in the Company. Mr. Pledger's employment agreement also permits him to terminate his employment in the event of a change of control. The total cost to the Company as a result of these agreements in the event of a change in control would be approximately $2.07 million. The payment pursuant to these agreements would be triggered by any person's acquisition of more than fifty percent of the 32 34 Company's outstanding securities, the sale or transfer of substantially all of Dycom's assets to someone other than a wholly-owned subsidiary of Dycom, or a change of control of the Board of Directors. The Articles of Incorporation of the Company provides that the Board of Directors is divided into three classes, as nearly equal in number as possible, with one class of directors being elected each year for a three-year term. The classification of the Board may have the effect of delaying a change in a majority of the members of the Company's Board of Directors. The Company's Articles of Incorporation provides that the affirmative vote of 80% of the outstanding shares of capital stock of the Company entitled to vote in elections of directors is required to approve any merger of the Company with or into another corporation or any sale or transfer of all or a substantial part of the assets of the Company to, or any sale or transfer to the Company or any subsidiary in exchange for securities of the Company of any assets (except assets valued at less than $1,000,000) of, any other corporation or person, if at the time such other corporation or person is the beneficial owner, or is affiliated with the beneficial owner, of more than 20% of the outstanding shares of capital stock of the Company entitled to vote in elections of directors. This provision is not applicable to any such transaction with another corporation which was approved by the Company's Board of Directors prior to the time that such other corporation became a holder of more than 20% of the outstanding shares of capital stock of the Company. The Florida Business Corporation Act contains provisions eliminating the voting rights of "control shares", defined as shares which give any person, directly or indirectly, ownership of, or the power to direct the exercise of voting power with respect to, 20% or more of the outstanding voting power of an "issuing public corporation." A corporation is an issuing public corporation if it has at least 100 shareholders, its principal place of business, principal office or substantial assets in Florida and either more than 10% of its shareholders reside in Florida, more than 10% of its shares are owned by Florida residents or 1,000 shareholders reside in Florida. The voting rights of control shares are not eliminated if the articles of incorporation or the bylaws of the corporation prior to the acquisition provide that the statute does not apply. Voting rights are restored to control shares if, subsequent to their acquisition, the corporation's shareholders (other than the holder of control shares, officers of the corporation and employee directors) vote to restore such voting rights. The Florida Business Corporation Act also restricts "affiliated transactions" (mergers, consolidations, transfers of assets and other transactions) between "interested shareholders" (the beneficial owners of 10% or more of the corporation's outstanding shares) and the corporation or any subsidiary. Affiliated transactions must be approved by two-thirds of the voting shares not beneficially owned by the interested shareholder or by a majority of the corporation's "disinterested" directors. The statutory restrictions do not apply if the corporation has had fewer than 300 shareholders of record for three years, the interested shareholder has owned at least 80% of the outstanding shares for five years, the interested shareholder owns at least 90% of the corporation's outstanding voting shares, or certain consideration is paid to all shareholders. The provisions of the Company's Articles and By-Laws, the existence of the Shareholder Rights Plan and the change of control agreements and the application of the anti-takeover provisions of the Florida Business Corporation Act could have the effect of discouraging, delaying or preventing a change of control not approved by the Board of Directors which could affect the market price of the Company's Common Stock. INDEMNIFICATION The By-Laws of the Company provide that the Company shall indemnify each director and officer of the Company to the fullest extent permitted by law and limits the liability of directors to the Company and its stockholders for monetary damages in certain circumstances. The provisions of the Florida Business Corporation Act that authorize indemnification do not eliminate the duty of care of a director and, in appropriate circumstances, equitable remedies such as injunctive or other forms of nonmonetary relief will remain available under Florida law. In addition, each director will continue to be subject to liability for (a) violations of the criminal law, unless the director had reasonable cause to believe his conduct was lawful or had no reasonable cause to believe his conduct was unlawful, (b) deriving an improper personal benefit from a transaction, (c) voting for or assenting to an unlawful distribution, and 33 35 (d) willful misconduct or a conscious disregard for the best interests of the Registrant in a proceeding by or in the right of the Registrant to procure a judgment in its favor or in a proceeding by or in the right of a shareholder. The statute does not affect a director's responsibilities under any other law, such as the federal securities laws or state or federal environmental laws. DIVIDEND RESTRICTIONS The Company's credit facilities currently limit the Company's ability to pay dividends on the Common Stock to 50% of net after-tax profits for the fiscal year. The credit agreement's restrictions on the Company's debt-to-equity, quick and current ratios also affect the Company's ability to pay dividends. The payment of dividends on the Common Stock is also subject to the preference that may be applicable to any then outstanding Preferred Stock. 34 36 UNDERWRITING The Underwriters named below (the "Underwriters"), have severally agreed, subject to the terms and conditions in the underwriting agreement (the "Underwriting Agreement"), by and among the Company, the Selling Stockholders and the Underwriters, to purchase from the Company and the Selling Stockholders the number of shares of Common Stock indicated below opposite their respective names, at the public offering price less the underwriting discount set forth on the cover page of this Prospectus. The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent and that the Underwriters are committed to purchase all of the shares of Common Stock, if they purchase any.
NUMBER OF UNDERWRITER SHARES - ----------- --------- NationsBanc Montgomery Securities, Inc...................... Morgan Keegan & Company, Inc................................ The Robinson-Humphrey Company, LLC.......................... --------- Total............................................. 2,700,000 =========
The Underwriters have advised the Company and the Selling Stockholders that they propose to offer the Common Stock to the public on the terms set forth on the cover page of this Prospectus. The Underwriters may allow selected dealers a concession of not more than $ per share; and the Underwriters may allow, and such dealers may reallow, a concession of not more than $ per share to certain other dealers. After the public offering, the public offering price and other selling terms may be changed by the Underwriters. The Common Stock is offered subject to receipt and acceptance by the Underwriters, and to certain other conditions, including the right to reject orders in whole or in part. The Company has granted an option to the Underwriters, exercisable during the 30-day period after the date of this Prospectus to purchase up to a maximum of 405,000 additional shares of Common Stock to cover over-allotments, if any, at the same price per share as the initial shares to be purchased by the Underwriters. To the extent that the Underwriters exercise such over-allotment option, the Underwriters will be committed, subject to certain conditions, to purchase such additional shares in approximately the same proportion as set forth in the above table. The Underwriters may purchase such shares only to cover over-allotments made in connection with the Offering. The Underwriting Agreement provides that the Company and the Selling Stockholders will indemnify the Underwriters against certain liabilities, including civil liabilities under the Securities Act, or will contribute to payments the Underwriters may be required to make in respect thereof. The Company, the Selling Stockholders and the Company's officers and directors who are also stockholders of the Company and who, immediately following the Offering (assuming no exercise of the Underwriters' over-allotment option) collectively will beneficially own an aggregate of 3,495,301 outstanding shares of Common Stock, have agreed that for a period of 180 days after the effective date of the Offering they will not, without the prior written consent of NationsBanc Montgomery Securities, Inc., directly or indirectly, sell, offer, contract or grant an option to sell (including without limitation any short sale), pledge (other than to a pledgee who acknowledges to NationsBanc Montgomery Securities, Inc. that it has taken subject to the lock-up restrictions), transfer, establish an open put equivalent position or otherwise dispose of any shares of Common Stock, options or warrants to acquire shares of Common Stock or securities exchangeable or exercisable or convertible into shares of Common Stock held by them. The Company has also agreed not to issue, offer, sell, grant options to purchase or otherwise dispose of any of the Company's equity securities or any other securities convertible into or exchangeable for its equity securities for a period of 180 days after the effective date of the Offering without the prior written consent of NationsBanc Montgomery Securities, Inc., subject to limited exceptions and grants and exercises of stock options or pursuant to acquisitions. In evaluating any request for a waiver of the lock-up period, the Underwriters will consider, in accordance with their customary practice, all relevant facts and circumstances at the time of the request, including, without limitation, the recent trading market of the Common Stock, the size of the request and, with respect to a request by the Company to issue additional equity securities, the purpose of such an issuance. 35 37 Until the distribution of the Common Stock is completed, rules of the Securities and Exchange Commission may limit the ability of the Underwriters and certain selling group members to bid for and purchase the Common Stock. As an exception to these rules, the Underwriters are permitted to engage in certain transactions that stabilize the price of the Common Stock. Such transactions consist of bids or purchases for the purpose of pegging, fixing or maintaining the price of the Common Stock. If the Underwriters create a short position in the Common Stock in connection with the Offering, i.e., if they sell more shares of Common Stock than are set forth on the cover page of this Prospectus, the Underwriters may reduce that short position by purchasing Common Stock in the open market. The Underwriters may also elect to reduce any short position by exercising all or part of the over-allotment option described above. The Underwriters may also impose a penalty bid on certain selling group members. This means that if the Underwriters purchase shares of Common Stock in the open market to reduce the Underwriters' short position or to stabilize the price of the Common Stock, they may reclaim the amount of the selling concession from the selling group members who sold those shares as part of the Offering. In general, purchases of a security for the purpose of stabilization or to reduce a short position could cause the price of the security to be higher than it might be in the absence of such purchases. The imposition of a penalty bid might also have an effect on the price of a security to the extent that it were to discourage resales of the security. Neither the Company nor any of the Underwriters makes any representation or predictions as to the direction or magnitude of any effect that the transactions described above may have on the price of the Common Stock. In addition, neither the Company nor any of the Underwriters makes any representation that the Underwriters will engage in such transactions or that such transactions, once commenced, will not be discontinued without notice. The public offering price of the Common Stock will be determined by negotiations among the Underwriters, the Company, and the Selling Stockholders and will be based largely upon the market price for the Common Stock as reported on the New York Stock Exchange. CERTAIN LEGAL MATTERS The validity of the shares of Common Stock offered hereby will be passed upon for the Company by Chopin, Miller & Yudenfreund, Palm Beach, Florida. Certain legal matters in connection with the Common Stock offered hereby will be passed upon for the Underwriters by Piper & Marbury L.L.P., Baltimore, Maryland. EXPERTS The consolidated financial statements included herein and incorporated in this prospectus by reference from the Company's Annual Report on Form 10-K for the year ended July 31, 1997 have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report, which is included herein and incorporated herein by reference. The financial statements of CCG (consolidated with those of the Company and not presented separately herein) have been audited by Nowalk & Associates, independent auditors, as stated in their reports, which are included herein and incorporated herein by reference. Such financial statements of the Company and its consolidated subsidiaries have been so included and incorporated in reliance upon the reports of such firms given upon their authority as experts in accounting and auditing. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information filed by the Company can be inspected and copied at the public reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the following Regional Offices of the Commission: Seven World Trade Center, Suite 1300, New York, 36 38 New York 10048; and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained at prescribed rates by writing to the Commission, Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549. The Common Stock is listed on the New York Stock Exchange under the symbol "DY." Reports, proxy and information statements and other information concerning the Company can also be inspected at the Library of the New York Stock Exchange at 20 Broad Street, New York, New York 10005. The Commission maintains a World Wide Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of the site is http://www.sec.gov. This Prospectus constitutes part of a Registration Statement on Form S-3 (together with all amendments and exhibits thereto, the "Registration Statement") and does not contain all of the information set forth in the Registration Statement, certain parts of which have been omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and the securities offered hereby, reference is made to the Registration Statement and to the exhibits and schedules thereto. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to herein are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and such statement is qualified in its entirety by such reference. Copies of the Registration Statement may be inspected, without charge, at the offices of the Commission or obtained at prescribed rates from the Public Reference Section of the Commission at the address set forth above. INFORMATION INCORPORATED BY REFERENCE The following documents, previously filed by the Company with the Commission pursuant to the Exchange Act, are incorporated herein by reference: (i) The Company's Annual Report on Form 10-K for the fiscal year ended July 31, 1997, filed October 1, 1997; (ii) the Company's Annual Report on Form 10-K/A for the fiscal year ended July 31, 1997, filed October 28, 1997; (iii) the Company's Current Report on Form 8-K, filed August 13, 1997; and (iv) the Company's Current Report on Form 8-K, filed October 16, 1997. Each document filed by the Company with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, subsequent to the date of this Prospectus and prior to the termination of the offering to which this Prospectus relates, shall be deemed to be incorporated by reference into this Prospectus and to be a part hereof from the date any such document is filed. Any statements contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein (or in any other subsequently filed document which also is incorporated or deemed to be incorporated by reference herein) specifically modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed to constitute a part of this Prospectus except as so modified or superseded. The Company hereby undertakes to provide without charge to each person to whom a copy of this Prospectus has been delivered, upon written or oral request of such person to Corporate Secretary, Dycom Industries, Inc., First Union Center, 4440 PGA Boulevard, Suite 600, Palm Beach Gardens, Florida 33410, (561) 627-7171, a copy of any or all of the documents described above (other than exhibits to such documents) that have been incorporated by reference in this Prospectus. 37 39 DYCOM INDUSTRIES, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE NUMBER ------ Consolidated Financial Statements for the three years ended July 31, 1997 Report of Independent Auditors............................ F-2 Consolidated Balance Sheets as of July 31, 1996 and 1997................................................... F-5 Consolidated Statements of Operations for the years ended July 31, 1995, 1996 and 1997........................... F-6 Consolidated Statements of Stockholders' Equity for the years ended July 31, 1995, 1996 and 1997............... F-7 Consolidated Statements of Cash Flows for the years ended July 31, 1995, 1996 and 1997........................... F-8 Notes to Consolidated Financial Statements................ F-9
F-1 40 INDEPENDENT AUDITORS' REPORT Dycom Industries, Inc. We have audited the consolidated balance sheets of Dycom Industries, Inc. and subsidiaries (the "Company") as of July 31, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended July 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audits. The consolidated financial statements give retroactive effect to the merger of Communications Construction Group, Inc., which has been accounted for as a pooling of interests as described in Note 2 to the consolidated financial statements. We did not audit the balance sheet of Communications Construction Group, Inc. as of May 31, 1996 or the statements of operations, stockholders' equity, and cash flows of Communications Construction Group, Inc. for the years ended May 31, 1997, 1996 and 1995, which statements reflect total assets of $14,121,468 as of May 31, 1996, and total revenues of $67,717,326, $50,121,009 and $43,047,102 for the years ended May 31, 1997, 1996 and 1995, respectively. Those financial statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for Communications Construction Group, Inc. for such periods, is based solely on the reports of such other auditors. As described in Note 2 to the consolidated financial statements, subsequent to the issuance of the reports of the other auditors, Communications Construction Group, Inc. changed its fiscal year to conform to the fiscal year of Dycom Industries, Inc. for the period ended July 31, 1997. 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 and the report of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Dycom Industries, Inc. and subsidiaries as of July 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended July 31, 1997 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Certified Public Accountants West Palm Beach, Florida September 26, 1997 F-2 41 INDEPENDENT AUDITOR'S REPORT To the Board of Directors Communications Construction Group, Inc. We have audited the accompanying consolidated balance sheets of Communications Construction Group, Inc. (the "Company") as of May 31, 1997 and 1996, and the related consolidated statements of operations, cash flows and changes in stockholders' equity for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above (not presented separately herein) present fairly, in all material respects, the consolidated financial position of Communications Construction Group, Inc. as of May 31, 1997 and 1996, and the consolidated results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. NOWALK & ASSOCIATES Nowalk & Associates Cranbury, New Jersey July 23, 1997 F-3 42 INDEPENDENT AUDITOR'S REPORT To the Board of Directors Communications Construction Group, Inc. We have audited the accompanying consolidated balance sheets of Communications Construction Group, Inc. (the "Company") as of May 31, 1996 and 1995, and the related consolidated statements of operations, cash flows and changes in stockholders' equity for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above (not presented separately herein) present fairly, in all material respects, the consolidated financial position of Communications Construction Group, Inc. as of May 31, 1996 and 1995, and the consolidated results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. NOWALK & ASSOCIATES Nowalk & Associates Cranbury, New Jersey August 29, 1996 As to Notes 5 and 6, January 3, 1997 F-4 43 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JULY 31, 1996 AND 1997
1996 1997 ----------- ----------- ASSETS CURRENT ASSETS: Cash and equivalents........................................ $ 3,927,736 $ 6,645,972 Accounts receivable, net.................................... 21,747,268 34,353,367 Costs and estimated earnings in excess of billings.......... 7,519,284 10,479,974 Deferred tax assets, net.................................... 1,261,065 2,168,763 Other current assets........................................ 1,291,249 1,550,545 ----------- ----------- Total current assets.............................. 35,746,602 55,198,621 ----------- ----------- PROPERTY AND EQUIPMENT, net................................. 24,514,470 27,543,238 ----------- ----------- OTHER ASSETS: Intangible assets, net...................................... 4,839,447 4,684,358 Deferred tax assets......................................... 704,887 424,205 Other....................................................... 389,947 311,473 ----------- ----------- Total other assets................................ 5,934,281 5,420,036 ----------- ----------- TOTAL............................................. $66,195,353 $88,161,895 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable............................................ $ 5,567,512 $10,281,615 Notes payable............................................... 7,257,867 13,080,316 Billings in excess of costs and estimated earnings.......... 38,714 470,940 Accrued self-insured claims................................. 3,064,229 2,011,622 Income taxes payable........................................ 1,099,178 1,230,376 Other accrued liabilities................................... 10,496,020 11,904,304 ----------- ----------- Total current liabilities......................... 27,523,520 38,979,173 NOTES PAYABLE............................................... 10,427,837 9,012,066 ACCRUED SELF-INSURED CLAIMS................................. 7,062,150 6,418,400 ----------- ----------- Total liabilities................................. $45,013,507 $54,409,639 ----------- ----------- COMMITMENTS AND CONTINGENCIES, Note 15 STOCKHOLDERS' EQUITY: Common stock, par value $.33 1/3 per share: 50,000,000 shares authorized; 10,654,734 and 10,867,877 issued and outstanding, respectively................................. $ 3,551,578 $ 3,622,625 Additional paid-in capital.................................. 24,582,832 25,421,701 Retained earnings (deficit)................................. (6,952,564) 4,707,930 ----------- ----------- Total stockholders' equity........................ 21,181,846 33,752,256 ----------- ----------- TOTAL............................................. $66,195,353 $88,161,895 =========== ===========
See notes to consolidated financial statements. F-5 44 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED JULY 31, 1995, 1996, AND 1997
1995 1996 1997 ------------ ------------ ------------ REVENUES: Contract revenues earned............................. $186,956,976 $194,053,617 $242,957,932 Other, net........................................... 1,376,398 1,206,624 965,549 ------------ ------------ ------------ Total...................................... 188,333,374 195,260,241 243,923,481 ------------ ------------ ------------ EXPENSES: Cost of earned revenues excluding depreciation....... 153,284,320 155,769,390 192,412,439 General and administrative........................... 19,009,530 20,485,022 23,779,913 Depreciation and amortization........................ 7,165,252 7,624,395 8,689,611 ------------ ------------ ------------ Total...................................... 179,459,102 183,878,807 224,881,963 ------------ ------------ ------------ INCOME BEFORE INCOME TAXES........................... 8,874,272 11,381,434 19,041,518 ------------ ------------ ------------ PROVISION (BENEFIT) FOR INCOME TAXES Current............................................ 3,732,893 5,297,772 8,018,951 Deferred........................................... (1,580,196) (196,241) ------------ ------------ ------------ Total...................................... 3,732,893 3,717,576 7,822,710 ------------ ------------ ------------ NET INCOME........................................... $ 5,141,379 $ 7,663,858 $ 11,218,808 ============ ============ ============ EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE: Primary............................................ $ 0.49 $ 0.71 $ 1.02 ============ ============ ============ Fully diluted...................................... $ 0.49 $ 0.70 $ 1.02 ============ ============ ============ SHARES USED IN COMPUTING EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE: Primary............................................ 10,588,766 10,859,819 10,948,689 ============ ============ ============ Fully diluted...................................... 10,588,766 10,928,284 10,994,500 ============ ============ ============
See notes to consolidated financial statements. F-6 45 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED JULY 31, 1995, 1996, AND 1997
COMMON STOCK ADDITIONAL RETAINED ----------------------- PAID-IN EARNINGS SHARES AMOUNT CAPITAL (DEFICIT) ---------- ---------- ----------- ------------ Balances at July 31, 1994, as previously reported................................... 8,528,990 $2,842,997 $24,253,309 $(20,387,411) Acquisition accounted for as pooling of interests.................................. 2,053,242 684,414 109,563 629,610 ---------- ---------- ----------- ------------ Balances at July 31, 1994.................... 10,582,232 3,527,411 24,362,872 (19,757,801) Stock options exercised...................... 15,000 5,000 40,000 Net income................................... 5,141,379 ---------- ---------- ----------- ------------ Balances at July 31, 1995.................... 10,597,232 3,532,411 24,402,872 (14,616,422) Stock options exercised...................... 57,502 19,167 179,960 Net income................................... 7,663,858 ---------- ---------- ----------- ------------ Balances at July 31, 1996.................... 10,654,734 3,551,578 24,582,832 (6,952,564) Stock options exercised...................... 213,143 71,047 706,300 Income tax benefit from stock options exercised.................................. 132,569 Adjustment for change in fiscal year of pooled company............................. 441,686 Net income................................... 11,218,808 ---------- ---------- ----------- ------------ Balances at July 31, 1997.................... 10,867,877 $3,622,625 $25,421,701 $ 4,707,930 ========== ========== =========== ============
See notes to consolidated financial statements. F-7 46 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JULY 31, 1995, 1996, AND 1997
1995 1996 1997 ----------- ------------ ------------ Increase (Decrease) in Cash and Equivalents from: OPERATING ACTIVITIES: Net income............................................ $ 5,141,379 $ 7,663,858 $ 11,218,808 Adjustments to reconcile net cash provided by operating activities: Depreciation and amortization....................... 7,165,252 7,624,395 8,689,611 Gain on disposal of assets.......................... (840,637) (763,104) (667,377) Deferred income taxes............................... (1,580,196) (196,241) Changes in assets and liabilities: Accounts receivable, net............................ (1,900,640) 2,842,893 (10,861,852) Unbilled revenues, net.............................. (1,300,412) (2,286,096) (2,429,995) Other current assets................................ (18,790) 205,641 (785,024) Other assets........................................ 123,780 49,570 93,350 Accounts payable.................................... 2,042,901 (2,767,120) 3,782,196 Accrued self-insured claims and other liabilities... 1,623,897 2,703,422 323,789 Accrued income taxes................................ 250,189 85,227 636,427 ----------- ------------ ------------ Net cash inflow from operating activities............. 12,286,919 13,778,490 9,803,692 ----------- ------------ ------------ INVESTING ACTIVITIES: Capital expenditures................................ (8,704,641) (10,684,195) (12,063,723) Proceeds from sale of assets........................ 2,569,307 2,195,774 1,685,069 ----------- ------------ ------------ Net cash outflow from investing activities............ (6,135,334) (8,488,421) (10,378,654) ----------- ------------ ------------ FINANCING ACTIVITIES: Borrowings on notes payable and bank lines-of-credit.................................. 1,504,982 1,690,917 17,321,661 Principal payments on notes payable and bank lines-of-credit.................................. (5,944,358) (7,671,189) (14,646,255) Exercise of stock options........................... 45,000 199,127 777,347 ----------- ------------ ------------ Net cash inflow (outflow) from financing activities... (4,394,376) (5,781,145) 3,452,753 ----------- ------------ ------------ Net cash outflow related to change in fiscal year of pooled company...................................... (159,555) ----------- ------------ ------------ NET CASH INFLOW (OUTFLOW) FROM ALL ACTIVITIES......... 1,757,209 (491,076) 2,718,236 CASH AND EQUIVALENTS AT BEGINNING OF YEAR............. 2,661,603 4,418,812 3,927,736 ----------- ------------ ------------ CASH AND EQUIVALENTS AT END OF YEAR................... $ 4,418,812 $ 3,927,736 $ 6,645,972 =========== ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW AND NONCASH INVESTING AND FINANCING ACTIVITIES: Cash paid during the period for: Interest............................................ $ 2,493,381 $ 2,023,159 $ 1,798,093 Income taxes........................................ 3,411,785 5,364,539 8,158,759 Property and equipment acquired and financed with: Capital lease obligations........................... $ 360,242 $ 135,341 $ 601,024 Income tax benefit from stock options exercised....... $ 132,569
See notes to consolidated financial statements. F-8 47 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include Dycom Industries, Inc. ("Dycom" or the "Company") and its subsidiaries, all of which are wholly owned. On July 29, 1997, Communications Construction Group, Inc. ("CCG") was merged with and into the Company through an exchange of common stock. The merger was accounted for as a pooling of interests. Accordingly, the Company's consolidated financial statements include the results of CCG for all periods presented. See Note 2. The Company's operations consist primarily of telecommunication and electric utility services contracting. All material intercompany accounts and transactions have been eliminated. USE OF ESTIMATES -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates and such differences may be material to the financial statements. Estimates are used in the Company's revenue recognition of work-in-process, allowance for doubtful accounts, self-insured claims liability, deferred tax asset valuation allowance, depreciation and amortization, and in the estimated lives of assets, including intangibles. REVENUE -- Income on long-term contracts is recognized on the percentage-of-completion method based primarily on the ratio of contract costs incurred to date to total estimated contract costs. As some of these contracts extend over one or more years, revisions in cost and profit estimates during the course of the work are reflected in the accounting period as the facts that require the revision become known. At the time a loss on a contract becomes known, the entire amount of the estimated ultimate loss is accrued. Income on short-term unit contracts is recognized as the related work is completed. Work-in-process on unit contracts is based on management's estimate of work performed but not billed. "Costs and estimated earnings in excess of billings" represents the excess of contract revenues recognized under the percentage-of-completion method of accounting for long-term contracts and work-in-process on unit contracts over billings to date. For those contracts in which billings exceed contract revenues recognized to date, such excesses are included in the caption "billings in excess of costs and estimated earnings". CASH AND EQUIVALENTS -- Cash and equivalents include cash balances in excess of daily requirements which are invested in overnight repurchase agreements, certificates of deposits, and various other financial instruments having an original maturity of three months or less. For purposes of the consolidated statements of cash flows, the Company considers these amounts to be cash equivalents. The carrying amount reported in the balance sheet for cash and equivalents approximates its fair value. PROPERTY AND EQUIPMENT -- Property and equipment is stated at cost, reduced in certain cases by valuation reserves. Depreciation and amortization is computed over the estimated useful life of the assets utilizing the straight-line method. The estimated useful service lives of the assets are: buildings -- 20-31 years; leasehold improvements -- the term of the respective lease or the estimated useful life of the improvements, whichever is shorter; vehicles -- 3-7 years; equipment and machinery -- 3-10 years; and furniture and fixtures -- 3-10 years. Maintenance and repairs are expensed as incurred; expenditures that enhance the value of the property or extend its useful life are capitalized. When assets are sold or retired, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is included in income. INTANGIBLE ASSETS -- The excess of the purchase price over the fair market value of the tangible net assets of acquired businesses (goodwill) is amortized on the straight-line method over 40 years. The appropriateness of the carrying value of goodwill is reviewed periodically by the Company at the subsidiary level. An impairment loss is recognized when the projected future cash flows is less than the carrying value of goodwill. F-9 48 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Amortization expense was $155,088 for each of the fiscal years ended July 31, 1995, 1996, and 1997, respectively. The intangible assets are net of accumulated amortization of $996,270 and $1,151,358 at July 31, 1996 and 1997, respectively. LONG-LIVED ASSETS -- In March 1995, the Financial Accounting Standards Board ("FASB") issued the Statement of Financial Accounting Standards ("SFAS") No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". SFAS No. 121 requires that the long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events and circumstances indicate that the carrying amount of an asset may not be recoverable. The Company adopted the provisions of SFAS No. 121 effective August 1, 1996 and has determined that no impairment loss need be recognized. SELF-INSURED CLAIMS LIABILITY -- The Company is primarily self-insured, up to certain limits, for automobile and general liability, workers' compensation, and employee group health claims. A liability for unpaid claims and the associated claim expenses, including incurred but not reported losses, is actuarially determined and reflected in the consolidated financial statements as an accrued liability. The self-insured claims liability includes incurred but not reported losses of $4,458,000 and $4,429,000 at July 31, 1996 and 1997, respectively. The determination of such claims and expenses and the appropriateness of the related liability is continually reviewed and updated. INCOME TAXES -- The Company and its subsidiaries, except for CCG, file a consolidated federal income tax return. CCG will be included in the Company's consolidated federal income tax return commencing in fiscal year 1998. Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities. PER SHARE DATA -- Earnings per common and common equivalent share are computed using the weighted average shares of common stock outstanding plus the common stock equivalents arising from the effect of dilutive stock options, using the treasury stock method. See Note 12. CHANGE IN ACCOUNTING PRINCIPLE -- In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock Based Compensation," which was effective for the Company beginning August 1, 1996. SFAS No. 123 requires expanded disclosures of stock based compensation arrangements with employees and encourages, but does not require, compensation cost to be measured based on the fair value of the equity instrument awarded. Under SFAS No. 123, companies are permitted, however, to continue to apply Accounting Principle Board ("APB") Opinion No. 25, which recognizes compensation cost based on the intrinsic value of the equity instrument awarded. The Company will continue to apply APB Opinion No. 25 to its stock based compensation awards to employees and will disclose in the annual financial statements the required pro forma effect on net income and earnings per share. See Note 12. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS -- In February 1997, the FASB issued SFAS No. 128 "Earnings per Share" which changes the method of calculating earnings per share and is effective for fiscal years ending after December 15, 1997. SFAS No. 128 requires the presentation of "basic" earnings per share and "diluted" earnings per share on the face of the income statement. Basic earnings per share is computed by dividing the net income available to common shareholders by the weighted average shares of outstanding common stock. The calculation of diluted earnings per share is similar to basic earnings per share except the denominator includes dilutive common stock equivalents such as stock options and warrants. The Company will adopt SFAS No. 128 in fiscal 1998 as early adoption is not permitted. The calculation of earnings per share under SFAS No. 128 is not expected to be materially different than the F-10 49 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) current calculation of earnings per share. The pro forma basic earnings per share and diluted earnings per share calculated in accordance with SFAS 128 for the years ended July 31, are as follows:
1995 1996 1997 ----- ----- ----- Pro forma basic earnings per share.......................... $0.49 $0.72 $1.04 Pro forma diluted earnings per share........................ $0.49 $0.71 $1.02
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income" which establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. This statement requires that an enterprise classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. This statement is effective for fiscal years beginning after December 15, 1997. In June 1997, the FASB issued SFAS No. 131 "Disclosure about Segments of an Enterprise and Related Information" which establishes standards for public business enterprises to report information about operating segments in annual financial statements and requires those enterprises to report selected information about operating segments in interim financial reports issued to shareholders. It also establishes the standards for related disclosures about products and services, geographic areas, and major customers. This statement requires that a public business enterprise report financial and descriptive information about its reportable operating segments. The financial information is required to be reported on the basis that it is used internally for evaluating segment performance and deciding how to allocate resources to segments. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. This statement is effective for financial statements for periods beginning after December 15, 1997. Management is currently evaluating the requirements of SFAS No.130 and No. 131, respectively. 2. ACQUISITION On July 29, 1997, the Company consummated the Communications Construction Group, Inc.("CCG") acquisition by merger. The Company issued 2,053,242 shares of common stock in exchange for all the outstanding capital stock of CCG. Dycom has accounted for the acquisition as a pooling of interests and, accordingly, the Company's historical financial statements include the results of CCG for all periods presented. Prior to the acquisition, CCG used a fiscal year ending May 31 and as of July 31 1997 adopted Dycom's fiscal year. The Company's consolidated statements of operations for years ending July 31, 1995, 1996, and 1997 combines the statements of operations of CCG for its fiscal years ending May 31, 1995, 1996, and 1997, respectively. The Company's consolidated balance sheet at July 31, 1996 includes the CCG balance sheet as of May 31, 1996. The total revenue and net income of CCG for the two-month period ended July 31, 1997 were $13.1 million and $0.4 million, respectively, with the net income reflected as an adjustment to retained earnings as of July 31, 1997. F-11 50 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The combined and separate company results of Dycom and CCG for the fiscal years ended July 31 and May 31, 1995, 1996, and 1997 are as follows:
DYCOM CCG JULY 31, MAY 31, COMBINED ------------ ----------- ------------ Fiscal year 1995: Total revenues.............................. $145,283,116 $43,050,258 $188,333,374 Net income.................................. $ 4,433,204 $ 708,175 $ 5,141,379 Fiscal year 1996: Total revenues.............................. $145,135,380 $50,124,861 $195,260,241 Net income.................................. $ 6,390,144 $ 1,273,714 $ 7,663,858 Fiscal year 1997: Total revenues.............................. $176,204,581 $67,718,900 $243,923,481 Net income.................................. $ 8,268,502 $ 2,950,306 $ 11,218,808
The direct transaction costs resulting from the merger were $0.4 million. These costs, which include filing fees with regulatory agencies, legal, accounting and other professional costs, were charged to the combined operations for the fiscal year ended July 31, 1997. 3. ACCOUNTS RECEIVABLE Accounts receivable at July 31 consist of the following:
1996 1997 ----------- ----------- Contract billings........................................... $20,393,361 $32,586,289 Retainage................................................... 1,432,545 1,885,656 Other receivables........................................... 527,405 896,015 ----------- ----------- Total............................................. 22,353,311 35,367,960 Less allowance for doubtful accounts........................ 606,043 1,014,593 ----------- ----------- Accounts receivable, net.................................... $21,747,268 $34,353,367 =========== ===========
4. COSTS AND ESTIMATED EARNINGS ON CONTRACTS IN PROGRESS The accompanying consolidated balance sheets include costs and estimated earnings on contracts in progress, net of progress billings as follows:
1996 1997 ----------- ----------- Costs incurred on contracts in progress..................... $24,553,658 $16,894,451 Estimated earnings thereon.................................. 436,154 3,222,120 ----------- ----------- 24,989,812 20,116,571 Less billings to date....................................... 17,509,242 10,107,537 ----------- ----------- $ 7,480,570 $10,009,034 =========== =========== Included in the accompanying consolidated balance sheets under the captions: Costs and estimated earnings in excess of billings........ $ 7,519,284 $10,479,974 Billings in excess of costs and estimated earnings........ (38,714) (470,940) ----------- ----------- $ 7,480,570 $10,009,034 =========== ===========
F-12 51 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. PROPERTY AND EQUIPMENT The accompanying consolidated balance sheets include the following property and equipment:
1996 1997 ----------- ----------- Land........................................................ $ 1,711,464 $ 1,942,247 Buildings................................................... 2,236,322 2,346,993 Leasehold improvements...................................... 1,078,939 1,356,861 Vehicles.................................................... 28,385,347 32,232,343 Equipment and machinery..................................... 22,534,900 23,674,176 Furniture and fixtures...................................... 3,738,944 5,011,660 ----------- ----------- Total............................................. 59,685,916 66,564,280 Less accumulated depreciation and amortization.............. 35,171,446 39,021,042 ----------- ----------- Property and equipment, net................................. $24,514,470 $27,543,238 =========== ===========
During fiscal 1996 and 1997, certain subsidiaries of the Company entered into lease arrangements accounted for as capitalized leases. The carrying value of capital leases at July 31, 1996 and 1997 was $372,170 and $838,137, respectively, net of accumulated amortization of $874,937 and $881,336, respectively. Capital leases are included as a component of equipment and machinery. Maintenance and repairs of property and equipment amounted to $6,142,484, $6,280,575, and $6,116,397 for the fiscal years ended July 31, 1995, 1996, and 1997, respectively. 6. OTHER ACCRUED LIABILITIES Other accrued liabilities at July 31 consist of the following:
1996 1997 ----------- ----------- Accrued payroll and related taxes........................... $ 2,618,266 $ 3,281,376 Accrued employee benefit costs.............................. 2,385,969 3,406,400 Accrued construction costs.................................. 2,178,785 2,033,371 Accrued other liabilities................................... 3,313,000 3,183,157 ----------- ----------- Other accrued liabilities................................... $10,496,020 $11,904,304 =========== ===========
7. NOTES PAYABLE Notes payable at July 31 are summarized by type of borrowing as follows:
1996 1997 ----------- ----------- Bank Credit Agreements Revolving credit facilities............................... $12,985,119 $10,113,484 Term-loan................................................. 2,162,812 8,550,000 Equipment term-loans...................................... 704,168 1,907,216 Capital lease obligations................................... 344,445 722,927 Equipment loans............................................. 852,083 798,755 Other....................................................... 637,077 ----------- ----------- Total............................................. 17,685,704 22,092,382 Less current portion........................................ 7,257,867 13,080,316 ----------- ----------- Notes payable -- non-current................................ $10,427,837 $ 9,012,066 =========== ===========
F-13 52 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On April 28, 1997 the Company signed a new $35.0 million credit agreement with a group of banks. The new credit facility provides for (i) a five-year term-loan in the principal amount of $9.0 million used to refinance the Company's previously existing bank credit facility, (ii) a $6.0 million revolving equipment facility used to refinance existing equipment term-loans and to provide financing for Company's future equipment requirements, (iii) a $10.0 million revolving credit facility used for financing working capital, and (iv) a $10.0 million standby letter of credit facility issued as security to the Company's insurance administrators as part of its self-insurance program. The revolving credit facility, the revolving equipment facility and the standby letter of credit facility are available for a one-year period. The outstanding principal under the term-loan bears interest at the prime interest rate minus 0.50% (8.00% at July 31, 1997). Principal and interest is payable in quarterly installments through April 2002. The loans outstanding under the revolving credit facility and the revolving equipment facility bear interest, at the option of the Company, at the prime interest rate minus 1.0% or LIBOR plus 1.50% and at the prime interest minus 0.75% or LIBOR plus 1.75%, respectively. At July 31, 1997, the interest rates on the outstanding revolving credit facility and revolving equipment facility loans were at the LIBOR options or 7.56% and 7.81%, respectively. At July 31, 1997, the outstanding amounts under the term-loan and the revolving credit facility were $8.6 million and $4.2 million, respectively. The advances under the revolving equipment facility are converted to term-loans with maturities not to exceed 48 months. The outstanding principal on the equipment term-loans is payable in monthly installments through January 2001. During the quarter ended April 30, 1997, the Company borrowed $1.2 million to refinance the then existing equipment term-loans and an additional $0.8 million for current equipment requirements. At July 31, 1997, the outstanding amount owed under the revolving equipment facility was $1.9 million. At July 31, 1997, the Company had outstanding $9.2 million in standby letters of credit issued to the Company's insurance administrators as part of its self-insurance program. The new bank credit arrangement contains restrictions which, among other things, require maintenance of certain financial ratios and covenants, restricts encumbrances of assets and creation of indebtedness, and limits the payment of cash dividends. Cash dividends are limited to 50% of each fiscal year's after-tax profits. No cash dividends have been paid during fiscal 1997. The credit facility is secured by the Company's assets. At July 31, 1997, the Company was in compliance with all the financial covenants and conditions. The Company's newly acquired subsidiary, CCG, maintains a $6.6 million revolving bank credit facility. The interest rate on this facility is at the bank's prime interest rate plus 0.75% and is collateralized by 75% of the eligible trade accounts receivable, inventory, and certain real property owned by a partnership, whose general partners are the former shareholders of CCG. In addition, the former shareholders of CCG are personal guarantors of this facility. The facility contains certain financial conditions and covenants including limitation on the amount of capital expenditures and the creation of additional indebtedness. During 1997, certain financial covenants were breached and the bank waived such violations. At July 31, 1997, CCG was in compliance with the bank credit facility covenants and conditions. The outstanding principal balance was $5.9 million at July 31, 1997. This facility was an existing arrangement made by CCG prior to the acquisition by Dycom. In addition to the borrowings under the bank credit agreement, certain subsidiaries have outstanding obligations under capital leases and other equipment financing arrangements. These obligations are payable in monthly installments expiring at various dates through December 2001. The estimated aggregate annual principal repayments for notes payable and capital lease obligations in the next five years are $13,080,316 in 1998, $2,869,834 in 1999, $2,592,735 in 2000, $2,160,155 in 2001, and $1,389,342 in 2002. F-14 53 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Interest costs incurred on notes payable, all of which is expensed, for the years ended July 31, 1995, 1996, and 1997 were $2,348,574, $1,916,389, and $1,899,570, respectively. Such amounts are included in general and administrative expenses in the accompanying consolidated statements of operations. The interest rates on notes payable under the bank credit agreement are at current rates and, therefore, the carrying amount approximates fair value. 8. INCOME TAXES The components of the provision (benefit) for income taxes are:
1995 1996 1997 ---------- ---------- ---------- Current: Federal.......................................... $3,027,160 $4,265,617 $6,248,234 State............................................ 705,733 1,032,155 1,770,717 ---------- ---------- ---------- 3,732,893 5,297,772 8,018,951 ---------- ---------- ---------- Deferred: Federal.......................................... (74,145) (522,169) 191,765 State............................................ (134,700) Valuation allowance.............................. 74,145 (1,058,027) (253,306) ---------- ---------- ---------- (1,580,196) (196,241) ---------- ---------- ---------- Total tax provision...................... $3,732,893 $3,717,576 $7,822,710 ========== ========== ==========
The deferred tax provision (benefit) is the change in the deferred tax assets and liabilities representing the tax consequences of changes in the amount of temporary differences and changes in tax rates during the year. The change in the deferred tax assets and liabilities of CCG for the two-months ended July 31, 1997 is included in the Company's retained earnings as the adjustment for the change in fiscal year of pooled company. The deferred tax assets and liabilities at July 31 are comprised of the following:
1996 1997 ---------- ---------- Deferred tax assets: Self-insurance, warranty, and other non-deductible reserves............................................... $4,008,715 $3,943,356 Allowance for doubtful accounts........................... 172,340 346,993 Small tools............................................... 348,067 ---------- ---------- 4,181,055 4,638,416 Valuation allowance....................................... (728,491) (475,185) ---------- ---------- $3,452,564 $4,163,231 ========== ========== Deferred tax liabilities: Property and equipment.................................... $1,275,314 $1,357,721 Unamortized acquisition costs............................. 211,298 212,542 ---------- ---------- $1,486,612 $1,570,263 ========== ========== Net deferred tax assets..................................... $1,965,952 $2,592,968 ========== ==========
A valuation allowance is provided when it is more likely than not that some portion of the Company's deferred tax assets will not be realized. In fiscal 1996 and 1997, the Company reduced the valuation allowance by $1.1 million and $0.3 million, respectively. The valuation allowance recorded in the financial statements reduces deferred tax assets to an amount that represents management's best estimate of the amount of deferred tax assets that more likely than not will be realized. Management's estimate and conclusion is based F-15 54 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) on the available evidence supporting the reversing deductible temporary differences being offset by reversing taxable temporary differences and the existence of sufficient taxable income within the current carryback periods. The difference between the total tax provision and the amount computed by applying the statutory federal income tax rates to pre-tax income is as follows:
1995 1996 1997 ---------- ----------- ---------- Statutory rate applied to pre-tax income.......... $3,017,252 $ 3,869,688 $6,664,531 State taxes, net of federal tax benefit........... 465,784 681,836 1,059,178 Amortization and write-off of intangible assets, with no tax benefit............................. 52,730 52,730 52,730 Tax effect of non-deductible items................ 169,161 139,101 374,564 Valuation allowance............................... 74,145 (1,058,027) (253,306) Other items, net.................................. (46,179) 32,248 (74,987) ---------- ----------- ---------- Total tax provision..................... $3,732,893 $ 3,717,576 $7,822,710 ========== =========== ==========
The Internal Revenue Service (the "IRS")has examined and closed the Company's consolidated federal income tax returns for all years through fiscal 1990. The Company has settled all assessments of additional taxes and believes that it has made adequate provision for income taxes that may become payable with respect to open tax years. The IRS has examined and closed the income tax returns for years through 1994 for CCG. On August 5, 1997, The Taxpayer Relief Act of 1997 (the "Act") was signed into law. The Act will not have a material effect on the Company's consolidated financial statements. 9. REVENUES -- OTHER The components of other revenues are as follows:
1995 1996 1997 ---------- ---------- -------- Interest income..................................... $ 266,392 $ 264,551 $190,181 Gain on sale of fixed assets........................ 840,637 763,104 667,377 Miscellaneous income................................ 269,369 178,969 107,991 ---------- ---------- -------- Total other revenues, net........................... $1,376,398 $1,206,624 $965,549 ========== ========== ========
10. CAPITAL STOCK On June 1, 1992, the Company approved a Shareholder Rights Plan. All shareholders of record on June 15, 1992 were issued a Right for each outstanding share of the Company's common stock. Each Right entitles the holder to purchase one-half share of common stock for an exercise price of $18 subject to adjustment. The Right is exercisable only when a triggering event occurs. The triggering events, among others, are a person or group's (1) acquisition of 20% or more of Dycom's common stock, (2) commencement of a tender offer which would result in the person or group owning 20% or more of Dycom's common stock, or (3) acquisition of at least 10% of Dycom's common stock and such acquisition is determined to have effects adverse to the Company. The Company can redeem the Rights at $0.01 per Right at any time prior to ten days after a triggering event occurs. Certain officers of the Company have change of control agreements with Dycom, which provide extraordinary compensation upon the change of control of the Company. The payments pursuant to these agreements would be triggered by any person's acquisition of more than 50% of the Company's outstanding F-16 55 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) securities, the sale or transfer of substantially all of Dycom's assets to someone other than a wholly-owned subsidiary of the Company, or a change of control of the Board of Directors. At July 31, 1997, the Company has authorized 1,000,000 shares of preferred stock, par value $1.00, of which no shares are issued and outstanding. 11. EMPLOYEE BENEFIT PLAN The Company sponsors defined contribution plans that provide retirement benefits to all employees that elect to participate. Under the plans, participating employees may defer up to 15% of their base pre-tax compensation. The Company's contributions to the plans are discretionary. The Company's discretionary contributions were $60,039, $100,000 and $230,000 in fiscal years 1995, 1996, and 1997, respectively. 12. STOCK OPTION PLANS The Company has reserved 900,000 shares of common stock under its 1991 Incentive Stock Option Plan (the "1991 Plan") which was approved by the shareholders on November 25, 1991. The Plan provides for the granting of options to key employees until it expires in 2001. Options are granted at the fair market value on the date of grant and are exercisable over a period of up to five years. Since the Plan's adoption, certain of the options granted have lapsed as a result of employees terminating their employment with the Company. At July 31, 1995, 1996, and 1997, options available for grant under the 1991 Plan were 403,419 shares, 427,353 shares, and 384,118 shares, respectively. On August 25, 1997, the Company granted to key employees under the 1991 Plan options to purchase an aggregate of 192,059 shares of common stock. The options were granted at $18.25, the fair market value on the date of grant. The Company's previous Incentive Stock Option Plan (the "1981 Plan") expired on December 31, 1991. No further grants will be made under the 1981 Plan, and all outstanding options expired during the first quarter of fiscal 1996. In addition to the stock option plans discussed above, the Company has agreements outside of the plans with the non-employee members of the Board of Directors (the "Directors Plan"). On January 10, 1994, the Company granted to the non-employee Directors, non-qualified options to purchase an aggregate of 60,000 shares of common stock. The options were granted at $3.875, the fair market value on the date of grant, with vesting over a three-year period. F-17 56 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table summarizes the stock option transactions under the 1991 Plan, the 1981 Plan, and the Directors Plan for the three years ended July 31, 1995, 1996, and 1997:
WEIGHTED AVERAGE NUMBER OF EXERCISE SHARES PRICE --------- -------- Options outstanding at July 31, 1994........................ 504,498 $ 4.78 Granted................................................... 161,300 $ 5.09 Terminated................................................ (106,625) $ 7.73 Exercised................................................. (15,000) $ 3.00 -------- ------ Options outstanding at July 31, 1995........................ 544,173 $ 4.29 Terminated................................................ (50,526) $ 7.43 Exercised................................................. (57,502) $ 3.46 -------- ------ Options outstanding at July 31, 1996........................ 436,145 $ 4.54 Granted................................................... 100,000 $13.50 Terminated................................................ (56,765) $ 4.57 Exercised................................................. (213,143) $ 4.02 -------- ------ Options outstanding at July 31, 1997........................ 266,237 $10.32 -------- ------ Exercisable options at July 31, 1995............................................. 138,069 $ 4.92 July 31, 1996............................................. 190,817 $ 3.78 July 31, 1997............................................. 69,933 $ 5.21 -------- ------
The range of exercise prices for options outstanding at July 31, 1997 was $2.75 to $13.50. The range of exercise prices for options is wide due primarily to the increasing price of the Company's stock over the period of the grants. The following summarizes information about options outstanding at July 31, 1997:
OUTSTANDING OPTIONS ---------------------------------- WEIGHTED WEIGHTED AVERAGE AVERAGE NUMBER OF CONTRACTUAL EXERCISE SHARES LIFE PRICE --------- ----------- -------- Range of exercise prices $ 2.00 to $ 4.00...................................... 107,357 5.3 3.44 $ 6.00 to $ 8.00...................................... 64,000 3.0 6.75 $12.00 to $14.00...................................... 94,880 4.1 13.50 ------- --- ------ 266,237 4.5 $10.32 ======= === ======
EXERCISABLE OPTIONS ------------------------ WEIGHTED EXERCISABLE AVERAGE AS OF EXERCISE JULY 31, 1997 PRICE ------------- -------- Range of exercise prices $2.00 to $4.00............................................ 44,683 $3.58 $6.00 to $8.00............................................ 25,250 $6.75 ------ ----- 69,933 $5.21 ====== =====
F-18 57 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) These options will expire if not exercised at specific dates ranging from November 1997 to August 2001. The prices for the options exercised during the three years ended July 31, 1997 ranged from $2.75 to $6.75. As discussed in Note 1, the Company has adopted the disclosure-only provisions of SFAS No. 123. The fair value of the options granted in fiscal 1997 has been estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions: expected stock volatility of 58.97%, risk-free interest rate of 6.57%, expected lives of 4 years, and no dividend yield, due to the Company's recent history of not paying cash dividends. The Company did not grant stock options in fiscal 1996. The Black-Scholes option valuation model was developed for estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Because option valuation models require the use of subjective assumptions and changes in these assumptions can materially impact the fair value of the options and the Company's options do not have the characteristics of traded options, the option valuation models do not necessarily provide a reliable measure of the fair value of its options. The estimated fair value of stock options granted during fiscal 1997 was $6.98 per share. The pro forma disclosures amortize to expense the estimated compensation costs for its stock options granted subsequent to July 31, 1995 over the options vesting period. The Company's fiscal 1997 pro forma net earnings and earnings per share are reflected below:
1996 1997 ---------- ----------- Pro forma net income........................................ $7,663,858 $11,092,254 Pro forma earnings per share: Primary................................................... $ 0.71 $ 1.01 Fully diluted............................................. $ 0.70 $ 1.01
13. RELATED PARTY TRANSACTIONS The Company's newly acquired subsidiary leases administrative offices from a partnership of which certain officers of the subsidiary are the general partners. The total expense under these arrangements for the years ended July 31, 1995, 1996, and 1997 was $79,200, $112,200 and $115,200, respectively. The future minimum lease commitments under these arrangements are $163,200 in 1998, $163,200 in 1999, $163,200 in 2000, $67,200 in 2001, and $24,000 thereafter. In addition, two of the Company's subsidiaries lease land, office buildings, shop facilities, and other equipment from two of these subsidiaries' former owners, one of which is a former Director of the Company. The total expense under these arrangements when such individuals were considered related parties for the fiscal year ended July 31, 1995 was $404,767. The total expenses in fiscal 1996 and 1997 and the related future minimum lease commitments are disclosed in Note 15. 14. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK The operating subsidiaries obtain contracts from both public and private concerns. For the years ended July 31, 1995, 1996, and 1997, approximately 44%, 44%, and 34%, respectively, of the contract revenues were from BellSouth Telecommunications, Inc. ("BellSouth") and 15%, 21%, and 23%, respectively, of the contract revenues were from Comcast Communications, Inc. ("Comcast"). Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of trade accounts receivable. BellSouth and Comcast represent a significant portion of the Company's customer base. At July 31, 1996, the total outstanding trade receivables from BellSouth and Comcast were $4.8 million or 22% and $6.9 million or 32%, respectively, of the Company's outstanding trade receivables. As of July 31, 1997, the total outstanding trade receivables from BellSouth and Comcast were $4.5 million or 13% and $11.5 million or 33% of the outstanding trade receivables. F-19 58 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 15. COMMITMENTS AND CONTINGENCIES The Company and its subsidiaries have operating leases covering office facilities, vehicles, and equipment which have noncancelable terms in excess of one year. During fiscal 1995, 1996, and 1997, the Company entered into numerous operating leases for vehicles and equipment. Certain of these leases contain renewal provisions and generally require the Company to pay insurance, maintenance, and other operating expenses. Total expense incurred under operating lease agreements, excluding the transactions with related parties (see Note 13), for the years ended July 31, 1995, 1996, and 1997, was $3,358,108, $5,018,744, and $6,561,022, respectively. The future minimum obligations under these leases are $3,826,759 in 1998; $1,673,498 in 1999; $550,516 in 2000; $95,870 in 2001, and $323,860 thereafter. In September 1995, the State of New York commenced a sales and use tax audit of CCG for the years 1989 through 1995. As a result of the audit, certain additional taxes were paid by CCG in fiscal 1996. In addition, the State of New York concluded that cable television service providers are subject to New York State sales taxes for the construction of cable television distribution systems, and by a Notice dated January 1997, the asserted amounts due from CCG for sales taxes and interest for the periods through August 31, 1995, aggregated approximately $1.3 million. Any sales taxes asserted against the Company may be offset by use taxes already paid by customers of the Company. The Company intends to vigorously contest the assertion. The Company is unable to assess the likelihood of any particular outcome at this time or to quantify the effect a resolution of this matter may have on the Company's consolidated financial statements. In the normal course of business, certain subsidiaries of the Company have pending and unasserted claims. Although the ultimate resolution and liability of these claims cannot be determined, management believes the final disposition of these claims will not have a material adverse impact on the Company's consolidated financial statements. 16. LITIGATION SETTLEMENT During fiscal year 1995, a final settlement was reached in the complaint filed in March 1993 by BellSouth against Star Construction, Inc. ("Star"), a subsidiary of the Company. The settlement provided for the payment of $750,000 to BellSouth by Star. The settlement monies were paid in two installments of $375,000 each during the quarters ended January 31, 1995 and April 30, 1995, respectively. The Company previously recorded a liability of $1.2 million for this claim and as such, credited operations for the excess liability at the time the claim was settled. 17. QUARTERLY FINANCIAL DATA (UNAUDITED) In the opinion of management, the following unaudited quarterly data for the years ended July 31, 1996 and 1997 reflect all adjustments necessary for a statement of operations. All such adjustments are of a normal recurring nature other than as discussed below. The Company acquired CCG on July 29, 1997. The acquisition was accounted for as a pooling of interests and accordingly, the unaudited quarterly financial statements for the periods presented include the accounts of CCG. Earnings per common and common equivalent share calculation for each quarter is based on the weighted average shares of common stock outstanding plus the effect of dilutive stock options. The sum of the quarters earnings per common and common equivalent share may not necessarily be equal to the full year earnings per common and common equivalent share amounts. F-20 59 DYCOM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
IN WHOLE DOLLARS, EXCEPT PER SHARE AMOUNTS ----------------------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ----------- ----------- ----------- ----------- 1996: Revenues: Dycom..................................... $37,605,583 $32,648,532 $35,390,645 $39,307,689 CCG....................................... 13,248,340 12,641,609 9,824,440 14,593,403 ----------- ----------- ----------- ----------- $50,853,923 $45,290,141 $45,215,085 $53,901,092 =========== =========== =========== =========== Income Before Income Taxes: Dycom..................................... $ 1,715,485 $ 1,603,524 $ 2,965,713 $ 2,834,998 CCG....................................... 1,003,486 179,311 (459,847) 1,538,764 ----------- ----------- ----------- ----------- $ 2,718,971 $ 1,782,835 $ 2,505,866 $ 4,373,762 =========== =========== =========== =========== Net Income: Dycom..................................... $ 968,638 $ 984,232 $ 1,704,150 $ 2,733,124 CCG....................................... 553,486 129,311 (259,847) 850,764 ----------- ----------- ----------- ----------- $ 1,522,124 $ 1,113,543 $ 1,444,303 $ 3,583,888 =========== =========== =========== =========== Earnings per Common and Common Equivalent Share: Primary................................... 0.14 0.11 0.14 0.33 Fully Diluted............................. 0.14 0.11 0.14 0.33 1997: Revenues: Dycom..................................... $40,367,225 $40,012,074 $48,186,014 $47,639,268 CCG....................................... 16,047,187 17,263,237 14,995,292 19,413,184 ----------- ----------- ----------- ----------- $56,414,412 $57,275,311 $63,181,306 $67,052,452 =========== =========== =========== =========== Income Before Income Taxes: Dycom..................................... $ 2,888,362 $ 2,446,288 $ 4,019,975 $ 4,434,187 CCG....................................... 1,092,878 1,129,119 680,403 2,350,306 ----------- ----------- ----------- ----------- $ 3,981,240 $ 3,575,407 $ 4,700,378 $ 6,784,493 =========== =========== =========== =========== Net Income: Dycom..................................... $ 1,661,619 $ 1,641,478 $ 2,413,033 $ 2,552,372 CCG....................................... 574,422 672,688 405,340 1,297,856 ----------- ----------- ----------- ----------- $ 2,236,041 $ 2,314,166 $ 2,818,373 $ 3,850,228 =========== =========== =========== =========== Earnings per Common and Common Equivalent Share: Primary................................... $ 0.20 $ 0.21 $ 0.26 $ 0.35 Fully Diluted............................. $ 0.20 $ 0.21 $ 0.26 $ 0.35
The fiscal 1996 and 1997 fourth quarter results of operations include a $1.1 million and a $0.3 million reduction in the deferred tax asset valuation allowance. F-21 60 ====================================================== No dealer, salesperson or other person has been authorized to give any information or to make any representations other than those contained in or incorporated by reference in this Prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by the Company of by any of the Underwriters. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the dates as of which information is given in this Prospectus. This Prospectus does not constitute an offer or solicitaion by any one in any jurisdiction in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such solicitation. ---------------------------- TABLE OF CONTENTS ----------------------------
Page ---- Prospectus Summary.................... 3 Risk Factors.......................... 5 Use of Proceeds....................... 10 Price Range of Common Stock and Dividend Policy..................... 10 Capitalization........................ 11 Summary Consolidated Financial Data... 12 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 13 Business.............................. 20 Management............................ 28 Principal and Selling Stockholders.... 30 Description of Capital Stock.......... 32 Underwriting.......................... 35 Certain Legal Matters................. 36 Experts............................... 36 Available Information................. 36 Information Incorporated by Reference........................... 37 Index to Consolidated Financial Statements.......................... F-1
====================================================== ====================================================== 2,700,000 SHARES LOGO COMMON STOCK ---------------------------- PROSPECTUS ---------------------------- NATIONSBANC MONTGOMERY SECURITIES, INC. MORGAN KEEGAN & COMPANY, INC. THE ROBINSON-HUMPHREY COMPANY , 1997 ====================================================== 61 PART II INFORMATION NOT REQUIRED IN PROSPECTUS OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The Company will incur the following expenses in connection with the Offering. None of the Offering expenses incurred by the Selling Stockholders will be borne by the Company. Registration Fees........................................... $ 20,549 Transfer Agent Fees......................................... $ 1,500 Printing and Engraving Costs................................ $ 90,000 Legal Fees.................................................. $140,000 Accounting Fees............................................. $100,000 New York Stock Exchange Listing............................. $ 14,111 NASD Review................................................. $ 7,281 Blue Sky.................................................... $ 2,000 Miscellaneous............................................... $124,559
UNDERTAKINGS 1. The undersigned registrant hereby undertakes that for purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) and (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. 2. The undersigned registrant hereby undertakes that for the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. 3. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act"), may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 1 -- Underwriting Agreement 4 -- Portions of Articles and By-Laws Defining Rights of Shareholder* 5 -- Legal Opinion of Chopin, Miller & Yudenfreund 23.1 -- Consent of Chopin, Miller & Yudenfreund (included in its opinion filed as Exhibit 5) 23.2 -- Consent of Deloitte & Touche LLP 23.3 -- Consent of Nowalk & Associates 27.1 -- Financial Data Schedule* 27.2 -- Financial Data Schedule* 27.3 -- Financial Data Schedule*
- --------------- * Previously filed II-1 62 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PALM BEACH GARDENS, STATE OF FLORIDA ON THE 29TH DAY OF OCTOBER, 1997. DYCOM INDUSTRIES, INC. By: /s/ THOMAS R. PLEDGER ------------------------------------ Thomas R. Pledger Chairman and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Thomas R. Pledger, Steven E. Nielsen and Douglas J. Betlach, or any of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact, agent, or their substitutes may lawfully do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
NAME TITLE DATE ---- ----- ---- /s/ THOMAS R. PLEDGER Chairman, Chief Executive October 29, 1997 - --------------------------------------------------- Officer and Director Thomas R. Pledger * President, Chief Operating October 29, 1997 - --------------------------------------------------- Officer and Director Steven Nielsen * Vice President, Treasurer and October 29, 1997 - --------------------------------------------------- Chief Financial Officer Douglas J. Betlach * Vice President and Controller October 29, 1997 - --------------------------------------------------- Darline M. Richter * Director October 29, 1997 - --------------------------------------------------- Louis W. Adams, Jr. * Director October 29, 1997 - --------------------------------------------------- Walter L. Revell
II-2 63
NAME TITLE DATE ---- ----- ---- * Director October 29, 1997 - --------------------------------------------------- Ronald L. Roseman * Director October 29, 1997 - --------------------------------------------------- Ronald P. Younkin
*By: /s/ THOMAS R. PLEDGER ------------------------------- Thomas R. Pledger II-3 EX-1 2 UNDERWRITING AGREEMENT 1 Exhibit 1 2,700,000 SHARES DYCOM INDUSTRIES, INC. COMMON STOCK UNDERWRITING AGREEMENT DATED [____________], 1997 2 TABLE OF CONTENTS
SECTION 1. REPRESENTATIONS AND WARRANTIES ................................................. 2 A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING STOCKHOLDERS........... 2 COMPLIANCE WITH REGISTRATION REQUIREMENTS............................................ 2 OFFERING MATERIALS FURNISHED TO UNDERWRITERS......................................... 3 DISTRIBUTION OF OFFERING MATERIALS BY THE COMPANY.................................... 3 THE UNDERWRITING AGREEMENT........................................................... 3 AUTHORIZATION OF THE COMMON SHARES................................................... 3 NO APPLICABLE REGISTRATION OR OTHER SIMILAR RIGHTS................................... 3 NO MATERIAL ADVERSE CHANGE........................................................... 4 INDEPENDENT ACCOUNTANTS.............................................................. 4 PREPARATION OF THE FINANCIAL STATEMENTS.............................................. 4 INCORPORATION AND GOOD STANDING OF THE COMPANY AND ITS SUBSIDIARIES.................. 5 CAPITALIZATION AND OTHER CAPITAL STOCK MATTERS....................................... 5 STOCK EXCHANGE LISTING............................................................... 6 NON-CONTRAVENTION OF EXISTING INSTRUMENTS; NO FURTHER AUTHORIZATIONS OR APPROVALS REQUIRED.............................................................. 6 NO MATERIAL ACTIONS OR PROCEEDINGS................................................... 6 INTELLECTUAL PROPERTY RIGHTS......................................................... 7 ALL NECESSARY PERMITS, ETC........................................................... 7 TITLE TO PROPERTIES.................................................................. 7 TAX LAW COMPLIANCE................................................................... 7 COMPANY NOT AN INVESTMENT COMPANY.................................................... 8 INSURANCE............................................................................ 8 NO PRICE STABILIZATION OR MANIPULATION............................................... 8 RELATED PARTY TRANSACTIONS........................................................... 8 NO UNLAWFUL CONTRIBUTIONS OR OTHER PAYMENTS.......................................... 8 COMPANY'S ACCOUNTING SYSTEM.......................................................... 9 COMPLIANCE WITH ENVIRONMENTAL LAWS................................................... 9 ERISA COMPLIANCE..................................................................... 10 EXCHANGE ACT COMPLIANCE.............................................................. 11 ACQUISITION OF COMMUNICATIONS CONSTRUCTION GROUP, INC................................ 11 B. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS........................... 10 THE UNDERWRITING AGREEMENT........................................................... 10 THE CUSTODY AGREEMENT AND POWER OF ATTORNEY.......................................... 11 TITLE TO COMMON SHARES TO BE SOLD; ALL AUTHORIZATIONS OBTAINED....................... 11 DELIVERY OF THE COMMON SHARES TO BE SOLD............................................. 11 NON-CONTRAVENTION; NO FURTHER AUTHORIZATIONS OR APPROVALS REQUIRED................... 11 NO REGISTRATION OR OTHER SIMILAR RIGHTS.............................................. 12 NO FURTHER CONSENTS, ETC............................................................. 12 DISCLOSURE MADE BY SUCH SELLING STOCKHOLDER IN THE PROSPECTUS........................ 12 NO PRICE STABILIZATION OR MANIPULATION............................................... 12 CONFIRMATION OF COMPANY REPRESENTATIONS AND WARRANTIES............................... 12 SECTION 2. PURCHASE, SALE AND DELIVERY OF COMMON SHARES.................................... 13 THE FIRM COMMON SHARES............................................................... 13 THE FIRST CLOSING DATE............................................................... 13
3
THE OPTIONAL COMMON SHARES; THE SECOND CLOSING DATE................................ 13 PUBLIC OFFERING OF THE COMMON SHARES............................................... 14 PAYMENT FOR THE COMMON SHARES...................................................... 14 DELIVERY OF THE COMMON SHARES...................................................... 15 DELIVERY OF PROSPECTUS TO THE UNDERWRITERS......................................... 15 SECTION 3. ADDITIONAL COVENANTS.......................................................... 16 A. COVENANTS OF THE COMPANY........................................................... 16 REPRESENTATIVES' REVIEW OF PROPOSED AMENDMENTS AND SUPPLEMENTS..................... 16 SECURITIES ACT COMPLIANCE.......................................................... 16 AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS AND OTHER SECURITIES ACT MATTERS....................................................................... 16 COPIES OF ANY AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS......................... 17 BLUE SKY COMPLIANCE................................................................ 17 USE OF PROCEEDS.................................................................... 17 TRANSFER AGENT..................................................................... 17 EARNINGS STATEMENT................................................................. 17 PERIODIC REPORTING OBLIGATIONS..................................................... 18 AGREEMENT NOT TO OFFER OR SELL ADDITIONAL SECURITIES............................... 18 FUTURE REPORTS TO THE REPRESENTATIVES.............................................. 18 B. COVENANTS OF THE SELLING STOCKHOLDERS.............................................. 18 AGREEMENT NOT TO OFFER OR SELL ADDITIONAL SECURITIES............................... 19 DELIVERY OF FORMS W-8 AND W-9...................................................... 19 SECTION 4. PAYMENT OF EXPENSES........................................................... 19 SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS............................. 20 ACCOUNTANTS' COMFORT LETTER........................................................ 20 COMPLIANCE WITH REGISTRATION REQUIREMENTS; NO STOP ORDER, NO OBJECTION FROM NASD.......................................................................... 21 NO MATERIAL ADVERSE CHANGE OR RATINGS AGENCY CHANGE................................ 21 OPINION OF COUNSEL FOR THE COMPANY................................................. 21 OPINION OF COUNSEL FOR THE UNDERWRITERS............................................ 22 OFFICERS' CERTIFICATE.............................................................. 22 BRING-DOWN COMFORT LETTER.......................................................... 22 OPINION OF COUNSEL FOR THE SELLING STOCKHOLDERS.................................... 22 SELLING STOCKHOLDERS' CERTIFICATE.................................................. 23 SELLING STOCKHOLDERS' DOCUMENTS.................................................... 23 LOCK-UP AGREEMENT FROM CERTAIN SHAREHOLDERS OF THE COMPANY OTHER THAN SELLING STOCKHOLDERS.......................................................... 23 ADDITIONAL DOCUMENTS............................................................... 23 SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES....................................... 24 SECTION 7. EFFECTIVENESS OF THIS AGREEMENT............................................... 24 SECTION 8. INDEMNIFICATION............................................................... 24 INDEMNIFICATION OF THE UNDERWRITERS................................................ 24 INDEMNIFICATION OF THE COMPANY, ITS DIRECTORS AND OFFICERS......................... 26 NOTIFICATIONS AND OTHER INDEMNIFICATION PROCEDURES................................. 27
- ii - 4
SETTLEMENTS........................................................................ 27 SECTION 9. CONTRIBUTION................................................................... 28 SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS............................. 29 SECTION 11. TERMINATION OF THIS AGREEMENT.................................................. 30 SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY............................ 31 SECTION 13. NOTICES........................................................................ 31 SECTION 14. SUCCESSORS..................................................................... 32 SECTION 15. PARTIAL UNENFORCEABILITY....................................................... 32 SECTION 16. GOVERNING LAW PROVISIONS....................................................... 32 SECTION 17. FAILURE OF ONE OR MORE OF THE SELLING STOCKHOLDERS TO SELL AND DELIVER COMMON SHARES....................................................... 32 SECTION 18. GENERAL PROVISIONS............................................................. 33
- iii - 5 UNDERWRITING AGREEMENT ___________, 1997 NATIONSBANC MONTGOMERY SECURITIES, INC. MORGAN KEEGAN & COMPANY, INC. THE ROBINSON-HUMPHREY COMPANY, LLC As Representatives of the several Underwriters c/o NATIONSBANC MONTGOMERY SECURITIES, INC. 600 Montgomery Street San Francisco, California 94111 Ladies and Gentlemen: INTRODUCTORY. Dycom Industries, Inc., a Florida corporation (the "Company"), proposes to issue and sell to the several underwriters named in SCHEDULE A (the "Underwriters") an aggregate of 1,573,378 shares of its Common Stock, par value $.33 1/3 per share (the "Common Stock"); and the stockholders of the Company named in SCHEDULE B (collectively, the "Selling Stockholders") severally propose to sell to the Underwriters an aggregate of 1,126,622 shares of Common Stock. The 1,573,378 shares of Common Stock to be sold by the Company and the 1,126,622 shares of Common Stock to be sold by the Selling Stockholders are collectively called the "Firm Common Shares". In addition, the Company has granted to the Underwriters an option to purchase up to an additional 405,000 shares of Common Stock. The additional 405,000 shares to be sold by the Company pursuant to such option are collectively called the "Optional Common Shares". The Firm Common Shares and, if and to the extent such option is exercised, the Optional Common Shares are collectively called the "Common Shares". NationsBanc Montgomery Securities, Inc., Morgan Keegan & Company, Inc. and The Robinson-Humphrey Company, LLC have agreed to act as representatives of the several Underwriters (in such capacity, the "Representatives") in connection with the offering and sale of the Common Shares. 6 The Company has prepared and filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 (File No. 333-36883), which contains a form of prospectus to be used in connection with the public offering and sale of the Common Shares. Such registration statement, as amended, including the financial statements, exhibits and schedules thereto, in the form in which it was declared effective by the Commission under the Securities Act of 1933 and the rules and regulations promulgated thereunder (collectively, the "Securities Act"), including all documents incorporated or deemed to be incorporated by reference therein and any information deemed to be a part thereof at the time of effectiveness pursuant to Rule 430A or Rule 434 under the Securities Act or the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder (collectively, the "Exchange Act"), is called the "Registration Statement". Any registration statement filed by the Company pursuant to Rule 462(b) under the Securities Act is called the "Rule 462(b) Registration Statement", and from and after the date and time of filing of the Rule 462(b) Registration Statement the term "Registration Statement" shall include the Rule 462(b) Registration Statement. Such prospectus, in the form first used by the Underwriters to confirm sales of the Common Shares, is called the "Prospectus"; PROVIDED, HOWEVER, if the Company has, with the consent of NationsBanc Montgomery Securities, Inc., elected to rely upon Rule 434 under the Securities Act, the term "Prospectus" shall mean the Company's prospectus subject to completion (each, a "preliminary prospectus") dated October 14, 1997 (such preliminary prospectus is called the "Rule 434 preliminary prospectus"), together with the applicable term sheet (the "Term Sheet") prepared and filed by the Company with the Commission under Rules 434 and 424(b) under the Securities Act and all references in this Agreement to the date of the Prospectus shall mean the date of the Term Sheet. All references in this Agreement to the Registration Statement, the Rule 462(b) Registration Statement, a preliminary prospectus, the Prospectus or the Term Sheet, or any amendments or supplements to any of the foregoing, shall include any copy thereof filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval System ("EDGAR"). All references in this Agreement to financial statements and schedules and other information which is "contained," "included" or "stated" in the Registration Statement or the Prospectus (and all other references of like import) shall be deemed to mean and include all such financial statements and schedules and other information which is or is deemed to be incorporated by reference in the Registration Statement or the Prospectus, as the case may be; and all references in this Agreement to amendments or supplements to the Registration Statement or the Prospectus shall be deemed to mean and include the filing of any document under the Exchange Act which is or is deemed to be incorporated by reference in the Registration Statement or the Prospectus, as the case may be. The Company and each of the Selling Stockholders hereby confirm their respective agreements with the Underwriters as follows: SECTION 1. REPRESENTATIONS AND WARRANTIES. - 2 - 7 A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING STOCKHOLDERS . Each of the Company and each of the Selling Stockholders represents, warrants and covenants to each Underwriter as follows: (a) COMPLIANCE WITH REGISTRATION REQUIREMENTS. The Registration Statement and any Rule 462(b) Registration Statement have been declared effective by the Commission under the Securities Act. The Company has complied to the Commission's satisfaction with all requests of the Commission for additional or supplemental information. No stop order suspending the effectiveness of the Registration Statement or any Rule 462(b) Registration Statement is in effect and no proceedings for such purpose have been instituted or are pending or, to the best knowledge of the Company, are contemplated or threatened by the Commission. Each preliminary prospectus and the Prospectus when filed complied in all material respects with the Securities Act and, if filed by electronic transmission pursuant to EDGAR (except as may be permitted by Regulation S-T under the Securities Act), was identical to the copy thereof delivered to the Underwriters for use in connection with the offer and sale of the Common Shares. Each of the Registration Statement, any Rule 462(b) Registration Statement and any post-effective amendment thereto, at the time it became effective and at all subsequent times, complied and will comply in all material respects with the Securities Act and did not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The Prospectus, as amended or supplemented, as of its date and at all subsequent times, did not and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The representations and warranties set forth in the two immediately preceding sentences do not apply to statements in or omissions from the Registration Statement, any Rule 462(b) Registration Statement, or any post-effective amendment thereto, or the Prospectus, or any amendments or supplements thereto, made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by the Representatives expressly for use therein. There are no contracts or other documents required to be described in the Prospectus or to be filed as exhibits to the Registration Statement which have not been described or filed as required. (b) OFFERING MATERIALS FURNISHED TO UNDERWRITERS. The Company has delivered to the Representatives three complete manually signed copies of the Registration Statement and of each consent and certificate of experts filed as a part thereof, and conformed copies of the Registration Statement (without exhibits) and preliminary prospectuses and the Prospectus, as amended or supplemented, in such quantities and at such places as the Representatives have reasonably requested for each of the Underwriters. - 3 - 8 (c) DISTRIBUTION OF OFFERING MATERIALS BY THE COMPANY. The Company has not distributed and will not distribute, prior to the later of the Second Closing Date (as defined below) and the completion of the Underwriters' distribution of the Common Shares, any offering material in connection with the offering and sale of the Common Shares other than a preliminary prospectus, the Prospectus or the Registration Statement. (d) THE UNDERWRITING AGREEMENT. This Agreement has been duly authorized, executed and delivered by, and is a valid and binding agreement of, the Company, enforceable in accordance with its terms, except as rights to indemnification hereunder may be limited by applicable law and except as the enforcement hereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights and remedies of creditors or by general equitable principles. (e) AUTHORIZATION OF THE COMMON SHARES. The Common Shares to be purchased by the Underwriters from the Company have been duly authorized for issuance and sale pursuant to this Agreement and, when issued and delivered by the Company pursuant to this Agreement, will be validly issued, fully paid and nonassessable. (f) NO APPLICABLE REGISTRATION OR OTHER SIMILAR RIGHTS. There are no persons with registration or other similar rights to have any equity or debt securities registered for sale under the Registration Statement or included in the offering contemplated by this Agreement, except for such rights as have been duly waived. (g) NO MATERIAL ADVERSE CHANGE. Except as otherwise disclosed in the Prospectus, subsequent to the respective dates as of which information is given in the Prospectus: (i) there has been no material adverse change, or any development that could reasonably be expected to result in a material adverse change, in the condition, financial or otherwise, or in the earnings, business, operations or prospects, whether or not arising from transactions in the ordinary course of business, of the Company and its subsidiaries, considered as one entity (any such change is called a "Material Adverse Change"); (ii) the Company and its subsidiaries, considered as one entity, have not incurred any material liability or obligation, indirect, direct or contingent, not in the ordinary course of business nor entered into any material transaction or agreement not in the ordinary course of business; and (iii) there has been no dividend or distribution of any kind declared, paid or made by the Company or, except for dividends paid to the Company or other subsidiaries, any of its subsidiaries on any class of capital stock or repurchase or redemption by the Company or any of its subsidiaries of any class of capital stock. (h) INDEPENDENT ACCOUNTANTS. Deloitte & Touche LLP, who have expressed their opinion with respect to the financial statements (which term as used in - 4 - 9 this Agreement includes the related notes thereto) and supporting schedules of the Company filed with the Commission as a part of the Registration Statement and included in the Prospectus, are independent public or certified public accountants as required by the Securities Act and the Exchange Act. Nowalk & Associates, who have expressed their opinion with respect to the financial statements (which term as used in this Agreement includes the related notes thereto) and supporting schedules of Communications Construction Group, Inc. ("CCG") filed with the Commission incorporated by reference in the Registration Statement, are independent public or certified public accountants as required by the Securities Act and the Exchange Act. (i) PREPARATION OF THE FINANCIAL STATEMENTS. The financial statements filed with the Commission as a part of the Registration Statement and included in the Prospectus present fairly the consolidated financial position of the Company and its subsidiaries as of and at the dates indicated and the results of their operations and cash flows for the periods specified. The financial statements filed with the Commission as part of the Registration Statement and included or incorporated by reference in the Prospectus present fairly the consolidated financial position of CCG and its subsidiaries as of and at the dates indicated and the results of their operations and cash flows for the periods specified. The supporting schedules, if any, included in the Registration Statement present fairly the information required to be stated therein. Such financial statements and supporting schedules, if any, have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved, except as may be expressly stated in the related notes thereto. No other financial statements or supporting schedules are required to be included in the Registration Statement. The financial data set forth in the Prospectus under the captions "Prospectus Summary--Summary Consolidated Financial Data", "Summary Consolidated Financial Data" and "Capitalization" fairly present the information set forth therein on a basis consistent with that of the audited financial statements contained in the Registration Statement. The pro forma financial statements of the Company and its subsidiaries and the related notes thereto included in the Prospectus and in the Registration Statement present fairly the information contained therein, have been prepared in accordance with the Commission's rules and guidelines with respect to pro forma financial statements and have been properly presented on the bases described therein, and the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions and circumstances referred to therein. (j) INCORPORATION AND GOOD STANDING OF THE COMPANY AND ITS SUBSIDIARIES. Each of the Company and its subsidiaries has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation and has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and, in the case of the Company, to enter into and perform its obligations under this - 5 - 10 Agreement. Each of the Company and each subsidiary is duly qualified as a foreign corporation to transact business and is in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except for such jurisdictions where the failure to so qualify or to be in good standing would not, individually or in the aggregate, result in a Material Adverse Change. All of the issued and outstanding capital stock of each subsidiary has been duly authorized and validly issued, is fully paid and nonassessable and is owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance or claim, except such as may arise pursuant to credit facilities described in the Prospectus. The Company does not own or control, directly or indirectly, any corporation, association or other entity other than the subsidiaries listed in Exhibit 21 to the Company's Annual Report on Form 10-K for the year ended July 31, 1997 which is incorporated by reference in the Registration Statement. (k) CAPITALIZATION AND OTHER CAPITAL STOCK MATTERS. The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus under the caption "Capitalization" as of the dates set forth therein (other than for subsequent issuances, if any, pursuant to employee benefit plans described in the Prospectus or upon exercise of outstanding options described in the Prospectus). The Common Stock (including the Common Shares) conforms in all material respects to the description thereof contained in the Prospectus. All of the issued and outstanding shares of Common Stock (including the shares of Common Stock owned by Selling Stockholders) have been duly authorized and validly issued, are fully paid and nonassessable and have been issued in compliance with federal and state securities laws. None of the outstanding shares of Common Stock were issued in violation of any preemptive rights, rights of first refusal or other similar rights to subscribe for or purchase securities of the Company. There are no authorized or outstanding options, warrants, preemptive rights, rights of first refusal or other rights to purchase, or equity or debt securities convertible into or exchangeable or exercisable for, any capital stock of the Company or any of its subsidiaries other than those accurately described in the Prospectus. The description of the Company's stock option, stock bonus and other stock plans or arrangements, and the options or other rights granted thereunder, set forth in the Prospectus accurately and fairly presents the information required to be shown with respect to such plans, arrangements, options and rights. (l) STOCK EXCHANGE LISTING. The Common Stock, including the Common Shares, is registered pursuant to Section 12(b) of the Exchange Act and is listed on the New York Stock Exchange ("NYSE"), and the Company has taken no action designed to, or likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act or delisting the Common Stock from the NYSE, nor has the Company received any notification that the Commission or the NYSE) is contemplating terminating such registration or listing. - 6 - 11 (m) NON-CONTRAVENTION OF EXISTING INSTRUMENTS; NO FURTHER AUTHORIZATIONS OR APPROVALS REQUIRED. Neither the Company nor any of its subsidiaries is in violation of its charter or by-laws or is in default (or, with the giving of notice or lapse of time, would be in default) ("Default") under any indenture, mortgage, loan or credit agreement, note, contract, franchise, lease or other instrument to which the Company or any of its subsidiaries is a party or by which it or any of them may be bound (including, without limitation, the Company's Bank Credit Agreement and Term Loans with Dresdner Bank Lateinamerika AG, as lender), or to which any of the property or assets of the Company or any of its subsidiaries is subject (each, an "Existing Instrument"), except for such Defaults as would not, individually or in the aggregate, result in a Material Adverse Change. The Company's execution, delivery and performance of this Agreement and consummation of the transactions contemplated hereby and by the Prospectus (i) have been duly authorized by all necessary corporate action and will not result in any violation of the provisions of the charter or by-laws of the Company or any subsidiary, (ii) will not conflict with or constitute a breach of, or Default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, or require the consent of any other party to, any Existing Instrument, except for such conflicts, breaches, Defaults, liens, charges or encumbrances as would not, individually or in the aggregate, result in a Material Adverse Change and (iii) will not result in any violation of any law, administrative regulation or administrative or court decree applicable to the Company or any subsidiary. No consent, approval, authorization or other order of, or registration or filing with, any court or other governmental or regulatory authority or agency, is required for the Company's execution, delivery and performance of this Agreement and consummation of the transactions contemplated hereby and by the Prospectus, except such as have been obtained or made by the Company and are in full force and effect under the Securities Act, applicable state securities or blue sky laws and from the NASD. (n) NO MATERIAL ACTIONS OR PROCEEDINGS. There are no legal or governmental actions, suits or proceedings pending or, to the best of the Company's knowledge, threatened (i) against or affecting the Company or any of its subsidiaries, (ii) which has as the subject thereof any officer or director of, or property owned or leased by, the Company or any of its subsidiaries or (iii) relating to environmental or discrimination matters, where in any such case (A) there is a reasonable possibility that such action, suit or proceeding might be determined adversely to the Company or such subsidiary and (B) any such action, suit or proceeding, if so determined adversely, would reasonably be expected to result in a Material Adverse Change or adversely affect the consummation of the transactions contemplated by this Agreement. No material labor dispute with the employees of the Company or any of its subsidiaries, or with the employees of any principal supplier of the Company, exists or, to the best of the Company's knowledge, is threatened or imminent. - 7 - 12 (o) INTELLECTUAL PROPERTY RIGHTS. The Company and its subsidiaries own no trademarks, trade names, patent rights, copyrights, licenses, approvals, trade secrets and other similar rights (collectively, "Intellectual Property Rights"). lNeither the Company nor any of its subsidiaries has received any notice of infringement or conflict with asserted Intellectual Property Rights of others, which infringement or conflict, if the subject of an unfavorable decision, would result in a Material Adverse Change. (p) ALL NECESSARY PERMITS, ETC. The Company and each subsidiary possess such valid and current certificates, authorizations or permits issued by the appropriate state, federal or foreign regulatory agencies or bodies necessary to conduct their respective businesses, and neither the Company nor any subsidiary has received any notice of proceedings relating to the revocation or modification of, or non-compliance with, any such certificate, authorization or permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, could result in a Material Adverse Change. (q) TITLE TO PROPERTIES. The Company and each of its subsidiaries has good and marketable title to all the properties and assets reflected as owned in the financial statements referred to in Section 1(A)(i) above (or elsewhere in the Prospectus), in each case free and clear of any security interests, mortgages, liens, encumbrances, equities, claims and other defects, except such as do not materially and adversely affect the value of such property and do not materially interfere with the use made or proposed to be made of such property by the Company or such subsidiary or such as may arise pursuant to credit facilities described in the Prospectus. The real property, improvements, equipment and personal property held under lease by the Company or any subsidiary are held under valid and enforceable leases, with such exceptions as are not material and do not materially interfere with the use made or proposed to be made of such real property, improvements, equipment or personal property by the Company or such subsidiary. (r) TAX LAW COMPLIANCE. The Company and its subsidiaries have filed all necessary federal, state and foreign income and franchise tax returns and have paid all taxes required to be paid by any of them and, if due and payable, any related or similar assessment, fine or penalty levied against any of them to the extent shown to be due on such tax returns The Company has made adequate charges, accruals and reserves in the applicable financial statements referred to in Section 1(A)(i) above in respect of all federal, state and foreign income and franchise taxes for all periods as to which the tax liability of the Company or any of its subsidiaries has not been finally determined. - 8 - 13 (s) COMPANY NOT AN "INVESTMENT COMPANY". The Company has been advised of the rules and requirements under the Investment Company Act of 1940, as amended (the "Investment Company Act"). The Company is not, and after receipt of payment for the Common Shares will not be, an "investment company" within the meaning of Investment Company Act and will conduct its business in a manner so that it will not become subject to the Investment Company Act. (t) INSURANCE. Each of the Company and its subsidiaries are insured by recognized, financially sound and reputable institutions with policies in such amounts and with such deductibles and covering such risks as are described in the Prospectus, which the Company deems to be adequate and customary for the businesses conducted. The Company has no reason to believe that it or any subsidiary will not be able to (i) renew its existing insurance coverage as and when such policies expire, (ii) obtain comparable coverage from similar institutions as may be necessary or appropriate to conduct its business as now conducted and at a cost that would not result in a Material Adverse Change, or (iii) maintain its large deductible or self-insurance programs substantially as in effect currently. The accrued liability for unpaid claims and associated expenses reflected on the Company's balance sheet at July 31, 1997 pursuant to the Company's self-insurance program reflects, to the Company's knowledge, its best estimate, based on an actuarial determination, of the full extent of the Company's losses for outstanding claims not otherwise covered by insurance, including any unasserted claims which management of the Company believes are probable of assertion. Neither the Company nor any subsidiary has been denied any excess loss which it has sought or for which it has applied. (u) NO PRICE STABILIZATION OR MANIPULATION. The Company has not taken and will not take, directly or indirectly, any action designed to or that might be reasonably expected to cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Common Shares. (v) RELATED PARTY TRANSACTIONS. There are no material business relationships or material related party transactions involving the Company or any subsidiary or any other person required to be described in the Prospectus which have not been described as required. (w) NO UNLAWFUL CONTRIBUTIONS OR OTHER PAYMENTS. Neither the Company nor any of its subsidiaries nor, to the best of the Company's knowledge, any employee or agent of the Company or any subsidiary, has made any contribution or other payment to any official of, or candidate for, any federal, state or foreign office in violation of any law or of the character required to be disclosed in the Prospectus. (x) COMPANY'S ACCOUNTING SYSTEM. The Company maintains a system of accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in - 9 - 14 conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (y) COMPLIANCE WITH ENVIRONMENTAL LAWS. Except as would not, individually or in the aggregate, result in a Material Adverse Change (i) neither the Company nor any of its subsidiaries is in violation of any federal, state, local or foreign law or regulation relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata) or wildlife, including without limitation, laws and regulations relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous substances, petroleum and petroleum products (collectively, "Materials of Environmental Concern"), or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Materials of Environmental Concern (collectively, "Environmental Laws"), which violation includes, but is not limited to, noncompliance with any permits or other governmental authorizations required for the operation of the business of the Company or its subsidiaries under applicable Environmental Laws, or noncompliance with the terms and conditions thereof, nor has the Company or any of its subsidiaries received any written communication, whether from a governmental authority, citizens group, employee or otherwise, that alleges that the Company or any of its subsidiaries is in violation of any Environmental Law; (ii) there is no claim, action or cause of action filed with a court or governmental authority, no investigation with respect to which the Company has received written notice, and no written notice by any person or entity alleging potential liability for investigatory costs, cleanup costs, governmental responses costs, natural resources damages, property damages, personal injuries, attorneys' fees or penalties arising out of, based on or resulting from the presence, or release into the environment, of any Material of Environmental Concern at any location owned, leased or operated by the Company or any of its subsidiaries, now or in the past (collectively, "Environmental Claims"), pending or, to the best of the Company's knowledge, threatened against the Company or any of its subsidiaries or any person or entity whose liability for any Environmental Claim the Company or any of its subsidiaries has retained or assumed either contractually or by operation of law; and (iii) to the best of the Company's knowledge, there are no past or present actions, activities, circumstances, conditions, events or incidents, including, without limitation, the release, emission, discharge, presence or disposal of any Material of Environmental Concern, that reasonably could result in a violation of any Environmental Law or form the basis of a potential Environmental Claim against the Company or any of its subsidiaries or against any person or entity whose liability for any Environmental Claim the Company or any of its subsidiaries has retained or assumed either contractually or by operation of law. - 10 - 15 (z) ERISA COMPLIANCE. The Company and its subsidiaries and any "employee benefit plan" (as defined under the Employee Retirement Income Security Act of 1974, as amended, and the regulations and published interpretations thereunder (collectively, "ERISA")) established or maintained by the Company, its subsidiaries or their "ERISA Affiliates" (as defined below) are in compliance in all material respects with ERISA. "ERISA Affiliate" means, with respect to the Company or a subsidiary, any member of any group of organizations described in Sections 414(b),(c),(m) or (o) of the Internal Revenue Code of 1986, as amended, and the regulations and published interpretations thereunder (the "Code") of which the Company or such subsidiary is a member. No "reportable event" (as defined under ERISA) has occurred or is reasonably expected to occur with respect to any "employee benefit plan" established or maintained by the Company, its subsidiaries or any of their ERISA Affiliates. No "employee benefit plan" established or maintained by the Company, its subsidiaries or any of their ERISA Affiliates, if such "employee benefit plan" were terminated, would have any "amount of unfunded benefit liabilities" (as defined under ERISA). Neither the Company, its subsidiaries nor any of their ERISA Affiliates has incurred or reasonably expects to incur any liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any "employee benefit plan" or (ii) Sections 412, 4971, 4975 or 4980B of the Code. Each "employee benefit plan" established or maintained by the Company, its subsidiaries or any of their ERISA Affiliates that is intended to be qualified under Section 401(a) of the Code is so qualified and nothing has occurred, whether by action or failure to act, which would cause the loss of such qualification. (aa) EXCHANGE ACT COMPLIANCE. The documents incorporated or deemed to be incorporated by reference in the Prospectus, at the time they were or hereafter are filed with the Commission, complied and will comply in all material respects with the requirements of the Exchange Act, and, when read together with the other information in the Prospectus, at the time the Registration Statement and any amendments thereto become effective and at the First Closing Date and the Second Closing Date, as the case may be, will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (bb) ACQUISITION OF COMMUNICATIONS CONSTRUCTION GROUP, INC. The agreements necessary to effect the acquisition of CCG have been duly authorized, executed and delivered by each of the parties thereto and constitute the valid, legal and binding agreements of each such party, and the acquisition of CCG by the Company and the related transactions contemplated thereby have been consummated as described in the Prospectus. - 11 - 16 Any certificate signed by an officer of the Company and delivered to the Representatives or to counsel for the Underwriters shall be deemed to be a representation and warranty by the Company to each Underwriter as to the matters set forth therein. B. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. In addition to the representations, warranties and covenants set forth in Section 1(A), each Selling Stockholder represents, warrants and covenants to each Underwriter as follows: (a) THE UNDERWRITING AGREEMENT. This Agreement has been duly authorized, executed and delivered by or on behalf of such Selling Stockholder and is a valid and binding agreement of such Selling Stockholder, enforceable in accordance with its terms, except as rights to indemnification hereunder may be limited by applicable law and except as the enforcement hereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights and remedies of creditors or by general equitable principles. (b) THE CUSTODY AGREEMENT AND POWER OF ATTORNEY. Each of the (i) Custody Agreement signed by such Selling Stockholder and the Company, as custodian (the "Custodian"), relating to the deposit of the Common Shares to be sold by such Selling Stockholder (the "Custody Agreement") and (ii) Power of Attorney appointing certain individuals named therein as such Selling Stockholder's attorneys-in-fact (each, an "Attorney-in-Fact") to the extent set forth therein relating to the transactions contemplated hereby and by the Prospectus (the "Power of Attorney"), of such Selling Stockholder has been duly authorized, executed and delivered by such Selling Stockholder and is a valid and binding agreement of such Selling Stockholder, enforceable in accordance with its terms, except as rights to indemnification thereunder may be limited by applicable law and except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights and remedies of creditors or by general equitable principles. (c) TITLE TO COMMON SHARES TO BE SOLD; ALL AUTHORIZATIONS OBTAINED. Such Selling Stockholder has, and on the First Closing Date and the Second Closing Date (as defined below) will have, good and valid title to all of the Common Shares which may be sold by such Selling Stockholder pursuant to this Agreement on such date and the legal right and power, and all authorizations and approvals required by law and under its trust agreement or other organizational documents to enter into this Agreement and its Custody Agreement and Power of Attorney, to sell, transfer and deliver all of the Common Shares which may be sold by such Selling Stockholder pursuant to this Agreement and to comply with its other obligations hereunder and thereunder. (d) DELIVERY OF THE COMMON SHARES TO BE SOLD. Delivery of the Common Shares which are sold by such Selling Stockholder pursuant to this - 12 - 17 Agreement will pass good and valid title to such Common Shares, free and clear of any security interest, mortgage, pledge, lien, encumbrance or other claim. (e) NON-CONTRAVENTION; NO FURTHER AUTHORIZATIONS OR APPROVALS REQUIRED. The execution and delivery by such Selling Stockholder of, and the performance by such Selling Stockholder of its obligations under, this Agreement, the Custody Agreement and the Power of Attorney will not contravene or conflict with, result in a breach of, or constitute a Default under, or require the consent of any other party to, the trust agreement or other organizational documents of such Selling Stockholder or any other agreement or instrument to which such Selling Stockholder is a party or by which it is bound or under which it is entitled to any right or benefit, any provision of applicable law or any judgment, order, decree or regulation applicable to such Selling Stockholder of any court, regulatory body, administrative agency, governmental body or arbitrator having jurisdiction over such Selling Stockholder. No consent, approval, authorization or other order of, or registration or filing with, any court or other governmental authority or agency, is required for the consummation by such Selling Stockholder of the transactions contemplated in this Agreement, except such as have been obtained or made and are in full force and effect under the Securities Act, applicable state securities or blue sky laws and from the NASD. (f) NO REGISTRATION OR OTHER SIMILAR RIGHTS. Such Selling Stockholder does not have any registration or other similar rights to have any equity or debt securities registered for sale by the Company under the Registration Statement or included in the offering contemplated by this Agreement, except for such rights as are described in the Prospectus under "Risk Factors - Shares Eligible for Future Sale". (g) NO FURTHER CONSENTS, ETC. No consent, approval or waiver is required under any instrument or agreement to which such Selling Stockholder is a party or by which it is bound or under which it is entitled to any right or benefit, in connection with the offering, sale or purchase by the Underwriters of any of the Common Shares which may be sold by such Selling Stockholder under this Agreement or the consummation by such Selling Stockholder of any of the other transactions contemplated hereby. (h) DISCLOSURE MADE BY SUCH SELLING STOCKHOLDER IN THE PROSPECTUS. All information furnished by or on behalf of such Selling Stockholder in writing expressly for use in the Registration Statement and Prospectus is, and on the First Closing Date and the Second Closing Date will be, true, correct, and complete in all material respects, and does not, and on the First Closing Date and the Second Closing Date will not, contain any untrue statement of a material fact or omit to state any material fact necessary to make such information not misleading. Such Selling Stockholder confirms as accurate the number of shares of Common Stock set forth opposite such Selling Stockholder's name in the Prospectus under the caption - 13 - 18 "Principal and Selling Stockholders" (both prior to and after giving effect to the sale of the Common Shares). (i) NO PRICE STABILIZATION OR MANIPULATION. Such Selling Stockholder has not taken and will not take, directly or indirectly, any action designed to or that might be reasonably expected to cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Common Shares. (j) CONFIRMATION OF COMPANY REPRESENTATIONS AND WARRANTIES. Such Selling Stockholder has no reason to believe that the representations and warranties of the Company contained in Section 1(A) hereof are not true and correct, is familiar with the Registration Statement and the Prospectus and has no knowledge of any material fact, condition or information not disclosed in the Registration Statement or the Prospectus which has had or may have a Material Adverse Effect and is not prompted to sell shares of Common Stock by any information concerning the Company which is not set forth in the Registration Statement and the Prospectus. Any certificate signed by or on behalf of any Selling Stockholder and delivered to the Representatives or to counsel for the Underwriters shall be deemed to be a representation and warranty by such Selling Stockholder to each Underwriter as to the matters covered thereby. SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES. THE FIRM COMMON SHARES. Upon the terms herein set forth, (i) the Company agrees to issue and sell to the several Underwriters an aggregate of 1,573,378 Firm Common Shares and (ii) the Selling Stockholders agree to sell to the several Underwriters an aggregate of 1,126,622 Firm Common Shares, each Selling Stockholder selling the number of Firm Common Shares set forth opposite such Selling Stockholder's name on SCHEDULE B. On the basis of the representations, warranties and agreements herein contained, and upon the terms but subject to the conditions herein set forth, the Underwriters agree, severally and not jointly, to purchase from the Company and the Selling Stockholders the respective number of Firm Common Shares set forth opposite their names on SCHEDULE A. The purchase price per Firm Common Share to be paid by the several Underwriters to the Company and the Selling Stockholders shall be $[_____] per share. THE FIRST CLOSING DATE. Delivery of certificates for the Firm Common Shares to be purchased by the Underwriters and payment therefor shall be made at the offices of NationsBanc Montgomery Securities, Inc., 600 Montgomery Street, San Francisco, California 94111 (or such other place as may be agreed to by the Company and the Representative) at 6:00 a.m. San Francisco time, on ____________, 1997, or such other time and date not later than 10:30 a.m. San Francisco time, on ____________, 1997 as the Representative shall designate by notice to the - 14 - 19 Company (the time and date of such closing are called the "First Closing Date"). The Company and the Selling Stockholders hereby acknowledge that circumstances under which the Representatives may provide notice to postpone the First Closing Date as originally scheduled include, but are in no way limited to, any determination by the Company, the Selling Stockholders or the Representatives to recirculate to the public copies of an amended or supplemented Prospectus or a delay as contemplated by the provisions of Section 10. THE OPTIONAL COMMON SHARES; THE SECOND CLOSING DATE. In addition, on the basis of the representations, warranties and agreements herein contained, and upon the terms but subject to the conditions herein set forth, the Company hereby grant an option to the several Underwriters to purchase, severally and not jointly, up to an aggregate of 405,000 Optional Common Shares from the Company at the purchase price per share to be paid by the Underwriters for the Firm Common Shares. The option granted hereunder is for use by the Underwriters solely in covering any over-allotments in connection with the sale and distribution of the Firm Common Shares. The option granted hereunder may be exercised at any time (but not more than once) upon notice by the Representatives to the Company, which notice may be given at any time within 30 days from the date of this Agreement. Such notice shall set forth (i) the aggregate number of Optional Common Shares as to which the Underwriters are exercising the option, (ii) the names and denominations in which the certificates for the Optional Common Shares are to be registered and (iii) the time, date and place at which such certificates will be delivered (which time and date may be simultaneous with, but not earlier than, the First Closing Date; and in such case the term "First Closing Date" shall refer to the time and date of delivery of certificates for the Firm Common Shares and the Optional Common Shares). Such time and date of delivery, if subsequent to the First Closing Date, is called the "Second Closing Date" and shall be determined by the Representatives and shall not be earlier than three nor later than five full business days after delivery of such notice of exercise. If any Optional Common Shares are to be purchased, (a) each Underwriter agrees, severally and not jointly, to purchase the number of Optional Common Shares (subject to such adjustments to eliminate fractional shares as the Representatives may determine) that bears the same proportion to the total number of Optional Common Shares to be purchased as the number of Firm Common Shares set forth on SCHEDULE A opposite the name of such Underwriter bears to the total number of Firm Common Shares and (b) the Company agrees to sell the number of Optional Common Shares (subject to such adjustments to eliminate fractional shares as the Representative may determine) that bears the same proportion to the total number of Optional Common Shares to be sold as the number of Optional Common Shares set forth in SCHEDULE B opposite the name of such Selling Stockholder (or, in the case of the Company, as the number of Optional Common Shares to be sold by the Company as set forth in the paragraph "Introductory" of this Agreement) bears to the total number of Optional Common Shares. The Representatives - 15 - 20 may cancel the option at any time prior to its expiration by giving written notice of such cancellation to the Company and the Selling Stockholders. PUBLIC OFFERING OF THE COMMON SHARES. The Representatives hereby advise the Company and the Selling Stockholders that the Underwriters intend to offer for sale to the public, as described in the Prospectus, their respective portions of the Common Shares as soon after this Agreement has been executed and the Registration Statement has been declared effective as the Representatives, in their sole judgment, have determined is advisable and practicable. PAYMENT FOR THE COMMON SHARES. Payment for the Common Shares to be sold by the Company shall be made at the First Closing Date (and, if applicable, at the Second Closing Date) by wire transfer of immediately available funds to the order of the Company. Payment for the Common Shares to be sold by the Selling Stockholders shall be made at the First Closing Date (and, if applicable, at the Second Closing Date) by wire transfer of immediately available funds to the order of the Custodian. It is understood that the Representatives have been authorized, for their own account and the accounts of the several Underwriters, to accept delivery of and receipt for, and make payment of the purchase price for, the Firm Common Shares and any Optional Common Shares the Underwriters have agreed to purchase. NationsBanc Montgomery Securities, Inc., individually and not as the Representative of the Underwriters, may (but shall not be obligated to) make payment for any Common Shares to be purchased by any Underwriter whose funds shall not have been received by the First Closing Date or the Second Closing Date, as the case may be, for the account of such Underwriter, but any such payment shall not relieve such Underwriter from any of its obligations under this Agreement. Each Selling Stockholder hereby agrees that (i) it will pay all stock transfer taxes, stamp duties and other similar taxes, if any, payable upon the sale or delivery of the Common Shares to be sold by such Selling Stockholder to the several Underwriters, or otherwise in connection with the performance of such Selling Stockholder's obligations hereunder and (ii) the Custodian is authorized to deduct for such payment any such amounts from the proceeds to such Selling Stockholder hereunder and to hold such amounts for the account of such Selling Stockholder with the Custodian under the Custodian Agreement. DELIVERY OF THE COMMON SHARES. The Company and the Selling Stockholders shall deliver, or cause to be delivered, to the Representatives for the accounts of the several Underwriters certificates for the Firm Common Shares to be sold by them at the First Closing Date, against the irrevocable release of a wire transfer of immediately available funds for the amount of the purchase price therefor. The Company and the Selling Stockholders shall also deliver, or cause to be delivered, to the Representatives for the accounts of the several Underwriters, certificates for the Optional - 16 - 21 Common Shares the Underwriters have agreed to purchase from them at the First Closing Date or the Second Closing Date, as the case may be, against the irrevocable release of a wire transfer of immediately available funds for the amount of the purchase price therefor. The certificates for the Common Shares shall be in definitive form and registered in such names and denominations as the Representatives shall have requested at least two full business days prior to the First Closing Date (or the Second Closing Date, as the case may be) and shall be made available for inspection on the business day preceding the First Closing Date (or the Second Closing Date, as the case may be) at a location in New York City as the Representatives may designate. Time shall be of the essence, and delivery at the time and place specified in this Agreement is a further condition to the obligations of the Underwriters. DELIVERY OF PROSPECTUS TO THE UNDERWRITERS. Not later than 12:00 p.m. on the second business day following the date the Common Shares of released by the Underwriters for sale to the public, the Company shall delivery or cause to be delivered copies of the Prospectus in such quantities and at such places as the Representatives shall request. SECTION 3. ADDITIONAL COVENANTS. A. COVENANTS OF THE COMPANY. The Company further covenants and agrees with each Underwriter as follows: (a) REPRESENTATIVES' REVIEW OF PROPOSED AMENDMENTS AND SUPPLEMENTS. During such period beginning on the date hereof and ending on the later of the First Closing Date or such date, as in the opinion of counsel for the Underwriters, the Prospectus is no longer required by law to be delivered in connection with sales by an Underwriter or dealer (the "Prospectus Delivery Period"), prior to amending or supplementing the Registration Statement (including any registration statement filed under Rule 462(b) under the Securities Act) or the Prospectus (including any amendment or supplement through incorporation by reference of any report filed under the Exchange Act, the Company shall furnish to the Representatives for review a copy of each such proposed amendment or supplement, and the Company shall not file any such proposed amendment or supplement to which the Representatives reasonably object. (b) SECURITIES ACT COMPLIANCE. After the date of this Agreement, the Company shall promptly advise the Representatives in writing (i) of the receipt of any comments of, or requests for additional or supplemental information from, the Commission, (ii) of the time and date of any filing of any post-effective amendment to the Registration Statement or any amendment or supplement to any preliminary prospectus or the Prospectus, (iii) of the time and date that any post-effective amendment to the Registration Statement becomes effective and (iv) of - 17 - 22 the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto or of any order preventing or suspending the use of any preliminary prospectus or the Prospectus, or of any proceedings to remove, suspend or terminate from listing or quotation the Common Stock from any securities exchange upon which it is listed for trading or included or designated for quotation, or of the threatening or initiation of any proceedings for any of such purposes. If the Commission shall enter any such stop order at any time, the Company will use its best efforts to obtain the lifting of such order at the earliest possible moment. Additionally, the Company agrees that it shall comply with the provisions of Rules 424(b), 430A and 434, as applicable, under the Securities Act and will use its reasonable efforts to confirm that any filings made by the Company under such Rule 424(b) were received in a timely manner by the Commission. (c) AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS AND OTHER SECURITIES ACT MATTERS. If, during the Prospectus Delivery Period, any event shall occur or condition exist as a result of which it is necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances when the Prospectus is delivered to a purchaser, not misleading, or if in the opinion of the Representatives or counsel for the Underwriters it is otherwise necessary to amend or supplement the Prospectus to comply with law, the Company agrees to promptly prepare (subject to Section 3(A)(a) hereof), file with the Commission and furnish at its own expense to the Underwriters and to dealers, amendments or supplements to the Prospectus so that the statements in the Prospectus as so amended or supplemented will not, in the light of the circumstances when the Prospectus is delivered to a purchaser, be misleading or so that the Prospectus, as amended or supplemented, will comply with law. (d) COPIES OF ANY AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS. The Company agrees to furnish the Representatives, without charge, during the Prospectus Delivery Period, as many copies of the Prospectus and any amendments and supplements thereto (including any documents incorporated or deemed incorporated by reference therein) as the Representatives may request. (e) BLUE SKY COMPLIANCE. The Company shall cooperate with the Representatives and counsel for the Underwriters to qualify or register the Common Shares for sale under (or obtain exemptions from the application of) the Blue Sky or state securities laws of those jurisdictions designated by the Representatives, shall comply with such laws and shall continue such qualifications, registrations and exemptions in effect so long as required for the distribution of the Common Shares. The Company shall not be required to qualify as a foreign corporation or to take any action that would subject it to general service of process in any such jurisdiction where it is not presently qualified or where it would be subject to taxation as a foreign corporation. The Company will advise the Representatives promptly of the - 18 - 23 suspension of the qualification or registration of (or any such exemption relating to) the Common Shares for offering, sale or trading in any jurisdiction or any initiation or threat of any proceeding for any such purpose, and in the event of the issuance of any order suspending such qualification, registration or exemption, the Company shall use its best efforts to obtain the withdrawal thereof at the earliest possible moment. (f) USE OF PROCEEDS. The Company shall apply the net proceeds from the sale of the Common Shares sold by it in the manner described under the caption "Use of Proceeds" in the Prospectus. (g) TRANSFER AGENT. The Company shall engage and maintain, at its expense, a registrar and transfer agent for the Common Stock. (h) EARNINGS STATEMENT. As soon as practicable, the Company will make generally available to its security holders and to the Representatives an earnings statement (which need not be audited) covering the twelve-month period ending __________, 1998 that satisfies the provisions of Section 11(a) of the Securities Act. (j) PERIODIC REPORTING OBLIGATIONS. During the Prospectus Delivery Period the Company shall file, on a timely basis, with the Commission and the New York Stock Exchange all reports and documents required to be filed under the Exchange Act. (k) AGREEMENT NOT TO OFFER OR SELL ADDITIONAL SECURITIES. During the period of 180 days following the date of the Prospectus, the Company will not, without the prior written consent of NationsBanc Montgomery Securities, Inc. (which consent may be withheld at the sole discretion of NationsBanc Montgomery Securities, Inc.), directly or indirectly, sell, offer, contract or grant any option to sell, pledge, transfer or establish an open "put equivalent position" within the meaning of Rule 16a-1(h) under the Exchange Act, or otherwise dispose of or transfer, or announce the offering of, or file any registration statement under the Securities Act in respect of, any shares of Common Stock, options or warrants to acquire shares of the Common Stock or securities exchangeable or exercisable for or convertible into shares of Common Stock (other than as contemplated by this Agreement with respect to the Common Shares); PROVIDED, HOWEVER, that the Company may issue shares of its Common Stock pursuant to acquisitions of companies in the telecommunications engineering, construction and maintenance services industry and may issue shares of its Common Stock or options to purchase its Common Stock, or Common Stock upon exercise of options, pursuant to any stock option, stock bonus or other stock plan or arrangement described in the Prospectus, but only if the holders of such shares, options, or shares issued upon exercise of such options, agree in writing not to sell, offer, dispose of or otherwise transfer any such shares or options during such 180 day period without the prior written consent of NationsBanc Montgomery Securities, Inc. - 19 - 24 (which consent may be withheld at the sole discretion of the NationsBanc Montgomery Securities, Inc.). (m) FUTURE REPORTS TO THE REPRESENTATIVES. During the period of five years hereafter the Company will furnish to the Representatives at 600 Montgomery Street, San Francisco, CA 94111 Attention: Mark A. Roberts: (i) as soon as practicable after the end of each fiscal year, copies of the Annual Report of the Company containing the balance sheet of the Company as of the close of such fiscal year and statements of income, stockholders' equity and cash flows for the year then ended and the opinion thereon of the Company's independent public or certified public accountants; (ii) as soon as practicable after the filing thereof, copies of each proxy statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K or other report filed by the Company with the Commission, the NASD or any securities exchange; and (iii) as soon as available, copies of any report or communication of the Company mailed generally to holders of its capital stock. (n) EXCHANGE ACT COMPLIANCE. During the Prospectus Delivery Period, the Company will file all documents required to be filed with the Commission pursuant to Section 13, 14 or 15 of the Exchange Act in the manner and within the time periods required by the Exchange Act. B. COVENANTS OF THE SELLING STOCKHOLDERS. Each Selling Stockholder further covenants and agrees with each Underwriter: (a) AGREEMENT NOT TO OFFER OR SELL ADDITIONAL SECURITIES. Such Selling Stockholder will not, without the prior written consent of NationsBanc Montgomery Securities, Inc. (which consent may be withheld in its sole discretion), directly or indirectly, sell, offer, contract or grant any option to sell (including without limitation any short sale), pledge, transfer, establish an open "put equivalent position" within the meaning of Rule 16a-1(h) under the Exchange Act, or otherwise dispose of any shares of Common Stock, options or warrants to acquire shares of Common Stock, or securities exchangeable or exercisable for or convertible into shares of Common Stock currently or hereafter owned either of record or beneficially (as defined in Rule 13d-3 under the Exchange Act) by the undersigned, or publicly announce the undersigned's intention to do any of the foregoing, for a period commencing on the date hereof and continuing through the close of trading on the date 180 days after the date of the Prospectus; provided that a Selling Stockholder may pledge shares of Common Stock if the pledgee agrees in writing not to sell, offer, dispose of or otherwise transfer any pledged shares during said 180-day period without the prior written consent of NationsBanc Montgomery Securities, Inc. (which consent may be withheld at the sole discretion of NationsBanc Montgomery Securities, Inc.). (b) DELIVERY OF FORMS W-8 AND W-9. To deliver to the Representatives prior to the First Closing Date a properly completed and executed United States Treasury - 20 - 25 Department Form W-8 (if the Selling Stockholder is a non-United States person) or Form W-9 (if the Selling Stockholder is a United States Person). NationsBanc Montgomery Securities, Inc., on behalf of the several Underwriters, may, in its sole discretion, waive in writing the performance by the Company or any Selling Stockholder of any one or more of the foregoing covenants or extend the time for their performance. SECTION 4. PAYMENT OF EXPENSES. The Company and the Selling Stockholders, jointly and severally, agree to pay in such proportions as they may agree upon among themselves all costs, fees and expenses incurred in connection with the performance of their obligations hereunder and in connection with the transactions contemplated hereby, including without limitation (i) all expenses incident to the issuance and delivery of the Common Shares (including all printing and engraving costs), (ii) all fees and expenses of the registrar and transfer agent of the Common Stock, (iii) all necessary issue, transfer and other stamp taxes in connection with the issuance and sale of the Common Shares to the Underwriters, (iv) all fees and expenses of the Company's counsel, independent public or certified public accountants and other advisors, (v) all costs and expenses incurred in connection with the printing, filing, shipping and distribution of the Registration Statement (including financial statements, exhibits, schedules, consents and certificates of experts), each preliminary prospectus and the Prospectus, and all amendments and supplements thereto, and this Agreement, (vi) all filing fees, attorneys' fees and expenses incurred by the Company or the Underwriters in connection with qualifying or registering (or obtaining exemptions from the qualification or registration of) all or any part of the Common Shares for offer and sale under the Blue Sky laws, and, if requested by the Representatives, preparing and printing a "Blue Sky Survey" or memorandum, and any supplements thereto, advising the Underwriters of such qualifications, registrations and exemptions, (vii) the filing fees incident to, and the reasonable fees and expenses of counsel for the Underwriters in connection with, the NASD's review and approval of the Underwriters' participation in the offering and distribution of the Common Shares, (viii) the fees and expenses associated with listing the Common Shares on the New York Stock Exchange, Inc., and (ix) all other fees, costs and expenses referred to in Part II of the Registration Statement. Except as provided in this Section 4, Section 6, Section 8 and Section 9 hereof, the Underwriters shall pay their own expenses, including the fees and disbursements of their counsel. The Selling Stockholders further agree with each Underwriter to pay (directly or by reimbursement) all fees and expenses incident to the performance of their obligations under this Agreement which are not otherwise specifically provided for herein, including but not limited to (i) fees and expenses of counsel and other advisors for such Selling Stockholders (ii) fees and expenses of the Custodian and (iii) expenses and taxes incident to the sale and delivery of the Common Shares to be sold by such Selling - 21 - 26 Stockholders to the Underwriters hereunder (which taxes, if any, may be deducted by the Custodian under the provisions of Section 2 of this Agreement). This Section 4 shall not affect or modify any separate, valid agreement relating to the allocation of payment of expenses between the Company, on the one hand, and the Selling Stockholders, on the other hand. SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The obligations of the several Underwriters to purchase and pay for the Common Shares as provided herein on the First Closing Date and, with respect to the Optional Common Shares, the Second Closing Date, shall be subject to the accuracy of the representations and warranties on the part of the Company and the Selling Stockholders set forth in Sections 1(A) and 1(B) hereof as of the date hereof and as of the First Closing Date as though then made and, with respect to the Optional Common Shares, as of the Second Closing Date as though then made, to the timely performance by the Company and the Selling Stockholders of their respective covenants and other obligations hereunder, and to each of the following additional conditions: (a) ACCOUNTANTS' COMFORT LETTER. On the date hereof, the Representatives shall have received from each of Deloitte & Touche LLP, independent public or certified public accountants for the Company, and Nowalk & Associates, independent public or certified public accountants for CCG, a letter dated the date hereof addressed to the Underwriters, in form and substance satisfactory to the Representatives, containing statements and information of the type ordinarily included in accountant's "comfort letters" to underwriters, delivered according to Statement of Auditing Standards No. 72 (or any successor bulletin), with respect to the audited and unaudited financial statements and certain financial information contained in the Registration Statement and the Prospectus (and the Representatives shall have received an additional three conformed copies of such accountants' letter for each of the several Underwriters). (b) COMPLIANCE WITH REGISTRATION REQUIREMENTS; NO STOP ORDER; NO OBJECTION FROM NASD. For the period from and after effectiveness of this Agreement and prior to the First Closing Date and, with respect to the Optional Common Shares, the Second Closing Date: (i) the Company shall have filed the Prospectus with the Commission (including the information required by Rule 430A under the Securities Act) in the manner and within the time period required by Rule 424(b) under the Securities Act; or the Company shall have filed a post-effective amendment to the Registration Statement containing the information required by such Rule 430A, and such post-effective amendment shall have become effective; or, if the Company elected to rely upon Rule 434 under the Securities Act and obtained the Representatives' consent thereto, the Company shall have filed a - 22 - 27 Term Sheet with the Commission in the manner and within the time period required by such Rule 424(b); (ii) no stop order suspending the effectiveness of the Registration Statement, any Rule 462(b) Registration Statement, or any post-effective amendment to the Registration Statement, shall be in effect and no proceedings for such purpose shall have been instituted or threatened by the Commission; and (iii) the NASD shall have raised no objection to the fairness and reasonableness of the underwriting terms and arrangements. (c) NO MATERIAL ADVERSE CHANGE OR RATINGS AGENCY CHANGE. For the period from and after the date of this Agreement and prior to the First Closing Date and, with respect to the Optional Common Shares, the Second Closing Date: (i) in the judgment of the Representatives there shall not have occurred any Material Adverse Change; and (ii) there shall not have occurred any downgrading, nor shall any notice have been given of any intended or potential downgrading or of any review for a possible change that does not indicate the direction of the possible change, in the rating accorded any securities of the Company or any of its subsidiaries by any "nationally recognized statistical rating organization" as such term is defined for purposes of Rule 436(g)(2) under the Securities Act. (d) OPINION OF COUNSEL FOR THE COMPANY. On each of the First Closing Date and the Second Closing Date the Representatives shall have received the favorable opinion of Chopin, Miller & Yudenfreund, counsel for the Company, dated as of such Closing Date, the form of which is attached as EXHIBIT A (and the Representatives shall have received an additional three conformed copies of such counsel's legal opinion for each of the several Underwriters). (e) OPINION OF COUNSEL FOR THE UNDERWRITERS. On each of the First Closing Date and the Second Closing Date the Representatives shall have received the favorable opinion of Piper & Marbury L.L.P., counsel for the Underwriters, dated as of such Closing Date, with respect to the matters set forth in paragraphs (i), (vi), (vii), (viii), (x), (xi), and the next-to-last paragraph of EXHIBIT A (and the Representatives shall have received an additional three conformed copies of such counsel's legal opinion for each of the several Underwriters). (f) OFFICERS' CERTIFICATE. On each of the First Closing Date and the Second Closing Date the Representatives shall have received a written certificate executed by the Chairman of the Board, Chief Executive Officer or President of the - 23 - 28 Company and the Chief Financial Officer or Chief Accounting Officer of the Company, dated as of such Closing Date, to the effect set forth in subsections (b)(ii) and (c)(ii) of this Section 5, and further to the effect that: (i) for the period from and after the date of this Agreement and prior to such Closing Date, there has not occurred any Material Adverse Change; (ii) the representations, warranties and covenants of the Company set forth in Section 1(A) of this Agreement are true and correct with the same force and effect as though expressly made on and as of such Closing Date; and (iii) the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to such Closing Date. (g) BRING-DOWN COMFORT LETTER. On each of the First Closing Date and the Second Closing Date the Representatives shall have received from each of Deloitte & Touche LLP, independent public or certified public accountants for the Company, and Nowalk & Associates, independent public or certified public accountants for CCG, a letter dated such date, in form and substance satisfactory to the Representatives, to the effect that they reaffirm the statements made in the letter furnished by them pursuant to subsection (a) of this Section 5, except that the specified date referred to therein for the carrying out of procedures shall be no more than three business days prior to the First Closing Date or Second Closing Date, as the case may be (and the Representatives shall have received an additional three conformed copies of such accountants' letter for each of the several Underwriters). (h) OPINION OF COUNSEL FOR THE SELLING STOCKHOLDERS. On each of the First Closing Date and the Second Closing Date the Representatives shall have received the favorable opinion of ______________, counsel for the Selling Stockholders, dated as of such Closing Date, the form of which is attached as EXHIBIT B (and the Representatives shall have received an additional three conformed copies of such counsel's legal opinion for each of the several Underwriters). (i) SELLING STOCKHOLDERS' CERTIFICATE. On each of the First Closing Date and the Second Closing Date the Representatives shall have received a written certificate executed by each Selling Stockholder, dated as of such Closing Date, to the effect that: (i) the representations, warranties and covenants of such Selling Stockholder set forth in Section 1(B) of this Agreement are true and correct with the same force and effect as though expressly made by such Selling Stockholder on and as of such Closing Date; and - 24 - 29 (ii) such Selling Stockholder has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to such Closing Date. (j) SELLING STOCKHOLDERS' DOCUMENTS. On the date hereof, the Company and the Selling Stockholders shall have furnished for review by the Representatives copies of the Powers of Attorney and Custodian Agreements executed by each of the Selling Stockholders and such further information, certificates and documents as the Representatives may reasonably request. (k) LOCK-UP AGREEMENT FROM CERTAIN SHAREHOLDERS OF THE COMPANY OTHER THAN SELLING STOCKHOLDERS. On the date hereof, the Company shall have furnished to the Representatives an agreement in the form of EXHIBIT C hereto from each director and each officer of the Company, and such agreement shall be in full force and effect on each of the First Closing Date and the Second Closing Date. (l) ADDITIONAL DOCUMENTS. On or before each of the First Closing Date and the Second Closing Date, the Representatives and counsel for the Underwriters shall have received such information, documents and opinions as they may reasonably require for the purposes of enabling them to pass upon the issuance and sale of the Common Shares as contemplated herein, or in order to evidence the accuracy of any of the representations and warranties, or the satisfaction of any of the conditions or agreements, herein contained. If any condition specified in this Section 5 is not satisfied when and as required to be satisfied, this Agreement may be terminated by the Representatives by notice to the Company and the Selling Stockholders at any time on or prior to the First Closing Date and, with respect to the Optional Common Shares, at any time prior to the Second Closing Date, which termination shall be without liability on the part of any party to any other party, except that Section 4, Section 6, Section 8 and Section 9 shall at all times be effective and shall survive such termination. SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this Agreement is terminated by the Representatives pursuant to Section 5, Section 7, Section 10 or Section 11 or Section 17, or if the sale to the Underwriters of the Common Shares on the First Closing Date is not consummated because of any refusal, inability or failure on the part of the Company or the Selling Stockholders to perform any agreement herein or to comply with any provision hereof, the Company agrees to reimburse the Representatives and the other Underwriters (or such Underwriters as have terminated this Agreement with respect to themselves), severally, upon demand for all out-of-pocket expenses that shall have been reasonably incurred by the Representatives and the Underwriters in connection with the proposed purchase and the offering and sale of the - 25 - 30 Common Shares, including but not limited to fees and disbursements of counsel, printing expenses, travel expenses, postage, facsimile and telephone charges. SECTION 7. EFFECTIVENESS OF THIS AGREEMENT. This Agreement shall not become effective until the later of (i) the execution of this Agreement by the parties hereto and (ii) notification by the Commission to the Company and the Representatives of the effectiveness of the Registration Statement under the Securities Act. Prior to such effectiveness, this Agreement may be terminated by any party by notice to each of the other parties hereto, and any such termination shall be without liability on the part of (a) the Company or the Selling Stockholders to any Underwriter, except that the Company and the Selling Stockholders shall be obligated to reimburse the expenses of the Representatives and the Underwriters pursuant to Sections 4 and 6 hereof, (b) of any Underwriter to the Company or the Selling Stockholders, or (c) of any party hereto to any other party except that the provisions of Section 8 and Section 9 shall at all times be effective and shall survive such termination. SECTION 8. INDEMNIFICATION. (a) INDEMNIFICATION OF THE UNDERWRITERS. Each of the Company and each of the Selling Stockholders, jointly and severally, agrees to indemnify and hold harmless each Underwriter, its officers and employees, and each person, if any, who controls any Underwriter within the meaning of the Securities Act and the Exchange Act against any loss, claim, damage, liability or expense, as incurred, to which such Underwriter or such controlling person may become subject, under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, or at common law or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of the Company), insofar as such loss, claim, damage, liability or expense (or actions in respect thereof as contemplated below) arises out of or is based (i) upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, or any amendment thereto, including any information deemed to be a part thereof pursuant to Rule 430A or Rule 434 under the Securities Act, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading; or (ii) upon any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus or the Prospectus (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; or (iii) in whole or in part upon any inaccuracy in the representations and warranties of the Company or the Selling Stockholders contained herein; or (iv) in whole or in part upon any failure of the Company or the Selling Stockholders to perform their respective obligations - 26 - 31 hereunder or under law; or (v) any act or failure to act or any alleged act or failure to act by any Underwriter in connection with, or relating in any manner to, the Common Stock or the offering contemplated hereby, and which is included as part of or referred to in any loss, claim, damage, liability or action arising out of or based upon any matter covered by clause (i) or (ii) above, PROVIDED that the Company shall not be liable under this clause (v) to the extent that a court of competent jurisdiction shall have determined by a final judgment that such loss, claim, damage, liability or action resulted directly from any such acts or failures to act undertaken or omitted to be taken by such Underwriter through its gross negligence or willful misconduct; and to reimburse each Underwriter and each such controlling person for any and all expenses (including the fees and disbursements of counsel chosen by NationsBanc Montgomery Securities, Inc.) as such expenses are reasonably incurred by such Underwriter or such controlling person in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action; PROVIDED, HOWEVER, that the foregoing indemnity agreement shall not apply to any loss, claim, damage, liability or expense to the extent, but only to the extent, arising out of or based upon any untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information furnished to the Company and the Selling Stockholders by the Representatives expressly for use in the Registration Statement, any preliminary prospectus or the Prospectus (or any amendment or supplement thereto); and provided, further, that with respect to any preliminary prospectus, the foregoing indemnity agreement shall not inure to the benefit of any Underwriter from whom the person asserting any loss, claim, damage, liability or expense purchased Common Shares, or any person controlling such Underwriter, if copies of the Prospectus were timely delivered to the Underwriter pursuant to Section 2 and a copy of the Prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of such Underwriter to such person, if required by law so to have been delivered, at or prior to the written confirmation of the sale of the Common Shares to such person, and if the Prospectus (as so amended or supplemented) would have cured the defect giving rise to such loss, claim, damage, liability or expense. The indemnity agreement set forth in this Section 8(a) shall be in addition to any liabilities that the Company and the Selling Stockholders may otherwise have. (b) INDEMNIFICATION OF THE COMPANY, ITS DIRECTORS AND OFFICERS. Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, each of its directors, each of its officers who signed the Registration Statement, the Selling Stockholders and each person, if any, who controls the Company or any Selling Stockholder within the meaning of the Securities Act or the Exchange Act, against any loss, claim, damage, liability or expense, as incurred, to which the Company, or any such director, officer, Selling Stockholder or controlling person may become subject, under the Securities Act, the Exchange Act, or other federal or state statutory law or regulation, or at common law or otherwise (including - 27 - 32 in settlement of any litigation, if such settlement is effected with the written consent of such Underwriter), insofar as such loss, claim, damage, liability or expense (or actions in respect thereof as contemplated below) arises out of or is based upon any untrue or alleged untrue statement of a material fact contained in the Registration Statement, any preliminary prospectus or the Prospectus (or any amendment or supplement thereto), or arises out of or is based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, any preliminary prospectus, the Prospectus (or any amendment or supplement thereto), in reliance upon and in conformity with written information furnished to the Company and the Selling Stockholders by the Representatives expressly for use therein; and to reimburse the Company, or any such director, officer, Selling Stockholder or controlling person for any legal and other expense reasonably incurred by the Company, or any such director, officer, Selling Stockholder or controlling person in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action. Each of the Company and each of the Selling Stockholders, hereby acknowledges that the only information that the Underwriters have furnished to the Company and the Selling Stockholders expressly for use in the Registration Statement, any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) are the statements set forth [(A) as the last two paragraphs on the inside front cover page of the Prospectus concerning stabilization and passive market making by the Underwriters and (B) in the table in the first paragraph and as the second and seventh paragraphs under the caption "Underwriting" in the Prospectus;] and the Underwriters confirm that such statements are correct. The indemnity agreement set forth in this Section 8(b) shall be in addition to any liabilities that each Underwriter may otherwise have. (c) NOTIFICATIONS AND OTHER INDEMNIFICATION PROCEDURES. Promptly after receipt by an indemnified party under this Section 8 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under this Section 8, notify the indemnifying party in writing of the commencement thereof, but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party for contribution or otherwise than under the indemnity agreement contained in this Section 8 or to the extent it is not prejudiced as a proximate result of such failure. In case any such action is brought against any indemnified party and such indemnified party seeks or intends to seek indemnity from an indemnifying party, the indemnifying party will be entitled to participate in, and, to the extent that it shall elect, jointly with all other indemnifying parties similarly notified, by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof with counsel reasonably satisfactory to such indemnified party; PROVIDED, HOWEVER, if the - 28 - 33 defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that a conflict may arise between the positions of the indemnifying party and the indemnified party in conducting the defense of any such action or that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel to assume such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified party of such indemnifying party's election so to assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable to such indemnified party under this Section 8 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless (i) the indemnified party shall have employed separate counsel in accordance with the proviso to the next preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel (together with local counsel), approved by the indemnifying party (NationsBanc Montgomery Securities, Inc. in the case of Section 8(b) and Section 9), representing the indemnified parties who are parties to such action) or (ii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of the action, in each of which cases the fees and expenses of counsel shall be at the expense of the indemnifying party. (d) SETTLEMENTS. The indemnifying party under this Section 8 shall not be liable for any settlement of any proceeding effected without its prior written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party against any loss, claim, damage, liability or expense by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by Section 8(c) hereof, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement, compromise or consent to the entry of judgment in any pending or threatened action, suit or proceeding in respect of which any indemnified party is or could have been a party and indemnity was or could have been sought hereunder by such indemnified party, unless such settlement, compromise or consent includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such action, suit or proceeding. - 29 - 34 SECTION 9. CONTRIBUTION. If the indemnification provided for in Section 8 is for any reason held to be unavailable to or otherwise insufficient to hold harmless an indemnified party in respect of any losses, claims, damages, liabilities or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount paid or payable by such indemnified party, as incurred, as a result of any losses, claims, damages, liabilities or expenses referred to therein (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Selling Stockholders, on the one hand, and the Underwriters, on the other hand, from the offering of the Common Shares pursuant to this Agreement or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Selling Stockholders, on the one hand, and the Underwriters, on the other hand, in connection with the statements or omissions or inaccuracies in the representations and warranties herein which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Stockholders, on the one hand, and the Underwriters, on the other hand, in connection with the offering of the Common Shares pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the Common Shares pursuant to this Agreement (before deducting expenses) received by the Company and the Selling Stockholders, and the total underwriting discount received by the Underwriters, in each case as set forth on the front cover page of the Prospectus (or, if Rule 434 under the Securities Act is used, the corresponding location on the Term Sheet) bear to the aggregate initial public offering price of the Common Shares as set forth on such cover. The relative fault of the Company and the Selling Stockholders, on the one hand, and the Underwriters, on the other hand, shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact or any such inaccurate or alleged inaccurate representation or warranty relates to information supplied by the Company or the Selling Stockholders, on the one hand, or the Underwriters, on the other hand, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in Section 8(c), any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim. The provisions set forth in Section 8(c) with respect to notice of commencement of any action shall apply if a claim for contribution is to be made under this Section 9; PROVIDED, HOWEVER, that no additional notice shall be required with respect to any action for which notice has been given under Section 8(c) for purposes of indemnification. - 30 - 35 The Company, the Selling Stockholders and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 9 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 9. Notwithstanding the provisions of this Section 9, no Underwriter shall be required to contribute any amount in excess of the underwriting commissions received by such Underwriter in connection with the Common Shares underwritten by it and distributed to the public. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute pursuant to this Section 9 are several, and not joint, in proportion to their respective underwriting commitments as set forth opposite their names in SCHEDULE A. For purposes of this Section 9, each officer and employee of an Underwriter and each person, if any, who controls an Underwriter within the meaning of the Securities Act and the Exchange Act shall have the same rights to contribution as such Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company with the meaning of the Securities Act and the Exchange Act shall have the same rights to contribution as the Company. SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS. If, on the First Closing Date or the Second Closing Date, as the case may be, any one or more of the several Underwriters shall fail or refuse to purchase Common Shares that it or they have agreed to purchase hereunder on such date, and the aggregate number of Common Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase does not exceed 10% of the aggregate number of the Common Shares to be purchased on such date, the other Underwriters shall be obligated, severally, in the proportions that the number of Firm Common Shares set forth opposite their respective names on SCHEDULE A bears to the aggregate number of Firm Common Shares set forth opposite the names of all such non-defaulting Underwriters, or in such other proportions as may be specified by the Representatives with the consent of the non-defaulting Underwriters, to purchase the Common Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase on such date. If, on the First Closing Date or the Second Closing Date, as the case may be, any one or more of the Underwriters shall fail or refuse to purchase Common Shares and the aggregate number of Common Shares with respect to which such default occurs exceeds 10% of the aggregate number of Common Shares to be purchased on such date, and arrangements satisfactory to the Representatives and the Company for the purchase of such Common Shares are not made within 48 hours after such default, this Agreement shall terminate without liability of any party to any other party except that the provisions of Section 4, Section 6, Section 8 and Section 9 shall at all times be effective and shall survive such - 31 - 36 termination. In any such case either the Representatives or the Company shall have the right to postpone the First Closing Date or the Second Closing Date, as the case may be, but in no event for longer than seven days in order that the required changes, if any, to the Registration Statement and the Prospectus or any other documents or arrangements may be effected. As used in this Agreement, the term "Underwriter" shall be deemed to include any person substituted for a defaulting Underwriter under this Section 10. Any action taken under this Section 10 shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement. SECTION 11. TERMINATION OF THIS AGREEMENT. Prior to the First Closing Date this Agreement may be terminated by the Representatives by notice given to the Company and the Selling Stockholders if at any time (i) trading or quotation in any of the Company's securities shall have been suspended or limited by the Commission or by the New York Stock Exchange, or trading in securities generally on either the Nasdaq Stock Market or the New York Stock Exchange shall have been suspended or limited, or minimum or maximum prices shall have been generally established on any of such stock exchanges by the Commission or the NASD; (ii) a general banking moratorium shall have been declared by any of federal, Florida, New York or California authorities; (iii) there shall have occurred any outbreak or escalation of national or international hostilities or any crisis or calamity, or any change in the United States or international financial markets, or any substantial change or development involving a prospective substantial change in United States' or international political, financial or economic conditions, as in the judgment of the Representatives is material and adverse and makes it impracticable to market the Common Shares in the manner and on the terms described in the Prospectus or to enforce contracts for the sale of securities; (iv) in the judgment of the Representatives there shall have occurred any Material Adverse Change; or (v) the Company shall have sustained a loss by strike, fire, flood, earthquake, accident or other calamity of such character as in the judgment of the Representatives may interfere materially with the conduct of the business and operations of the Company regardless of whether or not such loss shall have been insured. Any termination pursuant to this Section 11 shall be without liability on the part of (a) the Company or the Selling Stockholders to any Underwriter, except that the Company and the Selling Stockholders shall be obligated to reimburse the expenses of the Representatives and the Underwriters pursuant to Sections 4 and 6 hereof, (b) any Underwriter to the Company or the Selling Stockholders, or (c) of any party hereto to any other party except that the provisions of Section 8 and Section 9 shall at all times be effective and shall survive such termination. SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The respective indemnities, agreements, representations, warranties and other statements of the Company, of its officers, of the Selling Stockholders and of the several Underwriters set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or the Company - 32 - 37 or any of its or their partners, officers or directors or any controlling person, or the Selling Stockholders, as the case may be, and will survive delivery of and payment for the Common Shares sold hereunder and any termination of this Agreement. SECTION 13. NOTICES. All communications hereunder shall be in writing and shall be mailed, hand delivered or telecopied and confirmed to the parties hereto as follows: If to the Representatives: NationsBanc Montgomery Securities, Inc. 600 Montgomery Street San Francisco, California 94111 Facsimile: 415-249-5558 Attention: Richard A. Smith with a copy to: NationsBanc Montgomery Securities, Inc. 600 Montgomery Street San Francisco, California 94111 Facsimile: (415) 249-5553 Attention: David A. Baylor, Esq. If to the Company: Dycom Industries, Inc. 4440 PGA Boulevard, Suite 600 Palm Beach Gardens, Florida 33410 Facsimile: (561) 627-7709 Attention: If to the Selling Stockholders: L. Frank Chopin, Esquire Chopin, Miller & Yudenfreund 440 Royal Palm Way, Suite 200 Palm Beach, Florida 33480 Facsimile: (561) 655-9508 Any party hereto may change the address for receipt of communications by giving written notice to the others. - 33 - 38 SECTION 14. SUCCESSORS. This Agreement will inure to the benefit of and be binding upon the parties hereto, including any substitute Underwriters pursuant to Section 10 hereof, and to the benefit of the employees, officers and directors and controlling persons referred to in Section 8 and Section 9, and in each case their respective successors, and personal representatives, and no other person will have any right or obligation hereunder. The term "successors" shall not include any purchaser of the Common Shares as such from any of the Underwriters merely by reason of such purchase. SECTION 15. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability of any Section, paragraph or provision of this Agreement shall not affect the validity or enforceability of any other Section, paragraph or provision hereof. If any Section, paragraph or provision of this Agreement is for any reason determined to be invalid or unenforceable, there shall be deemed to be made such minor changes (and only such minor changes) as are necessary to make it valid and enforceable. SECTION 16. GOVERNING LAW PROVISIONS. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE. SECTION 17. FAILURE OF ONE OR MORE OF THE SELLING STOCKHOLDERS TO SELL AND DELIVER COMMON SHARES. If one or more of the Selling Stockholders shall fail to sell and deliver to the Underwriters the Common Shares to be sold and delivered by such Selling Stockholders at the First Closing Date pursuant to this Agreement, then the Underwriters may at their option, by written notice from the Representatives to the Company and the Selling Stockholders, either (i) terminate this Agreement without any liability on the part of any Underwriter or, except as provided in Sections 4, 6, 8 and 9 hereof, the Company or the Selling Stockholders, or (ii) purchase the shares which the Company and other Selling Stockholders have agreed to sell and deliver in accordance with the terms hereof. If one or more of the Selling Stockholders shall fail to sell and deliver to the Underwriters the Common Shares to be sold and delivered by such Selling Stockholders pursuant to this Agreement at the First Closing Date or the Second Closing Date, then the Underwriters shall have the right, by written notice from the Representatives to the Company and the Selling Stockholders, to postpone the First Closing Date or the Second Closing Date, as the case may be, but in no event for longer than seven days in order that the required changes, if any, to the Registration Statement and the Prospectus or any other documents or arrangements may be effected. SECTION 18. GENERAL PROVISIONS. This Agreement constitutes the entire agreement of the parties to this Agreement and supersedes all prior written or oral and all contemporaneous oral agreements, understandings and negotiations with respect to the subject matter hereof. This Agreement may be executed in two or more counterparts, each one of which shall be an original, with the same effect as if the signatures thereto - 34 - 39 and hereto were upon the same instrument. This Agreement may not be amended or modified unless in writing by all of the parties hereto, and no condition herein (express or implied) may be waived unless waived in writing by each party whom the condition is meant to benefit. The Table of Contents and the Section headings herein are for the convenience of the parties only and shall not affect the construction or interpretation of this Agreement. Each of the parties hereto acknowledges that it is a sophisticated business person who was adequately represented by counsel during negotiations regarding the provisions hereof, including, without limitation, the indemnification provisions of Section 8 and the contribution provisions of Section 9, and is fully informed regarding said provisions. Each of the parties hereto further acknowledges that the provisions of Sections 8 and 9 hereto fairly allocate the risks in light of the ability of the parties to investigate the Company, its affairs and its business in order to assure that adequate disclosure has been made in the Registration Statement, any preliminary prospectus and the Prospectus (and any amendments and supplements thereto), as required by the Securities Act and the Exchange Act. - 35 - 40 If the foregoing is in accordance with your understanding of our agreement, kindly sign and return to the Company and the Custodian the enclosed copies hereof, whereupon this instrument, along with all counterparts hereof, shall become a binding agreement in accordance with its terms. Very truly yours, DYCOM INDUSTRIES, INC. By:__________________________ President and Chief Executive Officer SELLING STOCKHOLDERS NAMED IN SCHEDULE __ By:__________________________ (Attorney-in-fact) The foregoing Underwriting Agreement is hereby confirmed and accepted by the Representatives in San Francisco, California as of the date first above written. NATIONSBANC MONTGOMERY SECURITIES, INC. MORGAN KEEGAN & COMPANY, INC. THE ROBINSON-HUMPHREY COMPANY, LLC Acting as Representatives of the several Underwriters named in the attached Schedule A. By: NATIONSBANC MONTGOMERY SECURITIES, INC. - 36 - 41 By:___________________________ Richard A. Smith Authorized Signatory SCHEDULE A NUMBER OF FIRM COMMON SHARES UNDERWRITERS TO BE PURCHASED NationsBanc Montgomery Securities, Inc. ................. Morgan Keegan & Company, Inc. ........................... The Robinson-Humphrey Company, LLC ...................... _________ Total............................................ - 37 - 42 SCHEDULE B
NUMBER OF MAXIMUM NUMBER OF SELLING STOCKHOLDER FIRM COMMON SHARES OPTIONAL COMMON SHARES TO BE SOLD TO BE SOLD Thomas J. Polis 513,311 0 235 East Gay Street West Chester, PA. George H. Tamasi 513,311 0 235 East Gay Street West Chester, PA. Mary Irene Younkin, as Executor 100,000 0 of the Estate of Floyd E. Younkin 555 Greenlawn Avenue Columbus, Ohio Total: 1,126,622 0
- 2 - 43 EXHIBIT A Opinion of counsel for the Company to be delivered pursuant to Section 5(d) of the Underwriting Agreement. References to the Prospectus in this EXHIBIT A include any supplements thereto at the Closing Date. (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Florida. (ii) The Company has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and to enter into and perform its obligations under the Underwriting Agreement. (iii) The Company is duly qualified as a foreign corporation to transact business and is in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except for such jurisdictions where the failure to so qualify or to be in good standing would not, individually or in the aggregate, result in a Material Adverse Change. (iv) Each significant subsidiary (as defined in Rule 405 under the Securities Act) has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and, to the best knowledge of such counsel, is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except for such jurisdictions where the failure to so qualify or to be in good standing would not, individually or in the aggregate, result in a Material Adverse Change. (v) All of the issued and outstanding capital stock of each such significant subsidiary has been duly authorized and validly issued, is fully paid and non-assessable and is owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance or, to the best knowledge of such counsel, any pending or threatened claim, except such as may arise pursuant to credit facilities described in the Prospectus. (vi) The authorized, issued and outstanding capital stock of the Company (including the Common Stock) conform to the descriptions thereof set forth in the Prospectus. All of the outstanding shares of Common Stock (including the shares of Common Stock owned by Selling Stockholders) have been duly authorized 44 and validly issued, are fully paid and nonassessable and, to the best of such counsel's knowledge, have been issued in compliance with the registration and qualification requirements of federal and state securities laws. The form of certificate used to evidence the Common Stock is in due and proper form and complies with all applicable requirements of the charter and by-laws of the Company and the Florida General Corporation Act. The description of the Company's stock option, stock bonus and other stock plans or arrangements, and the options or other rights granted and exercised thereunder, set forth in the Prospectus accurately and fairly presents the information required to be shown with respect to such plans, arrangements, options and rights. (vii) No stockholder of the Company or any other person has any preemptive right, right of first refusal or other similar right to subscribe for or purchase securities of the Company arising (i) by operation of the charter or by-laws of the Company or the Florida General Corporation Act or (ii) to the best knowledge of such counsel, otherwise. (viii) The Underwriting Agreement has been duly authorized, executed and delivered by, and is a valid and binding agreement of, the Company, enforceable in accordance with its terms, except as rights to indemnification thereunder may be limited by applicable law and except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally or by general equitable principles. (ix) The Common Shares to be purchased by the Underwriters from the Company have been duly authorized for issuance and sale pursuant to the Underwriting Agreement and, when issued and delivered by the Company pursuant to the Underwriting Agreement against payment of the consideration set forth therein, will be validly issued, fully paid and nonassessable. (x) Each of the Registration Statement and the Rule 462(b) Registration Statement, if any, has been declared effective by the Commission under the Securities Act. To the best knowledge of such counsel, no stop order suspending the effectiveness of either of the Registration Statement or the Rule 462(b) Registration Statement, if any, has been issued under the Securities Act and no proceedings for such purpose have been instituted or are pending or are contemplated or threatened by the Commission. Any required filing of the Prospectus and any supplement thereto pursuant to Rule 424(b) under the Securities Act has been made in the manner and within the time period required by such Rule 424(b). (xi) The Registration Statement, including any Rule 462(b) Registration Statement, the Prospectus, and each amendment or supplement to the Registration Statement and the Prospectus, as of their respective effective or issue - 2 - 45 dates (other than the financial statements and supporting schedules included therein or in exhibits to or excluded from the Registration Statement, as to which no opinion need be rendered) comply as to form in all material respects with the applicable requirements of the Securities Act. (xii) The Common Shares have been approved for listing on the New York Stock Exchange. (xiii) The statements (i) in the Prospectus under the captions "Risk Factors--Shares Eligible for Future Sale," "Risk Factors--Anti-takeover Considerations," "Management's Discussion and Analysis of Results of Operations and Financial Condition--Liquidity and Capital Resources", "Business--Legal Proceedings", "Management--Certain Relationships and Related Transactions," and "Description of Capital Stock", and "Shares Eligible for Future Sale" and (ii) in Item 14 and Item 15 of the Registration Statement, insofar as such statements constitute matters of law, summaries of legal matters, the Company's charter or by-law provisions, documents or legal proceedings, or legal conclusions, has been reviewed by such counsel and fairly present and summarize, in all material respects, the matters referred to therein. [we will consider further deletions when we have considered the proxy statement] (xiv) To the best knowledge of such counsel, there are no legal or governmental actions, suits or proceedings pending or threatened which are required to be disclosed in the Registration Statement, other than those disclosed therein. (xv) To the best knowledge of such counsel, there are no Existing Instruments required to be described or referred to in the Registration Statement or to be filed as exhibits thereto other than those described or referred to therein or filed or incorporated by reference as exhibits thereto; and the descriptions thereof and references thereto are correct in all material respects. (xvi) No consent, approval, authorization or other order of, or registration or filing with, any court or other governmental authority or agency, is required for the Company's execution, delivery and performance of the Underwriting Agreement and consummation of the transactions contemplated thereby and by the Prospectus, except as required under the Securities Act, applicable state securities or blue sky laws and from the NASD. (xvii) The execution and delivery of the Underwriting Agreement by the Company and the performance by the Company of its obligations thereunder (other than performance by the Company of its obligations under the indemnification section - 3 - 46 of the Underwriting Agreement, as to which no opinion need be rendered), assuming due authorization, execution and delivery by each other party thereto, (i) have been duly authorized by all necessary corporate action on the part of the Company; (ii) will not result in any violation of the provisions of the charter or by-laws of the Company or any subsidiary; (iii) will not constitute a breach of, or Default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, (A) the Company's Bank Credit Agreement and Term Loan with _________________, as lender, or (B) to the best knowledge of such counsel, any other material Existing Instrument; or (iv) to the best knowledge of such counsel, will not result in any violation of any law, administrative regulation or administrative or court decree applicable to the Company or any subsidiary. (xviiii) The Company is not, and after receipt of payment for the Common Shares will not be, an "investment company" within the meaning of Investment Company Act. (xix) To the best knowledge of such counsel, there are no persons with registration or other similar rights to have any equity or debt securities registered for sale under the Registration Statement or included in the offering contemplated by the Underwriting Agreement, except for such rights as have been duly waived. (xx) To the best knowledge of such counsel, neither the Company nor any subsidiary is in violation of its charter or by-laws or any law, administrative regulation or administrative or court decree applicable to the Company or any subsidiary or is in Default in the performance or observance of any obligation, agreement, covenant or condition contained in any material Existing Instrument, except in each such case for such violations or Defaults as would not, individually or in the aggregate, result in a Material Adverse Change. (xxi) To the best knowledge of such counsel, except as described in the Prospectus, no claims have been asserted against the Company by any person to the use of any such rights or challenging or questioning the validity or effectiveness of any such rights. (xxii) Each document filed pursuant to the Exchange Act (other than the financial statements and supporting schedules included therein, as to which no opinion need be rendered) and incorporated or deemed to be incorporated by - 4 - 47 reference in the Prospectus complied when so filed as to form in all material respects with the Exchange Act. (xxiii) The agreements necessary to effect the acquisition of CCG have been duly authorized, executed and delivered by each of the parties thereto and constitute the valid, legal and binding agreements of each party thereto, and the acquisition of CCG by the Company and the related transactions contemplated thereby have been consummated as described in the Prospectus. In addition, such counsel shall state that they have participated in conferences with officers and other representatives of the Company, representatives of the independent public or certified public accountants for the Company and with representatives of the Underwriters duringch the contents of the Registration Statement and the Prospectus, and any supplements or amendments thereto, and related matters were discussed and, although such counsel has not undertaken to investigate or verify independently and is not passing upon and does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus (other than as indicated above), including all documents incorporated or deemed to be incorporated by reference therein, and any supplements or amendments thereto, on the basis of the foregoing, no facts have come to their attention which would lead them to believe that either the Registration Statement or any amendments thereto, at the time the Registration Statement or such amendments became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus, as of its date or at the First Closing Date or the Second Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading (it being understood that such counsel need express no belief or opinion as to the financial statements and related notes, the financial statement schedules or other financial or statistical data included in the Registration Statement or the Prospectus or any amendments or supplements thereto). In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws of any jurisdiction other than the General Corporation Law of the State of Delaware, the Florida General Corporation Act or the federal law of the United States, to the extent they deem proper and specified in such opinion, upon the opinion (which shall be dated the First Closing Date or the Second Closing Date, as the case may be, shall be satisfactory in form and substance to the Underwriters, shall expressly state that the Underwriters may rely on such opinion as if it were addressed to them and shall be furnished to the Representatives) of other counsel of good standing whom they believe to be reliable and who are satisfactory to counsel for the - 5 - 48 Underwriters; PROVIDED, HOWEVER, that such counsel shall further state that they believe that they and the Underwriters are justified in relying upon such opinion of other counsel, and (B) as to matters of fact, to the extent they deem proper, on certificates of responsible officers of the Company and public officials. - 6 - 49 EXHIBIT B The opinion of such counsel pursuant to Section 5(h) shall be rendered to the Representatives at the request of the Company and shall so state therein. References to the Prospectus in this EXHIBIT B include any supplements thereto at the Closing Date. (i) The Underwriting Agreement has been duly authorized, executed and delivered by or on behalf of, and, assuming due authorization, execution and delivery by each other party thereto, is a valid and binding agreement of Stockholder, enforceable in accordance with its terms, except as rights to indemnification thereunder may be limited by applicable law and except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally or by general equitable principles. (ii) The execution and delivery by such Selling Stockholder of, and the performance by such Selling Stockholder of its obligations under, the Underwriting Agreement and its Custody Agreement and its Power of Attorney will not contravene or conflict with, result in a breach of, or constitute a default under, the charter or by-laws, partnership agreement, trust agreement or other organizational documents, as the case may be, of such Selling Stockholder, or, to the best of such counsel's knowledge, violate or contravene any provision of applicable law or regulation, or violate, result in a breach of or constitute a default under the terms of any other agreement or instrument to which such Selling Stockholder is a party or by which it is bound, or any judgment, order or decree applicable to such Selling Stockholder of any court, regulatory body, administrative agency, governmental body or arbitrator having jurisdiction over such Selling Stockholder. (iii) Such Selling Stockholder has good and valid title to all of the Common Shares which may be sold by such Selling Stockholder under the Underwriting Agreement and has the legal right and power, and all authorizations and approvals required by the trust agreement or other organizational documents, as the case may be, to enter into the Underwriting Agreement and its Custody Agreement and its Power of Attorney, to sell, transfer and deliver all of the Common Shares which may sold by such Selling Stockholder under the Underwriting Agreement and to comply with its other obligations under the Underwriting Agreement, its Custody Agreement and its Power of Attorney. (iv) Each of the Custody Agreement and Power of Attorney of such Selling Stockholder has been duly authorized, executed and delivered by such Selling Stockholder and is a valid and binding agreement of such Selling Stockholder, enforceable in accordance with its terms, except as rights to indemnification thereunder may be limited by applicable law and except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other 50 similar laws relating to or affecting creditors' rights generally or by general equitable principles. (v) Assuming that the Underwriters purchase the Common Shares which are sold by such Selling Stockholder pursuant to the Underwriting Agreement for value, in good faith and without notice of any adverse claim, the delivery of such Common Shares pursuant to the Underwriting Agreement will pass good and valid title to such Common Shares, free and clear of either any security interest, mortgage, pledge, lieu encumbrance or other claim. (vi) To the best of such counsel's knowledge, no consent, approval, authorization or other order of, or registration or filing with, any court or governmental authority or agency, is required for the consummation by such Selling Stockholder of the transactions contemplated in the Underwriting Agreement, except as required under the Securities Act, applicable state securities or blue sky laws, and from the NASD. In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws of any jurisdiction other than the General Corporation Law of the State of Delaware, the Florida General Corporation Act or the federal law of the United States, to the extent they deem proper and specified in such opinion, upon the opinion (which shall be dated the First Closing Date or the Second Closing Date, as the case may be, shall be satisfactory in form and substance to the Underwriters, shall expressly state that the Underwriters may rely on such opinion as if it were addressed to them and shall be furnished to the Representatives) of other counsel of good standing whom they believe to be reliable and who are satisfactory to counsel for the Underwriters; PROVIDED, HOWEVER, that such counsel shall further state that they believe that they and the Underwriters are justified in relying upon such opinion of other counsel, and (B) as to matters of fact, to the extent they deem proper, on certificates of the Selling Stockholders and public officials. - 2 - 51 EXHIBIT C [Date] NationsBanc Montgomery Securities, Inc. Morgan Keegan & Company, Inc. The Robinson-Humphrey Company, LLC As Representatives of the Several Underwriters c/o NationsBanc Montgomery Securities, Inc. 600 Montgomery Street San Francisco, California 94111 RE: Dycom Industries, Inc. (the "Company") Ladies & Gentlemen: The undersigned is an owner of record or beneficially of certain shares of Common Stock of the Company ("Common Stock") or securities convertible into or exchangeable or exercisable for Common Stock. The Company proposes to carry out a public offering of Common Stock (the "Offering") for which you will act as the representatives of the underwriters. The undersigned recognizes that the Offering will be of benefit to the undersigned and will benefit the Company by, among other things, raising additional capital for its operations. The undersigned acknowledges that you and the other underwriters are relying on the representations and agreements of the undersigned contained in this letter in carrying out the Offering and in entering into underwriting arrangements with the Company with respect to the Offering. In consideration of the foregoing, the undersigned hereby agrees that the undersigned will not, without the prior written consent of NationsBanc Montgomery Securities, Inc. (which consent may be withheld in its sole discretion), directly or indirectly, sell, offer, contract or grant any option to sell (including without limitation any short sale), pledge, transfer, establish an open "put equivalent position" within the meaning of Rule 16a-1(h) under the Securities Exchange Act of 1934, or otherwise dispose of any shares of Common Stock, options or warrants to acquire shares of Common Stock, or securities exchangeable or exercisable for or convertible into shares of Common Stock currently or hereafter owned either of record or beneficially (as defined in Rule 13d-3 under Securities Exchange Act of 1934, as amended) by the undersigned, or publicly announce the undersigned's intention to do any of the foregoing, for a period commencing on the date hereof and continuing through the close of trading on the date 180 days after the date of the Prospectus. The undersigned also agrees and consents to the entry of stop transfer instructions with the Company's transfer agent and registrar against the transfer of shares of Common Stock or securities convertible into or exchangeable or exercisable for Common Stock held by the undersigned except in compliance with the foregoing restrictions; provided that the 52 undersigned may pledge shares of Common Stock if the pledgee agrees in writing not to sell, offer, dispose of or otherwise transfer any pledged shares during said 180-day period without the prior written consent of NationsBanc Montgomery Securities, Inc. (which consent may be withheld at the sole discretion of NationsBanc Montgomery Securities, Inc.). . With respect to the Offering only, the undersigned waives any registration rights relating to registration under the Securities Act of any Common Stock owned either of record or beneficially by the undersigned, including any rights to receive notice of the Offering. This agreement is irrevocable and will be binding on the undersigned and the respective successors, heirs, personal representatives, and assigns of the undersigned. - ------------------------------------ Printed Name of Holder By: --------------------------------- Signature - ------------------------------------ Printed Name of Person Signing (AND INDICATE CAPACITY OF PERSON SIGNING IF SIGNING AS CUSTODIAN, TRUSTEE, OR ON BEHALF OF AN ENTITY) - 2 - EX-5 3 LEGAL OPINION OF CHOPIN, MILLER & YUDENFREUND 1 Exhibit 5 October 28, 1997 Dycom Industries, Inc. 4440 PGA Boulevard, Suite 600 Palm Beach Gardens, Florida Re: Registration Statement on Form S-3/A (Registration No. 333-36883) of Dycom Industries, Inc. Dear Sir or Madam: We serve as counsel to Dycom Industries, Inc, a Florida corporation (the "Company"). We have reviewed the referenced registration statement, as amended, relating to the sale by the Company of up to 1,573,378 shares of the Company's voting common stock, $.33 1/3 par value (the "Shares"). It is our opinion that the Shares have been duly and validly authorized and, when issued, delivered and paid for, will be validly issued, fully paid and nonassessable. We consent to the use of this opinion in the referenced registration statement, as amended, and to the reference to our opinion under the caption "Legal Matters" in the prospectus constituting part of the registration statement, as amended. Sincerely, Chopin, Miller & Yudenfreund CMY/bj EX-23.2 4 CONSENT OF DELOITTE & TOUCHE LLP 1 Exhibit 23.2 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Amendment No. 1 to Registration Statement No. 333-36883 of Dycom Industries, Inc. on Form S-3 of our report dated September 26, 1997, included in the Annual Report on Form 10-K of Dycom Industries, Inc. for the year ended July 31, 1997, and to the use of our report dated September 26, 1997, appearing in the Prospectus, which is part of such Registration Statement. We also consent to the reference to us under the headings "Summary Consolidated Financial Data" and "Experts" in such Prospectus. DELOITTE & TOUCHE LLP Certified Public Accountants West Palm Beach, Florida October 27, 1997 EX-23.3 5 CONSENT OF NOWALK & ASSOCIATES 1 Exhibit 23.3 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Amendment No. 1 to the Registration Statement of Dycom Industries, Inc. (Form S-3, No. 333-36883) of our reports related to the financial statements of Communications Construction Group, Inc. (not presented separately herein) dated July 23, 1997 and August 29, 1996 (which is also dated as of January 3, 1997 for Notes 5 and 6 of the financial statements of Communications Construction Group, Inc.), included in the Annual Report on Form 10-K of Dycom Industries, Inc. for the year ended July 31, 1997, and to the use of our reports related to the financial statements of Communications Construction Group, Inc. (not presented separately herein) dated July 23, 1997 and August 29, 1996 (which is also dated as of January 3, 1997 for Notes 5 and 6 of the financial statements of Communications Construction Group, Inc.), appearing in the Prospectus, which is part of this Amendment No. 1 to the Registration Statement. We also consent to the reference to us under the headings "Selected Consolidated Financial Data" and "Experts" in the Prospectus. NOWALK & ASSOCIATES Certified Public Accountants Cranbury, New Jersey October 25, 1997 -----END PRIVACY-ENHANCED MESSAGE-----