-----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, B7693WZjzirdLcjuZGZxC7hXXclaN30U5ErMQUw/u/dxTr+94VsQYFsarddwSbX3 2AUHLbbTNMQ1eZzH2Pt46w== 0000950170-99-000280.txt : 19990225 0000950170-99-000280.hdr.sgml : 19990225 ACCESSION NUMBER: 0000950170-99-000280 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 19 CONFORMED PERIOD OF REPORT: 19981031 FILED AS OF DATE: 19990224 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ABLE TELCOM HOLDING CORP CENTRAL INDEX KEY: 0000826411 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRICAL WORK [1731] IRS NUMBER: 650013218 STATE OF INCORPORATION: FL FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-21986 FILM NUMBER: 99549131 BUSINESS ADDRESS: STREET 1: 1601 FORUM PL STREET 2: STE 1110 CITY: WEST PALM BEACH STATE: FL ZIP: 33401 BUSINESS PHONE: 5616880400 MAIL ADDRESS: STREET 1: 1601 FORUM PLACE STREET 2: STE 305 CITY: WEST PALM BEACH STATE: FL ZIP: 33401 FORMER COMPANY: FORMER CONFORMED NAME: DELTA VENTURE FUND INC DATE OF NAME CHANGE: 19890312 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549-1004 FORM 10-K (Mark One) [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended October 31, 1998 OR [ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______________ to _______________. Commission file number 0-21986 ABLE TELCOM HOLDING CORP. (Exact name of registrant as specified in its charter) FLORIDA 65-0013218 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 1601 FORUM PLACE, SUITE 1110, WEST PALM BEACH, FLORIDA 33401 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (561) 688-0400 Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Act: Common Stock Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of February 19, 1999, 8,649,590 shares of the registrant's Common Stock were held by non-affiliates of the registrant (assuming, solely for these purposes, such persons to be all persons other than (i) current directors and executive officers off the registrant and (ii) persons believed by the registrant to beneficially own more than 10% of the registrant's outstanding Common Stock, based on reports, if any, submitted to the registrant by such persons). As of such date, the aggregate market value of the voting stock of the registrant held by non-affiliates, computed by reference to the average closing bid and asked prices on that date, was $74,602,714. There were 11,747,593 shares of Common Stock outstanding as of February 19, 1999. DOCUMENTS INCORPORATED BY REFERENCE Parts of the definitive Proxy Statement for the Registrant's Annual Meeting of Stockholders to be held for fiscal year 1998. 1 PART 1 ITEM 1. BUSINESS OVERVIEW Able Telcom Holding Corp. ( the "Company") is a contractor for the construction and maintenance of facilities-based communications systems for both public and private sector customers in the United States and South America. The Company has three operating groups: (i) Network Services, (ii) Transportation Services, and (iii) Communications Development. Through the Company's Network Services Group, it provides development, design, engineering, project management, installation, construction, operation and maintenance services for telecommunications systems. In addition, the Company's Transportation Services Group provides services for the design, development, integration, installation, construction, project management, maintenance and operation of advanced intelligent transportation systems, automated toll collection systems and electronic traffic management and control systems. The Company's Communication Development Group provides communications design, installation and maintenance services to foreign telephone companies. In the discussion below regarding the Company's business, any statement of its future expectations, including without limitation, future revenues and earnings, plans and objectives for future operations, future agreements, future economic performance or expected operational developments and all other statements regarding the future are "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and as that term is defined in the Private Securities Litigation Reform Act of 1995. The Company intends that the forward-looking statements be subject to the safe harbors created thereby. These forward looking statements are based on the past financial performance of recent acquisitions and the Company's strategic plans. The Company knows of no presently existing factors that would cause the Company's revenues to decrease from historical levels. Although the Company believes that its expectations are based on reasonable assumptions, it can give no assurance that its expectations will be achieved. The important factors, risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements herein (the "Cautionary Statements") include, without limitation, the Company's reliance on third parties to complete the transactions contemplated by the Company, the Company's degree of financial leverage, risks associated with debt services requirements and interest rate fluctuations, risks associated with acquisitions and the integration thereof, risks of international business, dependence on availability of transmission facilities, regulations risks including the impact of the Telecom Act, contingent liabilities and the impact of competitive services and pricing, as well as other risks referenced from time to time in the Company's filings with the Securities and Exchange Commission. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements. The Company does not undertake any obligations to release publicly any revisions to such forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. STRATEGY The Company's strategy is to capture an increased share of the market for outsourced network installation, maintenance and system integration services. The Company believes that customers will continue to require such services to deploy and upgrade the fiber optic, coaxial and digital network infrastructure associated with advancements in technology and the competition created by the convergence of the telecommunications, computer and media industries. The Company intends to accomplish this objective primarily through strategic acquisitions and internal growth of existing and complementary lines of business. The Company believes that the communication services industry is highly fragmented, consisting of a large number of smaller, regional businesses, and presents significant opportunities for consolidation. The Company plans to target those businesses with high quality management and strong performance records and to integrate such acquired operations into the Company's operating groups. Additionally, the Company intends to expand its businesses through increased marketing efforts by broadening the range of services it offers to customers. The Company believes its current expertise in telecommunications, traffic management and systems integration services can be expanded to cable television and other cable and wireless communication systems and is actively seeking acquisition candidates in areas that complement its existing strengths. The Company expects to achieve margin improvement through cross-utilization among operating groups of people, equipment and technologies and through the centralization of certain financial controls, cash and risk management. HISTORICAL DEVELOPMENT OF BUSINESS The Company was incorporated in 1987 as "Delta Venture Fund, Inc." a Colorado corporation. The Company adopted its current name in 1989 and changed its corporate domicile to Florida in 1991. Commencing in mid-1992 until mid-1994, 95% of the Company's revenues and profits were derived from telecommunication services provided primarily through two majority owned subsidiaries located in Caracas, Venezuela. Such services were provided to one customer, CANTV, the Venezuelan national telephone 2 company. To decrease its exposure to foreign markets, in 1994, the Company expanded its business focus by marketing its services in the southeastern United States, with the acquisition of Florida based Transportation Safety Contractors, Inc. and its affiliates (collectively "TSCI"). TSCI installs and maintains traffic control signage, signalization and lighting systems and performs outside plant telecommunication services. The majority of TSCI's business is conducted in Florida and Virginia with these states' respective departments of transportation and various city and county municipalities. To further expand in the domestic market and to facilitate a continued acquisition program, during the fourth quarter of fiscal 1995 the Company reorganized its management and operational structure into three operating groups described above and embarked on a series of acquisitions. On December 8, 1995, the Company acquired the common stock of H.C. Connell, Inc. ("Connell"). Connell, a twenty year old business, performs primarily outside plant telecommunication and electric power services for local telephone and utility companies in central Florida. The Connell acquisition provided the Company expanded market share and a significant number of new customers. On October 12, 1996, the Company acquired the common stock of Georgia Electric Company ("GEC"), a forty-five year old business headquartered in Albany, Georgia. GEC operates in eight southeastern states and specializes in the installation, testing and maintenance of intelligent highway and communication systems including computerized traffic management, wireless and fiber optic data networks, weather sensors, voice data and video systems and computerized manufacturing and control systems. On December 2, 1996, the Company acquired the common stock of Dial Communications, Inc. ("Dial") of Tallahassee, Florida. Operating in northern Florida, Alabama and Georgia for more than twenty five years, Dial provides outside and inside plant telecommunication services to the regional Bell operating company, other local and long distance phone companies, private businesses and universities. Substantially all of the Company's assets and operations are held by or conducted through domestic and foreign subsidiaries. Each of TSCI, Connell, GEC, Dial, Patton Management Corp. and MFS Network Technologies ("MFSNT") (See "Fiscal Year 1998 and Recent Developments") continue to operate as wholly-owned subsidiaries of the Company. FISCAL YEAR 1998 AND RECENT DEVELOPMENTS MFSNT ACQUISITION On July 2, 1998, the Company acquired the network construction and transportation-systems business of MFS Network Technologies, Inc. ("MFSNT") from WorldCom, Inc. ("WorldCom") pursuant to a merger agreement dated April 26, 1998 ("Plan of Merger"). On September 9, 1998, the Company and WorldCom finalized the terms of the Plan of Merger through the execution of an amended agreement. The acquisition of MFSNT was accounted for using the purchase meethod of accounting at a total price of approximately $67.5 million, as described below. In conjunction with the acquisition of MFSNT, the Company granted an option to WorldCom (the "WorldCom Option") to purchase up to 2,000,000 shares of the Company's common stock, at an exercise price of $7.00 per share, but subject to a 1,817,941 share limitation, and phantom stock awards (the "Phantom Stock Awards") equivalent to 600,000 shares of common stock, payable in cash, stock, or a combination of both at the Company's option. The WorldCom Phantom Stock Awards are exercisable only on the following three days: July 2, 1999, July 2, 2000, or July 2, 2001. WorldCom will be entitled to receive any appreciation of the Common Stock over a base price of $5 3/32 per share, but in no event shall the maximum payment exceed $25.00 per share. The fair values of the WorldCom Option and Phantom Stock Awards were estimated at the date of grant at $3.5 million and $0.6 million, respectively, and are included as a component of the total consideration paid for the acquisition of MFSNT. Subsequent to October 31, 1998, the Company and WorldCom agreed to convert the WorldCom Option to stock appreciation rights with similar terms and provisions. As of January 26, 1999, approximately $30.0 million of principal and approximately $1,419,000 of accrued and unpaid interest were outstanding under the WorldCom Note. The Company must repay the WorldCom Note in full on December 15, 2000. The WorldCom Note is dated September 1, 1998 and bears interest at 11.5% per year, payable every three months commencing February 28, 1999. The principal amount of the WorldCom Note is to be prepaid in part by applying a portion of certain fees (i) due to the Company by WorldCom and (ii) received by the Company in connection with the sale and installation of certain conduit projects. The Company pledged all of the shares of capital stock in MFSNT to WorldCom and MFSCC to secure its obligations under the WorldCom Note. Other than the pledge of the Company's stock in MFSNT, the obligations under the WorldCom Note are junior to those under the Secured Credit Facility (as defined below) and the Company's 12% Senior Subordinated Notes originally due January 6, 2005 (the "Senior Notes"). If the Company defaults on the obligations under the WorldCom Note, it is expected that WorldCom will be able to do any or all of the following: /bullet/ Accelerate all principal and interest the Company owes WorldCom under the WorldCom Note /bullet/ Acquire all of the Company's stock in MFSNT /bullet/ Keep all principal and interest the Company may have already paid on the WorldCom Note /bullet/ Require the Company to pay an 13.5% annual default rate of interest as long as the Company is in default /bullet/ Cause WorldCom Network to apply 12% of the payment WorldCom Network owes the Company at the time of default under the WorldCom Master Services Agreement, described below, to the outstanding principal and interest under the WorldCom Note In addition, if the Company, does not repay the WorldCom note in full by December 15, 2000, it is anticipated that WorldCom also 3 will be able to: /bullet/ Reduce the minimum yearly and aggregate revenues the Company would otherwise receive under the WorldCom Master Services Agreement /bullet/ Refuse to give the Company additional work under the WorldCom Master Services Agreement while the Company is in default As part of the MFSNT acquisition the Company has agreed to provide telecommunication infrastructure services to WorldCom Network pursuant to the Master Services Agreement, dated July 2, 1998, among WorldCom Network, MFSNT and Able (the "WorldCom Master Services Agreement"). The Company is permitted to use the trade name "MFSNT" during the 18-month transition period immediately following the MFSNT acquisition but will not be entitled to use it after such 18-month period. As part of the MFSNT Acquisition, the Company has agreed that MFSCC may designate a representative to the Company's Board of Directors if it exercises the WorldCom Option, as described below, for so long as MFSCC retains at least 5% of the Company's outstanding common stock, par value $.001 ("Common Stock"). As part of the MFSNT Acquisition, the Company also initially granted an option to MFSCC (the "WorldCom Option") to purchase up to 2,000,000 shares of Common Stock at an exercise price of $7.00 per share, but subject to a 1,817,941 share maximum limitation, which represented approximately 19.38% of the outstanding Common Stock of the Company immediately prior to the MFSNT Acquisition. Initially, the WorldCom Option was to expire six months following the date the Company repaid all of its obligations under the WorldCom Note, which expiration date was extended under the September Agreement. On January 8, 1999, the Company and WorldCom entered into a modification to the WorldCom Option (the "WorldCom Modification") which modified the WorldCom Option into a stock appreciation right (an "SAR") unless and until such time as shareholder approval is obtained by the Company (if ever), pursuant to the Nasdaq Stock Market, Inc. ("Nasdaq") Marketplace Rule 4460(i)(1)(C) ("Rule 4460(i)(1)(C)"), to approve the issuance of 20% or more of the Common Stock in connection with the MFSNT Acquisition. Rule 4460(i)(1)(C) addresses the issuance of securities in connection with the acquisition of stock or assets of another company if, due to the present or potential issuance of common stock, or securities convertible into or exercisable for common stock, the aggregate number of shares of common stock which may be issued is or will be equal to or in excess of 20% of the number of shares of common stock outstanding before the issuance of the stock or securities. 4 As part of the MFSNT acquisition and pursuant to the WorldCom Master Services Agreement, the Company has agreed to provide telecommunication infrastructure services to WorldCom Network on a cost-plus 12% basis for a minimum of $40 million per year, and the aggregate sum payable to the Company for the five-year contract is guaranteed to be no less than $325.0 million, subject to certain adjustments if the Company defaults on the WorldCom Note. To achieve these established minimums, WorldCom Network has agreed to award the Company at least 75% of all WorldCom Network's outside plant work related to its local network projects up to $500 million and the Company has agreed to accept and perform work orders from WorldCom Network for as much as $130 million of services during each year of the five-year contract. The Company has also agreed that WorldCom Network will have met all of its commitments to the Company, to the extent that payments made to the Company reach an aggregate of $500 million at any time during the five-year term of the contract. Pursuant to the terms of the WorldCom Master Services Agreement, if the Company is in default under the WorldCom Note, WorldCom Network will apply 12% of the sums due from WorldCom Network to MFSNT toward partial prepayment of the principal first and then to all other amounts owing under the WorldCom Note until the it is paid in full. In addition, if the WorldCom Note is not paid in full by December 15, 2000, WorldCom Network will not be obligated to execute work orders and agreements for other work as provided for therein during the period the WorldCom Note remains unpaid. ACQUISITION OF PATTON MANAGEMENT CORPORATION. On April 1, 1998 the Company purchased all of the outstanding common stock of Patton Management Corporation ("Patton") for approximately $4.0 million cash and the assumption of $3.6 million in debt which was repaid by the Company. Patton provides advanced telecommunication network services to upgrade existing networks and to provide connectivity to office buildings, local and wide area networks. ACQUISITION OF COMSAT CONTRACTS. On February 25, 1998, the Company, through a wholly owned subsidiary, Georgia Electric Company ("GEC") acquired 12 contracts ("COMSAT Contracts") with the Texas Department of Transportation from CRSI Acquisition Inc., a subsidiary of COMSAT Corporation ("COMSAT"). The COMSAT Contracts are for the installation of intelligent traffic management systems and the design and construction of wireless communication networks. In exchange for assuming the obligations to perform under the COMSAT Contracts, GEC received consideration from COMSAT of approximately $15.0 million. JOINT VENTURE WITH CLARION RESOURCES COMMUNICATION CORP. On September 23, 1997, the Company entered into a five-year joint venture with Clarion Resources Communication Corp. ("Clarion"). Clarion is principally owned by Telenor, the telephone company of Norway. The Company has agreed with Clarion to jointly market, manufacture and license its proprietary telephone call record and data collection technology, called NeuroLAMA, in Europe and Asia. Clarion has agreed to provide international sales force and to obtain suitable financing to purchase and install NeuroLAMA. The venture will not require a capital investment from the Company but should provide a stable royalty stream if the venture is successful. No material progress has been made in implementing this joint venture. 5 SECURED CREDIT FACILITY. In June 1998, the Company replaced its previous bank credit agreement with a new $35 million three year senior secured revolving credit facility with a syndicate of lenders (the "Secured Credit Facility"). The Secured Credit Facility has a letter of credit sublimit of $5 million. The Company used a portion of the proceeds from the Secured Credit Facility to repay the previous credit facility and to finance $10 million of the MFSNT acquisition purchase price. On June 30, 1998, the Secured Credit Facility was amended to permit (i) the Company's acquisition of MFSNT and the related financing of such transaction, (ii) changes in financial covenants related thereto, and (iii) other amendments relating to investments, pledging and intercompany matters. The Company has granted a security interest in certain of its assets to the lenders under the Secured Credit Facility, including: /bullet/ All of the stock in its existing and future Restricted Subsidiaries (as defined in the Pledge Agreement with respect to the Secured Credit Facility); and /bullet/ A pledge of all existing intercompany notes issued to any Restricted Subsidiary by any of its subsidiaries The Secured Credit Facility also includes covenants which, among other things, restrict the Company's ability to: /bullet/ Incur additional debt /bullet/ Declare dividends or redeem or repurchase capital stock /bullet/ Prepay, redeem or purchase debt 6 /bullet/ Incur liens /bullet/ Make loans and investments /bullet/ Make capital expenditures /bullet/ Engage in mergers, acquisitions and asset sales, and /bullet/ Engage in transactions with affiliates. The Company is also required to comply with financial covenants with respect to certain minimum ratios, including debt covenants, interest, fixed charges and current ratio. The Company is in technical violation of certain provisions of the Secured Credit Facility, including, without limitation, certain covenants related to the delivery of financial statements and certain covenants which required consent for the Company to enter into the September Agreement, issue the SAR to WorldCom and enter into the related WorldCom Modification and engage in certain of the transactions effected in connection with the third party's purchase of the Senior Notes and the Series B Preferred Stock. The Company has received waivers of all existing violations. SALE OF SENIOR NOTES AND SERIES B PREFERRED STOCK Subsequent to October 31, 1998, WorldCom advanced the Company $32.0 million for purposes of arranging the purchase of 2,785 shares, or approximately 78%, of the Series B Preferred Stock and the purchase of the outstanding $10.0 million of Senior Subordinated Notes. The advance accrues interest at 11.5% and is repayable on the earlier of (i) October 31, 2000 or (ii) the dates of redemption and/or conversion of the Series B Preferred Stock or the Senior Subordinated Notes. In connection with these transactions, the Company expects to recognize an extraordinary loss on the purchase of the Senior Subordinated Notes of approximately $3.3 million and a reduction in income applicable to common stock of approximately $10.0 million on the purchase of the Series B Preferred Stock. In addition, the Company agreed to modify the terms of the existing Series B Preferred Stock conversion and warrant agreements which may have a significant effect on the underlying value of these securities and result in a material change to income applicable to common stock. WorldCom also agreed to make available additional advances to the Company of up to $15.0 million against amounts otherwise payable pursuant to the WorldCom Master Services Agreement. These additional advances accrue interest at 11.5% and are repayable to WorldCom on October 31, 2000. On February 17, 1999, the holders of the Senior Notes and holders of 78% of the Series B Preferred Stock to the Arrangement. SERVICES, MARKETS AND CUSTOMERS The Company conducts three distinct types of business activities, two of which are primarily conducted in the United States and one of which is conducted abroad. Domestically, the Company provides telecommunication services and traffic management services. Abroad, principally in Venezuela, the Company conducts communication development activities. Each of these activities is discussed in more detail below. NETWORK SERVICES GROUP. The Network Services Group provides telecommunications network services through two divisions: (i) the Telecommunications Systems Integration division that provides general contracting services for large-scale telecommunications projects, and (ii) the Telecommunications Construction division that specializes in the construction of network projects or project phases. 7 The Company provides turn-key telecommunications infrastructure solutions through the Telecommunications Systems Integration division. As a telecommunications systems integrator, the Company provides "one-stop" capabilities that include project development, procurement, design, engineering, construction management, and on going maintenance and operations services for telecommunications networks. The projects include the construction of fiber networks that provide advanced digital voice, data and video communications and wireless infrastructure deployment. The Telecommunications Construction division provides construction and technical services for building both outside plant and inside plant telecommunications systems. Outside plant services are large-scale installation and maintenance of coaxial and fiber optic cable (installed either aerially or underground) and ancillary equipment for digital voice, data and video transmissions. These installations are most often undertaken to upgrade or replace existing communications networks. Inside plant services, also known as premise wiring, include design, engineering, installation and integration of telecommunications networks for voice, video and data inside customers' facilities. Additionally, the Company provides maintenance and installation of electric utility grids and water and sewer utilities. The Company provides outside plant telecommunications services primarily under hourly and per unit basis contracts to local telephone companies. The Company also provides these services to long distance telephone companies, electric utility companies, local municipalities and cable television multiple system operators. Network Services Group accounted for 59%, 41% and 42% of the Company's consolidated revenues during the fiscal years 1998, 1997 and 1996, respectively. TRANSPORTATION SERVICES GROUP. Similar to the Telecommunications Systems Integration division, the Transportation Services Group provides intelligent transportation and traffic management services through two divisions: (i) the Transportation Systems Integration division, that provides full-service general contracting services for large-scale projects, and (ii) the Transportation Construction division that specializes in the construction of network projects phases. The Transportation Systems Integration division provides "one-stop" electronic toll and traffic management solutions for intelligent transportation system infrastructure projects, including project development and management, design, development, integration, installation, engineering, construction, and systems operation and maintenance. Additionally, the Company developed proprietary software and applications designed to support these systems. The electronic toll and traffic management segment of the intelligent transportation system industry uses technology to automate toll collection for bridges and highways allowing for "non-stop" toll collection. Electronic toll and traffic management systems use advanced scanning devices to identify a vehicle's type, combined with the user's account information, as the vehicle passes a tolling station and immediately debits the appropriate toll from the user's account. In addition, significant support systems must be developed to maintain electronic toll and traffic management accounts, and process violations. The Company developed Automatic Vehicle Identification technology jointly with Texas Instruments and used it in many of its electronic toll and traffic management projects. The Transportation Systems Integration division markets its services to state and local government transportation departments. The Company's Transportation Construction division installs and maintains traffic control and signalization devices. These services include the design and installation of signal devices (such as stoplights, crosswalk signals and other traffic control devices) for rural and urban traffic intersections, drawbridge and railroad track signals and gate systems, and traffic detection and data gathering devices. The Company also designs, develops, installs, maintains and operates "intelligent highway" communications systems that involve the interconnection of data and video systems, fog detection devices, remote signalization or computerized signage. These systems monitor traffic conditions, communicate such conditions to central traffic control computers, and provide real-time responses to dynamic changes in traffic patterns and climate conditions by changing speed limit display devices, lowering traffic control gates, or changing the text on remote signs and signals. The Company also installs and maintains computerized manufacturing systems for various industrial businesses. Many of the functions of the traffic management group, particularly those involved in intelligent highway systems, complement those of the telecommunications services group. The Company's traffic management services are provided primarily to state and local governments. Traffic Management Group, Inc. accounted for 39%, 54% and 50% of the Company's consolidated revenues during fiscal years 1998, 1997 and 1996, respectively. In October 1996, the Company placed Gerry W. Hall, a former principal of GEC, in charge of its Traffic Management Group and replaced certain management of its TSCI operations with experienced managers from GEC. In June 1997, James B. Hall, also a former owner of GEC, succeeded Gerry Hall as President of the Traffic Management Group. COMMUNICATIONS DEVELOPMENT GROUP. The Company's Communications Development Group operates in Latin America, primarily Venezuela. These activities consist of management of the joint venture arrangements, which were formed to provide telecommunication installation and maintenance services to privatized local phone companies. These joint ventures are in the form of subsidiaries in which the Company has an 80% voting and ownership interest and a 50% share of profits and losses. In 1996, the Company expanded its communication development activities to include the marketing to Latin American telephone companies of NeuroLAMA, and internally developed proprietary telephone call record and data collection system. Significant capital expenditures will be required to install NeuroLAMA in South America. During fiscal years 1998, 1997 and 1996, the Company's Latin American operations accounted for 2%, 5% and 8% of the Company's revenues on a consolidated basis, respectively. 8 Certain risks are inherent in international operations, including exposure to currency fluctuations, the imposition of government controls, restrictions on the export of critical technology, political and economic instability, trade restrictions, changes in tariffs, taxes and freight rates, generally longer payment cycles, difficulties in staffing and managing international operations and general economic conditions. From time to time in the past, the Company's financial results have been affected both favorably and unfavorably by fluctuations in currency exchange rates. Unfavorable fluctuations in currency exchange rates could have an adverse impact on the Company's revenues and operating results. 9 INDUSTRY AND GEOGRAPHIC AREA SEGMENT INFORMATION The Company currently operates primarily in two industry segments: network services and transportation services. Transportation services are conducted primarily in the United States with small projects in South America, Canada, and Asia while telecommunication network services are conducted both in the United States and Latin America. Revenues, income (loss) from operations, identifiable assets, capital expenditures and depreciation and amortization pertaining to the industries and geographic areas in which the Company operates are presented below (in thousands).
INDUSTRY SEGMENTS 1998 1997 1996 -------- ------- ------- Sales to unaffiliated customers: Transportation services $ 84,022 $46,795 $22,661 Network services 133,459 39,539 26,245 -------- ------- ------- Total $217,481 $86,334 $48,906 ======== ======= ======= Income (loss) from operations: Transportation services $ 8,220 $3,772 $(3,454) Network services 3,189 1,069 (2,833) -------- ------- ------- Total $ 11,409 $4,841 $(6,287) ======== ======= ======= Identifiable assets: Transportation services $ 85,373 $28,884 $25,099 Network services 205,387 21,462 13,820 -------- ------- ------- Total $290,760 $50,346 $38,919 ======== ======= ======= Capital expenditures: Transportation services $ 5,753 $1,635 $1,275 Network services 7,778 2,851 2,216 -------- ------- ------ Total $ 13,531 $4,487 $3,491 ======== ====== ====== Depreciation and amortization: Transportation services $ 2,398 $1,710 $1,229 Network services 4,240 2,821 1,521 -------- ------- ------ Total $ 6,638 $4,532 $2,750 ======== ====== ====== GEOGRAPHIC AREAS Revenues: United States $212,152 $82,171 $45,160 Latin America 5,329 4,163 3,746 -------- ------- ------- Total $217,481 $86,334 $48,906 ======== ======= ======= Income (loss) from operations: United States $ 11,310 $ 4,824 $(2,073) Latin America 99 17 (4,214) -------- ------- -------- Total $ 11,409 $ 4,841 $(6,287) ======== ======= ======== Identifiable assets: United States $287,569 $47,781 $36,410 Latin America 3,191 2,565 2,509 -------- ------- ------- Total $290,760 $50,346 $38,919 ======== ======= =======
10 SIGNIFICANT CUSTOMERS The Company derives a significant portion of its revenues from a few large customers. The percentage of revenues derived from the Company's largest customers are presented as follows: 31-OCT-98 1996 1997 1998 ---- ---- ---- Cooper Tire --% 15% 6% Florida Department of Transportation 12 6 2 BellSouth -- 12 8 United Telephone of Florida 20 9 2 Florida Power Corp. 13 7 4 WorldCom -- -- 14 11 CONTRACTS The Company has and will continue to execute various construction and other contracts which may require the Company to, among other items, maintain specific financial parameters, meet specific milestones and post adequate collateral generally in the form of performance bonds. Failure by the Company to meet its obligation under these contracts may result in the loss of the contract and subject the Company to litigation and various claims, including liquidated damages. TELECOMMUNICATION AND RELATED SERVICES The Company generally provides telecommunication, cable television, electric utility and manufacturing system services (i.e., non-governmental business) under comprehensive master service contracts that either give the Company the right to perform certain services at negotiated prices in a specified geographic area during the contract period or pre-qualify the Company to bid on projects being offered by a customer. Contracts for projects are awarded based on a number of factors such as price competitiveness, quality of work, on-time completion and the ability to mobilize equipment and personnel efficiently. The Company is typically compensated on an hourly or per unit basis or, less frequently, at a fixed price for services performed. Contract duration either is for a specified term, usually one to three years, or is dependent on the size and scope of the project. In most cases, the Company's customers supply most of the materials required for a particular project, generally consisting of cable, equipment and hardware and the Company supplies the expertise, personnel, tools and equipment necessary to perform its services. TRAFFIC MANAGEMENT AND GENERAL UTILITY SERVICES For traffic management and general utility services (i.e., government funded business) the Company generally obtains fixed price contracts for projects, either as a prime or as a subcontractor, on a competitive bid basis. Typically, for prime contracts, a state department of transportation ("DOT") or other governmental body provides to qualified contractors a set of specifications for the project. The Company then estimates the total project cost based on input from engineering, production and materials procurement personnel. A bid is then submitted by the Company along with a bid bond. For most government funded projects, the scope of work extends across many industry segments. In such cases, the Company subcontracts its expertise to a prime contractor. The Company must submit performance bonds on substantially all contracts obtained. The Company believes its relations with its bonding company are good and that its bonding capacity is adequate. However, the financial viability of the Company is dependent on maintaining adequate bonding capacity and any loss of such would have a material adverse effect on the Company. In addition to generating revenues from the installation of traffic management systems under fixed price contracts, the Company performs under maintenance contracts with the DOT obtained through competitive bidding. Maintenance contracts are normally for a renewable one to three year term. Under such contracts, the Company generally is assigned a section of highway along which to maintain traffic control devices and is paid on a per unit basis. In most cases, the Company must supply the materials required for a particular project, including materials and component parts required for the production of highway signage and guardrails and the assembly of various electrical and computerized systems. Aluminum sheeting, steel poles, concrete, reflective adhesive, wood products, cabling and electrical components are the principal materials purchased domestically for the production of highway signage and guard railing. Generally, the supply and costs of these materials has been and is expected to continue to be stable, and the Company is not dependent upon any one supplier for these materials. The Company also purchases various components for the assembly of various electrical, lighting and computerized traffic control systems. Many of these materials must be certified as meeting specifications established by the DOT and are generally only supplied by a limited number of vendors. The unavailability of those components could have an adverse impact on meeting deadlines for the completion of projects which may subject the Company to liquidated damages. However, the availability of these materials, generally, has been adequate. 12 COMPETITION NETWORK SERVICES GROUP. The Telecommunications Systems Integration division of the Network Services Group competes for business in two segments: the traditional request for proposal ("RFP")/bid based segment for the installation and integration of infrastructure projects and a less traditional "project development" segment. The Company's largest competitors in the traditional RFP/bid based segment are telecommunications service providers. The Telecommunications Systems Integration division has identified and pursued the "project development" segment as a "niche" market for its services, providing network alternatives to large public agencies, utilities and telecommunications service providers through the use of public-private memberships and other financing models unique to the industry. These customers often must choose between building their own networks or using an existing telecommunication service provider's network. Once a customer has decided to build its own network, the Company assists the customer in preparing a viable and customized project business plan that addresses the customer's specific telecommunications needs, including budgetary and other concerns. The Company also has focused on "project development" opportunities presenting ownership or participation opportunities that can generate recurring revenues. The Company believes that no other company presently provides these kind of complete, turnkey project development services for these customers. There can, however, be no assurance that other systems integration companies will not develop the expertise, experience and resources to provide services that achieve greater market acceptance or that are superior in both price and quality to the Company's services, or that it will be able to maintain its competitive position. The Telecommunications Construction division competes for business with several competitors on a much larger scale. In addition, the Telecommunications Construction division also competes in a market characterized by a large number of smaller size private companies that compete for business generally in a limited geographic area or with few principal customers. The Telecommunications Construction division's largest competitors are MasTec, Inc. and Dycom, Inc. TRANSPORTATION SERVICES GROUP. The Transportation Systems Integration division believes its major competitors in the North American market are Lockheed Information Management Co., a division of Lockheed Martin, and Syntonic Technology, Inc., doing business as Transcore ("Transcore"), a division of SAIC Corporation. The market in which the Transportation Construction division competes is characterized by large competitors who meet the experience, bonding and licensure requirements for larger projects and by small private companies competing for projects of $3 million or less in limited geographic areas. The Transportation Construction division's large competitors include Lockheed Martin, Traffic Control Devices of Florida and MasTec, Inc. The Transportation Construction division's smaller competitors are High Power of Florida, MICA Corporation of Texas and Fishback & Moore. COMMUNICATION DEVELOPMENT GROUP. The Communications Development Group competes for business in the international market, primarily in Latin America. Presently, the operations of Communications Development Group are in Venezuela and Brazil. In Venezuela, the market is characterized by a single customer, CANTV, the telephone company of Venezuela, and a large number of smaller sized private companies that compete for business generally in a limited geographic area. In Brazil, the market consists of a myriad of smaller companies competing for a growing but limited market, which forces margins down. There are also several products similar to the NeuroLAMA call data collection system for billing purposes, which compete for the very large analog market, although the Company is not aware of any that can produce the same results. BACKLOG As of January 31, 1999, backlog was approximately $1.0 billion, approximately 31% of which was attributable to WorldCom Network. The Company expects to complete approximately 45% of the total backlog within the next fiscal year. Due to the nature of the Company's contractual commitments, in many instances its customers do not commit to the volume of services to be purchased under the contract, but rather commit the Company to perform these services if requested by the customer and commit to obtain these services from it if they are not performed internally. Many of the contracts are multi-year agreements, and the Company includes the full amount of services projected to be performed over the life of the contract in backlog due to its historical relationships with its customers and experience in the procurements of this nature. Contract backlog of $549 million is under performance bonds and the Company may be subject to liquidated damages for failure to perform in a timely manner. The Company's backlog may fluctuate and does not necessarily indicate the amount of future sales. A substantial amount of its order backlog can be canceled at any time without penalty, except, in some cases, the Company can recover actual committed costs and profit on work performed up to the date of cancellation. Cancellations of pending purchase orders or termination or reductions of purchase orders in progress from its customers could have a material adverse effect on its business, operating results and financial condition. In addition, there can be no assurance as to the customer's requirements during a particular period or that such estimates at any point in time are accurate. RESEARCH AND DEVELOPMENT; PROPRIETARY TECHNOLOGY AND RIGHTS 13 The Company acquired proprietary software from MFSNT in the MFSNT Acquisition including applications at the lane, plaza, host, and customer service center levels within a sophisticated electronic toll collection system architecture. Prior to the MFSNT Acquisition, MFSNT had also developed a proprietary video and data multiplexing system used for surveillance, monitoring, and system audit purposes. The benefits of this proprietary software include reduced operating costs, non-stop tolling, reduce traffic congestion, efficient traffic management, and increase revenue accountability. LANE SYSTEM APPLICATIONS. The lane system application is designed to be modular in nature to allow and accommodate tolling operations in various configurations in accordance with a customer's specific needs and operational requirements. The lane controller application is the heart of the lane system. It runs on a standard PC and under a real-time operating environment. The lane controller controls the various in-lane equipment items and gathers data from the in-lane sensors to provide transaction records for each vehicle that travels through a toll lane. The lane controller coordinates and controls revenue collection events and transactions. The lane controller also interacts with and can recognize individual vehicles as well as cars that evade toll collection. The transaction data created at the lane level is sent to the plaza computer system for further processing. The lane controller also has the unique capability of operating in a completely autonomous mode if communications to the plaza system are disrupted. PLAZA SYSTEM APPLICATIONS. The plaza system is the central repository of the transaction data received from each toll lane. The data is stored in a relational database and is then used for reporting and tracking purposes. Traffic reports, revenue reports, and collector performance reports are among several reports that can be generated from the plaza system. A real-time plaza supervisor system allows client personnel to monitor traffic and collection events (as well as equipment and security status) as each event actually occurs. The data received at the lane plaza system level is forwarded to the host system for further processing and review. HOST SYSTEM APPLICATIONS. The primary role of the host application is to provide the client with the capability to generate system-wide reports for traffic and revenue, as well as audit and reconciliation capabilities. The host system also acts as the primary interface to the customer service center ("CSC") system and is the "conduit" for electronic toll transactions and patron account information. The host application also controls the download of information to the plaza and lane systems, such as toll schedules, employee identification information, patron account status, time synchronization, and other information required for daily operation of the system. CSC SYSTEM APPLICATIONS AND SERVICES. The Company provides numerous CSC systems and services, including hardware and software system applications and CSC staffing, operations and management. The CSC application is highly reliable and robust, user friendly, efficient and fully auditable software application. The system incorporates automated internal controls for audit and reconciliation purposes and also employs a flexible design to accommodate potential changes to customer policies, procedures, and/or operations. VIDEO TRANSPORTATION DATA MULTIPLEXER ("VTDM") PRODUCT. The VTDM system is a patented product that compiles video and data based records for every vehicle that travels through a monitored lane. The VTDM provides auditors, toll supervisors and other Customer personnel with the unique capability to record, review, and analyze lane event data in an efficient and cost-effective manner. This system can also be used for problem resolution relating to system and/or toll collector performance. The VTDM system provides information (lane event data) in the form of video and transaction event text (text-over-video display). Cameras and VCRs are used to visually record lane activity on a 24-hour basis. The Company has spent an aggregate of approximately $1.0 million on research and development activities during the prior three fiscal years, primarily in connection with its development of NeuroLAMA. Management believes that the acquisition of MFSNT will result in an increase in the Company's future research and development expenditures. SEASONALITY Operations of the Company are seasonal, resulting in reduced revenues and profits during the first quarter (November, December and January) relative to other quarters. Factors affecting the seasonality of the Company's business are holiday season shut-downs, winter weather and capital expenditure patterns by telephone companies that can impede outside plant construction activities. The impact of seasonality is mitigated somewhat by the presence of the Company's operations primarily in the southern United States. EMPLOYEES At January 31, 1999, the Company and its subsidiaries had approximately 2,200 employees. The number of employees considered as laborers can vary significantly according to contracts in progress. Such employees are generally available to the Company through an extensive network of contacts within the communications industry. 14 PROPERTIES The Company's corporate offices are in West Palm Beach, Florida, where it occupies 5,110 square feet under a lease that expires January 31, 2004. The Company leases 33,571 square feet of office space in Omaha, Nebraska under a lease that expires September 30, 1999, and which houses MFSNT's network operations, and 40,111 square feet in Mt. Laurel, New Jersey under a lease that expires February 28, 2003 and which houses MFSNT's transportation operations. The Company leases 6,400 square feet of space in Fairbanks, Alaska for a network operations center. The Company leases 6,800 square feet of space in Fort Lauderdale, Florida under a lease, which expires September 30, 2003, which facility houses the Company's corporate accounting offices and the general and administrative offices for the Network Services Group. The Company leases several field offices and numerous smaller offices. The Company also leases on a short-term or cancelable basis temporary equipment yards or storage locations in various areas as necessary to enable it to efficiently perform its service contracts. The Company owns (subject to a mortgage) and operates a 10,000 square foot facility for operations based in Chesapeake, Virginia. The Company's Venezuelan subsidiaries own and operate from a 33,000 square foot floor of an office building located in Caracas, Venezuela, and lease an additional 50,000 square feet of covered parking and shop facilities. The Company also owns a 15,000 square foot facility located on approximately three acres of land for operations in Tampa, Florida. The Company believes that its properties are in good condition and adequate for current operations and, if additional capacity becomes necessary due to growth, other suitable locations are available in all areas where it currently does business. See "Commitments and Contingencies" in the Notes to the Consolidated Financial Statements for additional information relating to leased facilities. Certain of the Company's properties are subject to federal, state and local provisions involving the protection of the environment. Compliance with these provisions has not had and is not expected to have a material effect upon the Company's financial position. LEGAL PROCEEDINGS On May 21, 1998 SIRIT Technologies, Inc., ("SIRIT") filed a lawsuit in the United States District Court for the Southern District of Florida, against the Company and Thomas M. Davidson, who has since become a member of the Company's Board of Directors. SIRIT asserts claims against the Company for tortuous interference, fradulent inducement, negligent misrepresentation and breach of contract in connection with the Company's agreement to purchase the shares of MFSNT and seeks injunction relief and compensatory damages in excess of $100.0 million. On September 10, 1998, Shipping Financial Services Corp. ("SFSC") filed a lawsuit in the United States District Court for the Southern District of Florida against the Company, and certain of its officers. SFSC asserts claims under the federal securities laws against the Company and four of its officers that the defandants allegedly caused the Company to falsely repreent and mislead the public with respect to two acquisitions, COMSAT and MFSNT, and the ongoing financial condition of the Company as a result of the acquisitions and the related financing of those acquisitions. SFSC seeks certification as a class action on behalf of itself and all others similarly situated and seeks unspecified damages and attorneys' fees. The Company is subject to a number of shareholder and other lawsuits and claims for various amounts which arise out of the normal course of its business. The Company intends to vigorously defend itself in these matters. The disposition of all pending lawsuits and claims is not determinable and may have a material adverse effect on the Company's financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of the year covered by this report, no matters were submitted to a vote of the Company's security holders. 15 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDERS MATTERS The Company's Common Stock, par value $.001 per share, began trading on NASDAQ on February 24, 1994 under the symbol "ABTE." Prior to the NASDAQ listing, the Company's Common Stock was sporadically traded over-the-counter, under the same symbol, since September 15, 1988, the date of the Company's initial public offering. Set forth below is the range of the high and low closing bid quotations of the Company's Common Stock for each quarter within the last two fiscal years as reported by NASDAQ. FISCAL QUARTER: 1998 1997 HIGH LOW HIGH LOW First Quarter 9 13/16 9 5/8 9 5/8 7 3/8 Second Quarter 12 7/16 7 5/16 8 3/4 7 3/8 Third Quarter 20 5/16 9 3/8 9 7 3/8 Fourth Quarter 10 5/8 1 3/4 10 5/8 7 9/16 At February 19, 1999, there were approximately 400 shareholders of record of the Company's Common Stock. No cash dividends have been declared by the Company since its inception and the Company has no present intention to declare or pay cash dividends on the Common Stock in the foreseeable future. The Company intends to retain any earnings which it may realize in the foreseeable future to finance its operations. The terms of the Company's Series B Preferred Stock and the Secured Credit Facility restrict the payment of cash dividends on the Company's Common Stock. SERIES A CONVERTIBLE PREFERRED STOCK CONVERSIONS. During the year ended October 31, 1998, the Company received conversion notices from the holders of the Company's Series A Preferred Stock and converted 995 Series A Preferred Shares, as defined below, into 920,946 shares of Common Stock. In addition, 30,000 warrants related to the Series A Preferred Stock were exercised during the year ended October 31, 1998. In each case, the issuance of the common stock was undertaken upon conversion of Series A Preferred Stock then held by the purchaser and was issued pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933. The resale of such common stock by the purchaser is registered on a Registration Statement of Form S-3 (No. 333-22105). The Series A Preferred Stock that was converted, as set forth above, was issued on December 20, 1996 in a private placement transaction (the "Private Placement"), exempt from registration, pursuant to Section 4(2) of the Securities Act of 1933, as amended (the "Act") for a total of 1,000 shares (the "Series A Preferred Shares") of the Company's Series A Preferred Stock, par value $.10 per share. In connection with the Private Placement, the Company also issued warrants totaling 200,000 shares of the Company's Common Stock (the "Warrants"). The number of shares purchasable pursuant to the Warrants was subsequently reduced pursuant to its terms to an aggregate of 62,000 shares at October 31, 1998. The purchasers paid the Company $6.0 million for the Series A Preferred Shares and the Warrants. The Private Placement was effected pursuant to a Series A Preferred Stock Agreement by and among the purchasers and the Company dated December 20, 1996 (the "Agreement"). The Warrants became exercisable on December 20, 1997. No Series A Preferred Shares remain outstanding following the conversions effected during fiscal 1998. The Warrants are exercisable at a purchase price per share equal to $9.82; provided, however, if there is an effective registration statement covering the shares issuable upon the exercise of the Warrants, the purchasers may exercise the Warrants in whole or in part in exchange for the number of shares of Common Stock equal to the product of (i) the number of shares as to which the Warrants are being exercised multiplied by (ii) a fraction, the numerator of which is the "Market Price" (as defined in the Warrants) less $9.82, and the denominator of which is the Market Price. SERIES B CONVERTIBLE PREFERRED STOCK CONVERSIONS. During the fiscal year ended October 31, 1998, the Company received conversion notices from certain holders of the Company's Series B Preferred Stock to convert an aggregate of 436 shares of Series B Preferred Stock. In connection with the conversion of such shares, the Company issued an aggregate 1,007,927 shares of Common Stock, pursuant to an exemption from registration under Section 4(2) of the Act. The conversion price per share of Series B Preferred Stock was approximately $2.18. The shares of Series B Preferred Stock were converted between September 14, 1998 and October 2, 1998. Pursuant to the original terms of the Series B Offering, holders of the Series B Preferred Stock have the right to convert their shares at any time into shares of Common Stock at a conversion rate equal to 97% of the "market value" of the Common Stock (the "Conversion Rate"). However, each holder of the Series B Preferred Stock has agreed that it will convert its shares of Series B Preferred Stock into Common Stock only to the extent that, after the conversion, the holder and its affiliates would beneficially own 4.99% or less of the Common Stock. This limitation may be waived, however, upon 61 days prior written notice, at which time the Company may be required to seek shareholder approval to issue additional shares of Common Stock, as required by certain rules and regulations, including The Nasdaq Stock Market, Inc. Marketplace Rule 4460(i). For these purposes, "market value" equals the lesser of: (i) the average of the lowest intraday trading price of the Common Stock for any three trading days within the 22 trading days prior to the 16 date of conversion; or (ii) the lowest intraday trading price of the Common Stock on the trading day immediately prior to the date of conversion; however, this latter amount cannot be less than 95% of the lowest intraday trading price of the Common Stock on the date of conversion. The Conversion Rate may be further reduced to the extent the Company does not meet certain requirements or is in default of certain terms of the agreements evidencing the Series B Offering (the "Series B Agreements"). As more fully described below, the Company is currently in default of certain of its obligations under the Series B Agreements. See "Item 1. Business - The Series B Convertible Preferred Stock Offering and - Sale of Senior Notes and Series B Preferred Stock." ITEM 6. SELECTED FINANCIAL DATA The following table sets forth certain selected consolidated financial data of the Company for the five years ended October 31, 1998 which has been derived from the audited consolidated financial statements of the Company and its subsidiaries. This data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements included elsewhere in this report.
YEARS ENDED OCTOBER 31, (in thousands, except share and per share amounts) 1998 1997 1996 1995 1994 Revenues $217,481 $86,334 $48,906 $35,408 $25,784 Net income (loss) from operations 2,514 2,857 (5,910) (281) 946 Average shares outstanding 9,907 8,505 8,361 8,284 7,736 Income (loss) per share from operations - basic and diluted (.59) .16 (.71) (.03) .12 Current assets 224,572 27,009 21,449 18,573 18,635 Current liabilities 160,434 12,968 17,155 11,175 9,942 Property and equipment, net 32,074 13,114 10,667 6,120 5,314 Total assets 290,760 50,346 38,919 32,482 36,604 Long-term debt 91,094 17,294 10,115 5,255 8,293 Shareholders equity 40,217 15,247 11,598 17,467 15,832
17 PART II ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis relates to the financial condition and results of operations of the Company for the three years ended October 31, 1998. This information should be read in conjunction with the Company's Consolidated Financial Statements appearing elsewhere in this document. OVERVIEW Able specializes in the design, installation, maintenance, and system integration services for advanced voice, data and video communication networks which includes services within the telecommunication infrastructure, traffic management systems, automated manufacturing systems and utility network areas. Currently, the Company conducts business through three operating groups: The Network Services Group, The Transportation Services Group, and The Communications Development Group. The Company was originally incorporated in 1987 as "Delta Venture Fund, Inc." and changed its name to Able Telcom Holding Corp. in 1989. From 1992 to 1994, the majority of the Company's operations were in the Venezuelan telecommunications business. Beginning in 1994, the Company began expanding its operations in other industries by implementing a plan of growth through acquisition. This plan is ongoing and has resulted in several acquisitions over the past four years. These acquisitions include operations relating to the installation and maintenance of traffic control signage, signalization and lighting systems, performance of outside plant telecommunication and electrical power services, the installation, testing and maintenance of intelligent highway and communication systems, as well as the erection of towers for wireless and cellular service providers. The following table sets forth, for the years ended October 31, selected elements of Able's condensed consolidated statements of operations as a percentage of its revenues: YEAR ENDED OCTOBER 31, 1998 1997 1996 ---- ---- ---- Revenues: 100.00% 100.00% 100.00% Cost of revenues........................ 82.54 78.95 82.78 General and administrative.............. 8.59 10.17 17.18 Depreciation and amortization........... 3.49 5.25 5.62 Income (loss) from operations........... 5.25 5.60 (12.85) Other expenses, net..................... 2.24 1.12 2.27 Net income (loss)....................... (1.16) 3.31 (12.08) The Company's results of operations reflect the operating results of MFSNT, COMSAT and other acquired businesses only from the respective dates of acquisition. Accordingly, the Company's results are not necessarily comparable on a period-to-period basis. FISCAL YEAR ENDED OCTOBER 31, 1998 COMPARED WITH FISCAL YEAR ENDED OCTOBER 31, 1997. RESULTS OF OPERATIONS. The following discussion and analysis relates to the financial condition and results of operations of the Company for the fiscal years ended October 31, 1998 and 1997. This information should be read in conjunction with the Company's condensed consolidated financial statements appearing elsewhere in this document. REVENUES. For the fiscal year ended December 31, 1998 revenues increased $131.2 million, from $86.3 million through October 31, 1997 to $217.5 million, for the fiscal year ended October 31, 1998. This increase in revenues is due primarily to growth in the Company's operations through the acquisition of MFSNT in the third quarter and the acquisition of COMSAT and Patton in the second quarter of fiscal 1998, as well as increased demands for services in the traffic management and telecommunications industry. For the fiscal year ended October 31, 1998, revenues increased approximately $87.0 million, $17.6 million and $17.4 million related to the acquisition of MFSNT, COMSAT and Patton respectively. COST OF REVENUES. For the fiscal year ended October 31, 1998 and 1997, cost of revenues as a percentage of revenues increased from 78.95% to 82.54%. The increase was due to increased costs related to the Network Services Group resulting from tighter margins and competition in the telecommunications industry, as well as inclement weather which restricted some work during the winter months and extended completion dates into later periods, offset be decreased costs as a result of COMSAT's operations included in the Transportation Services Group's operations. GENERAL AND ADMINISTRATIVE EXPENSES. For the fiscal year ended October 31, 1998 general and administrative expenses were $18.7 million, an increase of $9.9 million over the same period in the prior year. This increase was due to the overall increase in the management structure at the corporate level, as well as the division offices, necessary to support the Company's increased revenue in accordance with the Company's strategic objective of growth through acquisition, and an increase in costs resulting from the acquisition of MFSNT. For the fiscal year ended October 31, 1998, general and administrative expenses relating to the operations of MFSNT were approximately $5.1 million. DEPRECIATION AND AMORTIZATION. For the fiscal year period ended October 31, 1998, depreciation and amortization expense as a percentage of revenue decreased from 5.25% to 3.49% as compared to the same period in 1997. This decrease as a percentage of revenue, is due to the significant increase in revenues which did not require the same percentage increase in capital assets to support the operations of the Company. INCOME FROM OPERATIONS. For the fiscal year ended October 31, 1998 income from operations was $11.4 million compared to $4.8 million for the same period in the prior year, primarily as a result of the Company's growth through acquisitions. OTHER EXPENSE, NET. Other expense net increased by $3.9 million to $4.9 million for the fiscal year ended October 31, 1998 as compared to $1.0 million for the comparable period in 1997. This increase is due primarily to increased interest costs related to the acquisition of MFSNT. Other expense, net was also impacted by non-cash charges associated with stock options granted below market prices, and amortization of loan costs associated with the Secured Credit Facility. Income taxes increased from $0.7 million in fiscal 1997 to $3.4 million in fiscal 1998. This increase is due to increased income from operations, state taxes provided in the State of Georgia, and the write-off of foreign tax credits. NET INCOME. For the fiscal year ended October 31, 1998, net income was $2.5 million compared to net income of $2.9 million for the comparable period in 1997 for the reasons described above. For the year ended October 31, 1998, the loss applicable to common stock of $(5.8) million, or $(0.59) per share, is a result of $8.0 million associated with the beneficial conversion privileges on the Series B Preferred Stock, other non-recurring adjustments associated with the Company's obtaining financing for a portion of the purchase price of MFSNT and preferred stock dividends. For the year ended October 31, 1997, income applicable to common stock was $1.3 million, or $0.16 per share. FISCAL YEAR ENDED OCTOBER 31, 1997 COMPARED TO FISCAL YEAR ENDED OCTOBER 31, 1996. REVENUES. Revenues for the year ended October 31, 1997 increased $37.4 million over the year prior period, from $48.9 million to $86.3 million, an increase of 76.5%. The acquisition of Georgia Electric Company ("GEC") in October 1996 and Dial Communications, Inc. ("Dial") in December 1996 accounted for approximately $35.0 million of the revenue increase between the 1996 and 1997 fiscal years. The remaining increases in revenue for fiscal year 1997 over fiscal year 1996 were generated from increased demand for services from the other subsidiaries. Revenue for Latin American operations totaled $4.2 million and $3.7 million in the years ended October 31, 1997 and 1996, respectively. COSTS OF REVENUES. Costs of revenues increased $27.7 million, from $40.5 million for the 1996 fiscal year to $68.2 million for the 1997 fiscal year. Costs of revenues as a percentage of revenues decreased from 82.8% in 1996 to 78.9% in 1997. The assimilation of GEC and Dial accounted for approximately $27.4 million of the increase in costs of revenues. The increase in gross margin from 17.2% in 1996 to 21.1% in 1997 is due primarily to the increase in profitability in the transportation services industry as a result of measures implemented during fiscal year 1997 to improve labor productivity, control costs, and generate other operational efficiencies as well as the assimilation of GEC. Costs of revenues for Latin American operations totaled $2.2 million and $2.1 million in 1997 and 1996, respectively. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for the year ended October 31, 1997, were $8.8 million, or 10.2% of revenues, compared to $8.4 million, or 17.2% of revenues, in 1996. The increase in general and administrative expenses for the fiscal year 1997 can be attributed to the assimilation of GEC and Dial which accounted for $1.0 million and $1.5 million, respectively, of the total increase for 1997. This increase was partially offset by a decline in general and administrative expenses from the implementation of cost cutting and containment strategies at the subsidiary level. These expense totals represent a significant decline as a percentage of revenues from prior years as a result of the Company's efforts to enhance financial controls and the implementation of its cost-containment program. General and administrative expenses for Latin America were $1.3 million and $1.6 million in 1997 and 1996, respectively. In 1997 and 1996, the Company incurred approximately $.2 million and $1.1 million, respectively, of start-up and marketing costs related to NeuroLAMA, Able's proprietary telephone call data and billing system, with no corresponding revenues. These amounts have been included in general and administrative expenses for both 1997 and 1996. There can be no assurance that the Company will generate sufficient revenues from this business to offset its start up costs. DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense was $4.5 million for the year ended October 31, 1997, or 5.2% of revenues, compared to $2.7 million or 5.6% of revenues for 1996. The GEC and Dial acquisitions accounted for $.6 million and $.8 million, respectively, of the total increase in depreciation and amortization expense for 1997. The remaining increase resulted from the continuing improvement and updating of the Company's equipment. Depreciation and amortization expense relating to Latin American operations totaled approximately $.5 million in both 1997 and 1996. INTEREST EXPENSE. Interest expense was $1.6 million for 1997, or 1.8% of revenues, compared to $1.4 million, or 2.8% of revenues, for 1996. This increase in interest expense is a result of acquisition-related debt and the financing of equipment purchases, which was partially offset by the payment of debt with the proceeds from the issuance of the Series A Preferred Stock. OTHER (INCOME) EXPENSE, NET. Other (income) expense, net increased to $.6 million in 1997 from $.2 million in 1996. These changes reflect the $.3 million non-cash charge for compensation recognized on stock options granted to certain officers and directors at a discount to market during the year ended October 31, 1997. Additional income and expense items for fiscal year 1997 include a reduction in reserves for settlement of litigation of $.5 million and interest and dividend income of $.4 million. NET INCOME. The Company reported a net income of $2.9 million, or $.34 per share of Common Stock for both basic and diluted, for the year ended October 31, 1997, compared to a net loss of $5.9 million, or a loss of $.71 per share of Common Stock for both basic and diluted for 1996, before taking into account the non-cash charge for a discounted conversion feature associated with the Series A Preferred Stock (the "Accretive Dividend"). For fiscal 1997, the Accretive Dividend was $1.3 million which resulted in income applicable to common stock of $1.3 million, or $.16 per share of common stock for both basic and diluted. The increase in net income for the fiscal year ended October 31, 1997, compared to the previous year is due to the assimilation of GEC, the continued improvement in margins within the Transportation Services Group, and the improvement in margins within the Latin American operations coupled with a reduction in special charges relating to these operations. Revenues and net income (loss) from the Company's international operating subsidiaries are presented below for the fiscal years ended October 31, 1997, and 1996. These figures exclude costs associated with the continued marketing and development cost of NeuroLAMA and general and administrative costs of the international management group. LATIN AMERICAN OPERATIONS. For the year ended October 31, 1997, Able's net income from Latin American operations increased by $3.5 million over the year ended October 31, 1996. In 1996, the Latin American operations incurred losses of $2.8 million relating to the write-down of goodwill and other assets. Additionally, costs associated with marketing NeuroLAMA decreased from $1.1 million in 1996 to $.2 million in 1997. For the year ended October 31, 1997, Latin American revenues increased $.5 million as compared to the year ended October 31, 1996. Revenues generated by the Company's Venezuelan operations are largely dependent upon one customer. In the fiscal year ended October 31, 1997, the Company's Venezuelan operations were expanded to include a reclamation project that was responsible for approximately $1.0 million of the increase in revenues which was offset by a decrease in activity under the existing contracts in Latin America. Revenues and net income (loss) pertaining to Latin American operations are presented below for the years ended October 31, 1997, 1996, and 1995:
1997 1996 1995 ------------- --------------- ------------- Revenues ................... $4,163,317 $ 3,745,858 $3,227,750 Net income (loss) .......... 16,556 (3,628,503) (54,835)
The Company's net assets of Latin American subsidiaries totaled $2.6 million and $2.1 million at October 31, 1997 and 1996, respectively. In addition, the Company's net equity in Latin American operations totaled $1.8 million and $1.6 million at October 31, 1997 and 1996, respectively. The foreign currency translation and transaction losses improved during fiscal year 1997. The stabilization of the Venezuelan Bolivar resulted in a decrease in foreign currency losses of $.9 million for the fiscal year ended October 31, 1997, as compared to 1996. INCOME TAXES. Income tax expense (benefit) for the year ended October 31, 1997 and 1996, differs from the amounts that would result from applying federal and state statutory tax rates to pre-tax income (loss) primarily due to non-deductible goodwill and losses from foreign operations. MINORITY INTEREST. Minority interest represents a shareholder's 50% interest in the earnings of the Company's Venezuelan corporations for the fiscal year ended October 31, 1997. For fiscal year 1996, losses were allocated to minority interest to the extent of its invested capital. LIQUIDITY AND CAPITAL RESOURCES At October 31, 1998, cash and cash equivalents totaled $13.5 million, which represents an increase of approximately $6.2 million from October 31, 1997. Cash provided by operating activities of approximately $5.9 million is a result of net income of $2.5 million, increased primarily by non-cash charges relating to depreciation, amortization, deferred income taxes and minority interest of approximately $9.4 million, decreases in receivables, inventory and other current assets of approximately $6.2 million and increases in accounts payable, accrued expenses and other liabilities of approximately $4.8 million due to the reduction of cash payments associated with operations, offset by an increase in costs and profit in excess of billings on uncompleted contracts related to work acquired in connection with the MFSNT acquisition of approximately $17.0 million. Cash used in investing activities of $14.0 million is due to capital expednditures of approximately $10.0 million made in order to support increased operations as well as the replacement of existing equipment and approximately $4.0 million in net expenditures for the acquisitions of businesses during the fiscal year ended October 31, 1998. Cash provided by financing activities of $15.3 million is a result of borrowings under various financing sources of approximately $70.5 million used to fund acquisitions and operations of the Company, net proceeds from the issuance of the Series B Preferred Stock of approximately $18.1 million and approximately $2.1 million in proceeds from the exercise of stock options, offset by repayments of debt and other borrowings of approximately $74.4 million, of which $58.8 million relates to payments made for the acquisition of MFSNT, and other items. In February 1999, WorldCom advanced the Company $32.0 million for the purposes of arranging the purchase of 2,785 shares, or approximately 78% of the Series B Preferred Stock and the purchase of the outstanding $10.0 million of Senior Subordinated Notes. This advance is due the earlier of (i) October 31, 2000 or (ii) the dates of redemption and/or conversion of the Series B Preferred Stock or the Senior Subordinated Notes. In connection with this advance, the Company expects to recognize an extraordinary loss on the purchase of the Senior Subordinated Notes of approximately $3.3 million and a reduction in the income applicable to common stock of approximately $10.0 million related to the purchase of the Series B Preferred Stock. In addition, the Company agreed to modify the terms of the existing Series B Preferred Stock conversion and warrant agreements which may have a significant effect on the underlying value of these securities and result in a material charge to income applicable to common stock in 1999. WorldCom has also agreed to make available additional advances to the Company of up to $15.0 million against amounts otherwise payable pursuant to the WorldCom Master Services Agreement, which, if advanced, would be due on October 31, 2000. At the date of this filing, the Company has obtained all necessary waivers which cover various defaults under the Company's financing and preferred stock agreements. The Company believes that it has available cash, from operations as well as from the additional advance available from WorldCom described above, sufficient to meet the Company's operating and capital requirements for the next twelve months. Nonetheless, pursuant to the terms of the documents relating to the Series B Securities, under certain circumstances, including without limitation, if the registration statement that includes the shares of common stock underlying the Series B Securities is not declared effective on or before May 18, 1999, the Company is delisted under certain circumstances from any securities exchange, or any representation or warranty by the Company to the holders is not true and correct, then the holders of the Series B Securities, in whole or in part, have the option to require the Company to redeem their securities at premium prices. Although the Company intends to use its best efforts to comply with the provisions in the documents relating to the Series B Securities, the failure of which would provide the holder the right to exercise such redemption option, there can be no assurance that the Company will be able to do so, in part, because certain of such matters are dependent upon the efforts or approval of others (such as the Securities and Exchange Commission with respect to the effectiveness of the aforementioned registration statement). In addition, there can be no assurance, however, that the Company will not experience adverse operating results or other factors which could materially increase its cash requirements or adversely affect its liquidity position. CAUTIONARY STATEMENTS Certain of the information contained herein may contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as the same may be amended from time to time ("the Act") and in releases made by the Securities and Exchange Commission ("SEC") from time to time. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, or achievements expressed or implied by such forward-looking statements. The words "estimate," "believes," "project," "intend," "expect" and similar expressions when used in connection with the Company, are intended to identify forward-looking statements. Any such forward-looking statements are based on various factors and derived utilizing numerous important assumptions and other important factors that could cause actual results to differ materially from those on the forward-looking statements. These cautionary statements are being made pursuant to the Act, with the intention of obtaining benefits of the "Safe Harbor" provisions of the Act. The Company cautions investors that any forward-looking statements made by the Company are not guarantees of future performance and that actual results may differ materially from those in the forward-looking statements as a result of various factors, including but not limited to those set forth below. Important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to: (i) risks associated with leverage, including cost increases due to rising interest rates: (ii) risks associated with Able's ability to continue its strategy of growth through acquisitions; (iii) risks associated with Able's ability to successfully integrate all of its recent acquisitions: (iv) Able's ability to make effective acquisitions in the future and to successfully integrate newly acquired businesses into existing operations and the risks associated with such newly acquired businesses; (v)) changes in laws and regulations, including changes in tax rates, accounting standards, environmental laws, occupational, health and safety laws: (vi) access to foreign markets together with foreign economic conditions, including currency fluctuations; (vii) the effect of, or changes in, general economic conditions; (viii) economic uncertainty in Venezuela; (ix) weather conditions that are adverse to the specific businesses of the Company, and (x) the outcome of litigation, claims and assessments involving the Company. Other factors and assumptions not identified above may also be involved in the derivation of forward-looking statements, and the failure of such other assumptions to be realized as well as other factors may also cause actual results to differ materially from those projected. The Company assumes no obligation to update these forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements. YEAR 2000 The Company's business is dependent upon various computer software programs and operating systems that utilize dates and process data beyond the year 2000. The Company's actions to address the risks associated with the year 2000 are as follows: THE COMPANY'S STATE OF READINESS The Company has established a corporate program to coordinate its year 2000 (Y2K) compliance efforts across all business functions and geographic areas. The scope of the program includes addressing the risks associated with the Company's i) information technology (IT) systems (including the Company's products and services), ii) non-IT systems that include embedded technology (e.g., buildings, plant, equipment and other infrastructure), and iii) significant vendors and their Y2K readiness. The Company is utilizing the following steps in executing its Y2K compliance program: 1) awareness, 2) assessment, 3) renovation (including upgrades and enhancements to the Company's products), 4) validation and testing, and 5) implementation. The Company has completed the awareness and assessment steps for all areas. IT Systems. The renovation step has been substantially completed for all mission critical IT systems and products, and the Company now is focusing its efforts on validation and testing. The Company's most significant renovation effort involved its core product, CCS. CCS utilizes one subroutine for calculating dates, with the various computer programs within CCS with date dependent calculations accessing this subroutine. As a result, all date calculations are performed in one location. The renovation of this subroutine and the related interfaces to the various date dependent programs has been completed. The Company is now testing CCS and its related software products (e.g., ACSR, ACSR Telephony, etc.) using its standard testing methodologies, while adding date simulation to specifically address the Y2K risk. Such date simulation considers pre-2000, cross over, and post-2000 time frames, including year 2000 leap year considerations. The Company believes it will be 80-90% completed with its testing for CCS and related software products by December 31, 1998, with the remaining testing expected to be done by the end of the first quarter of 1999. Implementation into the production environment is expected to occur shortly after testing is completed. For the Company's non-CCS related software products, no renovation is believed necessary as the products are relatively new and were designed to be Y2K compliant. The Company plans to test these products with similar date simulation techniques discussed above to ensure they are Y2K compliant. Such testing is expected to be substantially completed by the end of 1998. Non-IT Systems. The Company expects to have all of its mission critical non-IT systems Y2K compliant by the end of the first quarter of 1999. The Company is currently formulating its testing and implementation plans for its mission critical non-IT systems. Significant Vendors. As part of the Company's Y2K compliance program, the Company has contacted its significant vendors to assess their Y2K readiness. For all mission critical third party software embedded in or specified for use in conjunction with the Company's IT systems and products, the Company's communications with the vendors indicates that the vendors believe they will be Y2K compliant by the end of 1998. Such third party software is being tested in conjunction with the testing of the IT systems and products discussed above. All other significant vendors (including the Company's vendor who provides data processing services for CCS) have indicated they will be Y2K compliant by the end of 1998, except for one of the Company's vendors which provides data lines access for CCS. This vendor indicates that it expects to be Y2K compliant by the end of the first quarter of 1999. There can be no assurance that i) the Company's significant vendors will succeed in their Y2K compliance efforts, or ii) the failure of vendors to address year 2000 compliance will not have a material adverse effect on the Company's business or results of operations. THE COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES Since inception of its program in 1995 through October 31, 1998, the Company has incurred and expensed costs of approximately $2.3 million related to Y2K compliance efforts. The total estimated costs to complete the Company's Y2K compliance effort are approximately $1.6 million. The estimated costs to complete, which does not include any costs which may be incurred by the Company if its significant vendors fail to timely address Y2K compliance, is based on currently known circumstances and various assumptions regarding future events. However, there can be no assurance that these estimates will be achieved and actual results could differ materially from those anticipated. THE RISKS OF THE COMPANY'S YEAR 2000 ISSUES The Company's failure to timely resolve the Y2K risks could result in system failures, the generation of erroneous information, and other significant disruptions of business activities, including among others, access to CCS and the use of related software products, and timely printing and delivery of clients' customers' statements. Although the Company believes it will be successful in its Y2K compliance efforts, there can be no assurance that the Company's systems and products contain all necessary date code changes. In addition, the Company's operations may be at risk if its vendors and other third parties fail to adequately address the Y2K issue or if software conversions result in system incompatibilities with these third parties. To the extent that either the Company or a third-party vendor or service provider on which the Company relies does not achieve Y2K compliance, the Company's results of operations could be materially adversely affected. Furthermore, it has been widely reported that a significant amount of litigation surrounding business interruption will arise out of Y2K issues. It is uncertain whether, or to what extent, the Company may be affected by such litigation. As is the case with many software companies and service providers, if the Company's current or future clients experience significant business interruptions due to their failure to achieve Y2K compliance, the Company's results of operations could be materially adversely affected. There can be no assurance that the Company's current or future clients will adequately and successfully address their Y2K risk and not experience any business interruptions. THE COMPANY'S CONTINGENCY PLAN. The Company has not yet developed a comprehensive contingency plan to address the situation that may result if the Company or its vendors are unable to achieve Y2K compliance for its critical operations. During the fourth quarter of 1998 and the first quarter of 1999, based upon the status of the Company's Y2K compliance efforts at that time and the Company's perceived risks to critical business operations, the Company plans to evaluate what areas the Company believes a contingency plan may be necessary, and execute such contingency plan if warranted. The i) inability to timely implement a contingency plan, if deemed necessary, and ii) the cost to develop and implement such a plan, may have a material adverse effect on the Company's results of operations. CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS. Except for statements of existing or historical facts, the foregoing discussion of Y2K consists of forward-looking statements and assumptions relating to forward-looking statements, including without limitation the statements relating to future costs, the timetable for completion of Y2K compliance efforts, potential problems relating to Y2K, the Company's state of readiness, third party representations, and the Company's plans and objectives for addressing Y2K problems. Certain factors could cause actual results to differ materially from the Company's expectations, including without limitation i) the failure of vendors and service providers (such as the vendors of data processing services and data lines access for CCS and providers of third party software) to timely achieve Y2K compliance, ii) system incompatibilities with third parties resulting from software conversions, iii) the Company's systems and products not containing all necessary date code changes, iv) the failure of existing or future clients to achieve Y2K compliance, v) potential litigation arising out of Y2K issues, the risk of which may be greater for information technology based service providers such as the Company, vi) the failure of the Company's validation and testing phase to detect operational problems internal to the Company, in the Company's products or services or in the Company's interface with service providers, vendors or clients, whether such failure results from the technical inadequacy of the Company's validation and testing efforts, the technological infeasibility of testing certain non-IT systems, the perceived cost-benefit constraints against conducting all available testing, or the unavailability of third parties to participate in testing, or vii) the failure to timely implement a contingency plan to the extent Y2K compliance is not achieved. 24 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's consolidated financial statements and related notes and independent auditors' reports are included herein under Item 14. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE In October 1998, the Board of Directors of the Company approved the appointment of Arthur Andersen LLP as its principal accountant to audit the Company's Consolidated Financial Statements. Information regarding the resignation of the Company's previous principal accountant and the engagement of Arthur Andersen LLP was previously reported by the Company on Current Reports on Form 8-k filed September 14, 1998 and October 16, 1998, respectively. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information required by this items regarding directors and officers is incorporated by reference from the definitive Proxy Statement being filed by the Company for the Annual Meeting of Stockholders to be held for fiscal year 1998. ITEM 11. EXECUTIVE COMPENSATION Information required by this item regarding compensation of officers and directors is incorporated by reference from the definitive Proxy Statement being filed by the Company for the Annual Meeting of Stockholders to be held for fiscal year 1998. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required by this item is incorporated by reference from the definitive Proxy Statement being filed by the Company for the Annual Meeting of Stockholders to be held for fiscal year 1998. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required by this item is incorporated by reference from the definitive Proxy Statement being filed by the Company for the Annual Meeting of Stockholders to be held for fiscal year 1998. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. The following consolidated financial statements of Able Telcom Holding Corp. and subsidiaries are included as part of this report. Reports of Independent Certified Public Accountants Consolidated Financial Statements: Consolidated Balance Sheets - October 31, 1998 and 1997 Consolidated Statements of Operations - Years ended October 31, 1998, 1997 and 1997 Consolidated Statements of Shareholders' Equity - Years ended October 31, 1998, 1997 and 1996 Consolidated Statements of Cash Flows - Years ended October 31, 1998, 1997 and 1996 Notes to Consolidated Financial Statements (a) 2. The financial statement schedule for the years ended October 31, 1998, 1997 and 1996 is filed as part of this report and should be read in conjunction with the Consolidated Financial Statements of the Company. Schedule II-Valuation and Qualifying Accounts Schedules not listed above have been omitted because they are not applicable or not required or the information required to be 25 set forth therein is included in the Consolidated Financial Statements or Notes thereto. (a) 3. The exhibits listed on the accompanying Index to Exhibits immediately following the Financial Statement Schedules are filed as part of, or incorporated by reference into, this Report. EXHIBIT NO. DESCRIPTION -------- ----------- 2.1 Asset Purchase Agreement, dated November 26, 1997, among Able Telcom Holding Corp., Georgia Electric Company, Transportation Safety Contractors, Inc., COMSAT RSI Acquisitions, Inc. and COMSAT Corporation (l) 2.2 Indemnification Agreement, dated February 25, 1998, among Able Telcom Holding Corp., Georgia Electric Company, Transportation Safety Contractors, Inc., COMSAT RSI Acquisitions, Inc. and COMSAT Corporation (l) 2.3 Stock Purchase Agreement, dated as of April 1, 1998, among Able Telcom Holding Corp., James P. Patton, Rick Boyle and Claiborne K. McLemore III (2) 2.4 Closing Memorandum and Schedule, dated April 1, 1998, among Able Telcom Holding Corp., James P Patton, Rick Boyle and Claiborne K. McLemore III (2) 2.5 Agreement and Plan of Merger by and among UFS Acquisition Corp., Able Telcom Holding Corp., MFS Network Technologies, Inc. and MFS Communications Company, Inc. dated as of April 22,1998 (9) 2.5.1 Amendment to Agreement and Plan of Merger among NIFS Acquisition Corp., Able Telcom Holding Corp., MFS Network Technologies, Inc. and WS Communications Company, Inc. dated as of July 2, 1998 (10) 2.5.1.1 Amendment No. 2 dated as of July 21, 1998 to Agreement and Plan of Merger among WS Acquisition Corp., Able Telcom Holding Corp., WS Network Technologies, Inc. and MFS Communications Company, Inc. (11) 2.5.1.2 Agreement between WorldCom Network Services, Inc. and Able Telcom Holding Corp. dated as of September 9, 1998 (13) 2.5.1.3 Agreement between WorldCom Network Services, Inc. and Able Telcom Holding Corp. dated January 26, 1999 2.5.2 Promissory Note of Able Telcom Holding Corp. dated July 2, 1998 to WS Communications Company, Inc. (10) 2.5.2.1 11.5% Promissory Note between Able Telcom Holding Corp. and WorldCom Network Services, Inc. dated as of September 1, 1998 2.5.3 Stock Pledge Agreement dated as of July 2, 1998 by Able Telcom Holding Corp. in favor of WorldCom, Inc. (10) 2.5.4 Master Services Agreement between WorldCom Network Services, Inc. and NIFS Network Technologies, Inc. dated as of July 2, 199 8 (exhibits omitted) (11) 2.5.5 Assumption and Indemnity Agreement dated as of July 2, 1998 among Able Telcom Holding Corp., WorldCom, Inc., MFS Communications Company, Inc., WS Intelenet, Inc., MFS Datanet, Inc., MFS Telcom, Inc. and MFS Communications, Ltd. (schedule omitted) (10) 2.5.6 License Agreement between MFS Communications Company, Inc. and Able Telcom Holding Corp. dated as of July 2, 1998 (10) 2.5.7 Modification to Stock Option Agreement between the Company and WorldCom, Inc. dated January 8, 1999 2.5.8 Agreement to Enter Into Stock Appreciation Rights Agreement between the Company and WorldCom, Inc. dated January 8, 1999 2.5.9 Financing Agreement between WorldCom Network Services, Inc. and Able Telcom Holding Corp. dated February 16, 1999 3.1 Articles of Incorporation of the Able Telcom Holding Corp., as amended (3)(4) 3.1.1 Articles of Amendment to the Articles of Incorporation of Able Telcom Holding Corp. (13) 3.2 Bylaws of the Able Telcom Holding Corp., as amended (3) 4.2 Specimen Common Stock Certificate (3) 4.3 Specimen Series A Preferred Stock Certificate (6) 4.4 Form of Warrant issued to Credit Suisse, First Boston and Silverton International Fund Limited (4) 4.6 Able Telcom Holding Corp. 1995 Stock Option Plan (13) 4.7 Amendment to Able Telcom Holding Corp. 1995 Stock Option Plan, dated April 24, 1998 (13) 4.8 Series B Convertible Preferred Stock Purchase Agreement (13) 4.9 Registration Rights Agreement for Series B Convertible Preferred Stock Purchase Agreement and 350,000 Warrants (13) 4.10 Registration Rights Agreement for 650,000 Warrants associated with Series B Convertible Preferred Stock Purchase Agreement (13) 4.11 Form of Common Stock Purchase Warrants for 350,000 Shares in connection with Series B Convertible Preferred Stock Purchase Agreement (13) 4.12 Form of Common Stock Purchase Warrants for 650,000 Shares in connection with Series B Convertible Preferred Stock Purchase Agreement (13) 4.13 Preferred Stock Purchase Agreement by and among Able Telcom Holding Corp., RGC International Investors, LDC, and Cotton Communications, Inc. dated February 17, 1999 4.14 Warrant Amendment between Able Telcom Holding Corp. and Purchasers (as defined) dated February 17, 1999 10.15 Stock Purchase Agreement between Able Telcom Holding Corp., Traffic Management Group, Inc., Georgia Electric Company, Gerry W. Hall and J. Barry Hall (5) 10.16 Stock Purchase Agreement between Able Telcom Holding Corp., Telecommunications Services Group, Inc., Dial Communications, Inc., William E. Newton and Sybil C. Newton (8) 10.17 Promissory Note of Able Telcom Holding Corp. Payable to William E. Newton and Sybil C. Newton (8) 10.23 Form of Stock Purchase Agreement among Able Telcom Holding Corp., Traffic Management Group, Inc., Georgia Electric Company, Gerry W. Hall and Barry Hall (5) 10.25 Securities Purchase Agreements, dated as of January 6, 1998, between Able Telcom Holding Corp. and each of the Purchasers named therein (6) 26 10.25.1 Letter Agreement dated July 2, 1998 related to Securities Purchase Agreements dated as of January 6, 1998 (13) 10.26 Senior Secured Revolving Credit Agreement dated as of April 6,1998, between Able Telcom Holding Corp. and Suntrust Bank, South Florida, N.A. and Bank of America, FSB (9) 10.27 Credit Agreement among Able Telcom Holding Corp., NationsBank, N.A. and The Several Lenders from Time to Time Parties Hereto dated as of June 11, 1998 (exhibits and schedules omitted) (13) 10.29 Employment Agreement with Jesus G. Dominguez, dated April 27, 1998 (13) 10.30 Employment Agreement with Stacy Jenkins, dated July 16, 1998 (13) 10.32 Amendment to June 11, 1998 Credit Agreement among Able Telcom Holding Corp., NationsBank N.A., and the Several Lenders from Time to Time Parties thereto, dated as of June 30, 1998 (13) 10.33 Employment Agreement with Billy V Ray, Jr., dated October 1, 1998 10.34 Employment Agreement with Curtis A. "Butch" Dale, dated August 17, 1998 (14) 10.35 Financial Advisor and Placement Engagement Letter, dated April 3, 1998, between Washington Equity Partners and Able Telcom Holding Corp. (14) 10.36 Employment Agreement with G. Vance Cartee, dated January 4, 1999 10.37 Employment Agreement with Edward Pollock, dated January 1, 1999 10.38 Employment Agreement with Frazier L. Gaines, dated November 12, 1998 10.39 Employment Agreement with Gideon D. Taylor, dated December 7, 1998 10.40 Employment Agreement with Rick Boyle, dated April 1, 1998 10.41 Financing Agreement between Able Telcom Holding Corp. and Cotton Communications, Inc. dated February 17, 1999 (without exhibits) 10.42 11.5% Non-Recourse Promissory Note between Cotton Communications, Inc. and Able Telcom Holding Corp. dated February 17, 1999 10.43 Stock Pledge Agreement between Able Telcom Holding Corp. and Cotton Communications, Inc. dated February 17, 1999 11 Computation of Per Share Earnings (7) 16.1 Letter regarding change in certifying accountant (12) 21 Subsidiaries of Able Telcom Holding Corp. (13) 23.1 Consent of Ernst & Young LLP 27 Financial Data Schedule - ------------------- (1) Incorporated by reference from an exhibit to the Company's Current Report on Form 8-K (File No. 0-21986), dated February 25, 1998, as filed with the Commission on March 12, 1998, as amended by Form S-KIA-1, dated May 11, 1998, as filed with the Commission on May 11, 1998. (2) Incorporated by reference from an exhibit to the Company's Current Report on Form 8-K (File No. 0-21986), dated April 1, 1998, as filed with the Commission on April 14, 1998. (3) Incorporated by reference from an exhibit to the Company's Registration Statement on Form S-1 (File No. 33-65854), as declared effective by the Commission on February 26,1994. (4) Incorporated by reference from an exhibit to the Company's Current Report on Form 8-K (File No. 0-21986), dated December 20, 1996, as filed with the Commission on December 31, 1996. (5) Incorporated by reference from an exhibit to the Company's Current Report on Form 8-K (File No. 0-21986), dated October 12, 1996, as filed with the Commission on October 25, 1996. (6) Incorporated by reference from an exhibit to the Company's Annual Report on Form 10-K (File No. 0-21986) for the fiscal year ended October 31,1997, as filed with the Commission on February 13,1998, as amended by Form 10-KIA, as filed with the Commission on March 20,1998. (7) Incorporated by reference from an exhibit to the Company's Current Report on Form 8-K (File No. 0-21986), dated December 2, 1996, as filed with the Commission on December 13, 1996, as amended by Form 8-K/A-1, dated February 11, 1997, as filed with the Commission on February 11, 1997. (8) Incorporated by reference from an exhibit to the Company's Quarterly Report on Form 10-Q (File No. 0-21986), for the quarter ended April 30, 1998, as filed with the Commission on June 14, 1998. (9) Incorporated by reference from an exhibit to the Company's Current Report on Form 8-K (File No. 0-21986), dated July 2, 1998, as filed with the Commission on July 16, 1998. (10) Incorporated by reference from an exhibit to the Company's Current Report on Form 8-KIA (File No. 0-21986), dated July 2, 1998, as filed with the Commission on August 3, 1998. (11) Incorporated by reference to Exhibit I to the Company's Current Report on Form 8-K (File No. 0-21986), dated September 7, 1998, as filed with the Commission on September 14, 1998. (12) Incorporated by reference to an exhibit to the Company's Quarterly Report on Form 10-Q (File No. 0-21986), for the quarter ended July 31, 1998, as filed with the Commission on September 21, 1998, as amended by Form 10-Q/A, as filed with the Commission on October 13,1998. (13) Incorporated by reference to an exhibit to the Company's Form S-1 (file no. 333-65991), as filed with the commission of October 22, 1998. 27 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ABLE TELCOM HOLDING CORP. BY: /s/ BILLY V. RAY, JR. February 24, 1999 ---------------------------- BILLY V. RAY, JR., President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
SIGNATURES TITLE DATE SIGNED /s/ BILLY V. RAY, JR. President, Chief Executive Officer and February 24, 1999 ----------------------- Director (Principal Executive Officer and BILLY V. RAY, JR. Acting Principal Financial Officer) /s/ MICHAEL ARP Financial Vice President February 24, 1999 ---------------------- (Principal Accounting Officer) MICHAEL ARP /s/ C. FRANK SWARTZ Chairman and Director February 24, 1999 ----------------------- C. FRANK SWARTZ /s/ FRAZIER L. GAINES Director February 24, 1999 ---------------------- FRAZIER L. GAINES /s/ THOMAS M. DAVIDSON Director February 24, 1999 ---------------------- THOMAS M. DAVIDSON /s/ GIDEON D. TAYLOR Director February 24, 1999 ---------------------- GIDEON D. TAYLOR Director ----------------------- JONATHAN A. BRATT /s/ ROBERT H. YOUNG Director February 24, 1999 ----------------------- ROBERT H. YOUNG Director ----------------------- GERALD PYE
28 ABLE TELCOM HOLDING CORP. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES Reports of Independent Certified Public Accountants Consolidated Financial Statements: Consolidated Balance Sheets - October 31, 1998 and 1997 Consolidated Statements of Operations - Years Ended October 31, 1998, 1997 and 1996 Consolidated Statements of Shareholders' Equity - Years ended October 31, 1998, 1997 and 1996 Consolidated Statements of Cash Flows - Years Ended October 31, 1998, 1997 and 1996 Notes to Consolidated Financial Statements - October 31, 1998 Financial Statement Schedule: II. Valuation and Qualifying Accounts - Years ended October 31, 1998, 1997, and 1996 F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors of Able Telcom Holding Corp.: We have audited the accompanying consolidated balance sheet of Able Telcom Holding Corp. (a Florida Corporation) and subsidiaries as of October 31, 1998, and the related consolidated statements of operations, shareholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Able Telcom Holding Corp. and subsidiaries as of October 31, 1998, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The financial statement schedule listed in the Index at Item 14(a) is presented for purposes of complying with the Securities and Exchange Commissions rules and is not part of the basic financial statements. The schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Omaha, Nebraska February 17, 1999 F-2 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Shareholders and Board of Directors Able Telcom Holding Corp.: We have audited the accompanying consolidated balance sheet of Able Telcom Holding Corp. and subsidiaries (the "Company") as of October 31, 1997, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the two years in the period ended October 31, 1997. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express and opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Able Telcom Holding Corp. and subsidiaries at October 31, 1997, and the consolidated results of their operations and their cash flows for each of the two years in the period ended October 31, 1997, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP West Palm Beach, Florida January 19, 1998 F-3 ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS--OCTOBER 31, 1998 AND 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS 1998 1997 ------ ---- ---- CURRENT ASSETS: Cash and cash equivalents $ 13,544 $ 6,230 Accounts receivable, net of allowances for bad debts of $866 and $686 at October 31, 1998 and 1997, respectively 64,159 13,399 Costs and profits in excess of billings on uncompleted contracts 105,478 5,615 Prepaid expenses and other 2,641 1,766 ------- ------- Total current assets 185,822 27,010 ------- ------- PROPERTY AND EQUIPMENT: Land and buildings 4,473 1,415 Equipment, furniture and fixtures 42,522 19,982 ------- ------- 46,995 21,397 Less- Accumulated depreciation (14,921) (8,283) ------- ------ Property and equipment, net 32,074 13,114 ------- ------ OTHER ASSETS: Goodwill, net of accumulated amortization of $2,162 and $1,200 at October 31, 1998 and 1997, respectively 31,374 8,341 Other 2,740 1,881 Assets held for sale 38,750 - ------- ------ Total other assets 72,864 10,222 ------- ------- Total assets $ 290,760 $ 50,346 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 15,047 $ 3,154 Accounts payable and accrued liabilities 61,376 8,649 Billings in excess of costs and profits on uncompleted contracts 57,439 291 Reserves for losses on uncompleted contracts 25,390 - Notes payable shareholders/directors 1,182 875 ------- ------ Total current liabilities 160,434 12,969 Long-term debt, excluding current portion 76,047 14,140 Other 2,737 1,277 ------- ------ Total liabilities 239,218 28,386 ------- ------ COMMITMENTS AND CONTINGENCIES (Note 8) CONVERTIBLE PREFERRED STOCK Series A redeemable preferred stock, $.10 par value, 995 shares issued and outstanding in 1997 - 6,713 Series B preferred stock, $.10 par value, (aggregate liquidation value of $17,820,000), 4,000 shares authorized; 3,564 shares issued and outstanding in 1998 11,325 - ------- ------ Total convertible preferred stock 11,325 6,713 ------- ------ SHAREHOLDERS' EQUITY: Preferred stock, 1,000,000 shares authorized, 5,200 shares issued - - Common stock, $.001 par value, authorized 25,000,000 shares; 11,065,670 and 8,580,422 shares issued and outstanding at October 31, 1998 and 1997, respectively 11 9 Additional paid-in-capital 40,564 15,096 Senior Subordinated Note warrants 1,244 - WorldCom stock options 3,490 - WorldCom phantom stock 606 - Retained earnings (deficit) (5,698) 142 ------- ------ Total shareholders' equity 40,217 15,247 ------- ------ Total liabilities and shareholders' equity $ 290,760 $ 50,346 ======== =======
The accompanying notes are an integral part to these consolidated financial statements F-4 ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE FISCAL YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1998 1997 1996 ---- ---- ----- REVENUES $ 217,481 $ 86,334 $ 48,906 COSTS AND EXPENSES: Cost of revenues 179,505 68,164 40,486 General and administrative 18,692 8,780 8,404 Depreciation 6,638 4,124 2,411 Amortization 962 408 339 Charges and transaction/translation losses related to Latin American operations 275 17 3,553 ------- ------ ------ Total costs and expenses 206,072 81,493 55,193 ------- ------ ------ INCOME (LOSS) FROM OPERATIONS 11,409 4,841 (6,287) OTHER (INCOME) EXPENSE, NET: Interest expense, including amortization of discount of $157 in 1998 5,534 1,565 1,350 Interest and dividend income (342) (449) (270) Other (320) (152) 32 ----- ----- ------ Total other expense, net 4,872 964 1,112 ----- ----- ----- INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES AND MINORITY INTEREST 6,537 3,877 (7,399) PROVISION (BENEFIT) FOR INCOME TAXES 3,405 727 (891) ----- ----- ------ INCOME (LOSS) BEFORE MINORITY INTEREST 3,132 3,150 (6,508) MINORITY INTEREST 618 293 (598) ----- ----- ------ NET INCOME (LOSS) 2,514 2,857 (5,910) PREFERRED DIVIDENDS (341) (260) - BENEFICIAL CONVERSION PRIVILEGE OF PREFERRED STOCK (8,013) (1,266) - ------- ------ ------ INCOME (LOSS) APPLICABLE TO COMMON STOCK $ (5,840) $ 1,331 $(5,910) ====== ===== ===== INCOME (LOSS) PER COMMON SHARE: Basic $ (0.59) $ 0.16 $ (0.71) =========== ========= ========== Diluted (0.59) $ 0.16 $ (0.71) =========== ========= ========== WEIGHTED AVERAGE SHARES OUTSTANDING - basic 9,907,060 8,504,972 8,361,458 =========== ========= ==========
The accompanying notes are an integral part to these consolidated financial statements F-5
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE FISCAL YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996 (in thousands, except common stock shares and amounts) Common Stock Additional Subordinated ------------------------ Paid-In Notes Shares Amount Capital Warrants ------------ -------- ---------- ------------ BALANCE, November 1, 1995 8,193,212 $ 8,193 $ 12,790 $ - Issuance of common stock to directors in connection with acquisition 10,000 10 43 - Change in unrealized loss on investments - - - - Net loss - - - - ------------ -------- -------- ------- BALANCE, October 31, 1996 8,203,212 8,203 12,833 - Issuance of common stock in connection with acquisition 108,489 108 620 - Issuance of common stock for services 2,000 2 12 - Issuance of common stock for exercise of options 262,240 262 732 - Compensation recognized on stock options - - 338 - Issuance of common stock for conversion of convertible preferred shares 4,481 4 34 - Changes in unrealized loss on investments - - - - Convertible preferred dividends paid - - - - Embedded dividend recognized on convertible preferred shares - - - - Tax benefit from exercise of options - - 527 - Net income - - - - ------------ -------- -------- ------- BALANCE, October 31, 1997 8,580,422 8,579 15,096 - Issuance of common stock for GEC earnout 204,440 204 1,278 - Compensation expense for below market options - - 93 - Issuance of common stock for exercise of options 351,935 352 2,071 - Dividends on Series A preferred stock - - - - Embedded dividend recognized on Series A convertible preferred shares - - - - Issuance of common stock for conversion of Series A convertible preferred shares 920,946 921 6,817 - Valuation of subordinated note warrants - - - 1,244 Valuation of Series B Preferred Stock warrants - - 5,400 - Beneficial conversion privilege applicable to Series B Preferred Stock - - 7,909 - Valuation of WorldCom options - - - - Valuation of WorldCom phantom stock awards - - - - Issuance of common stock for conversion of Series B Preferred Stock 1,007,927 1,008 1,384 - Dividends on Series B preferred stock - - - - Tax benefit from exeercise of options - - 516 - Net income - - - - ------------ -------- -------- ------- BALANCE, October 31, 1998 11,065,670 $ 11,064 $ 40,564 $ 1,244 ============ ======== ======== ======= Unrealized Loss on Retained WorldCom WorldCom Investments Earnings Stock Options Phantom Stock Net of Taxes (Deficit) ------------- ------------- ------------ -------- BALANCE, November 1, 1995 $ - $ - $ (53) $ 4,721 Issuance of common stock to directors in connection with acquisition - - - - Change in unrealized loss on investments - - (1) - Net loss - - - (5,910) ------- ----- ----- -------- BALANCE, October 31, 1996 - - (54) (1,189) Issuance of common stock in connection with acquisition - - - - Issuance of common stock for services - - - - Issuance of common stock for exercise of options - - - - Compensation recognized on stock options - - - - Issuance of common stock for conversion of convertible preferred shares - - - - Changes in unrealized loss on investments - - 54 - Convertible preferred dividends paid - - - (260) Embedded dividend recognized on convertible preferred shares - - - (1,266) Tax benefit from exercise of options - - - - Net income - - - 2,857 ------- ----- ----- -------- BALANCE, October 31, 1997 - - - 142 Issuance of common stock for GEC earnout - - - - Compensation expense for below market options - - - - Issuance of common stock for exercise of options, net of tax benefit - - - - Dividends on Series A preferred stock - - - (78) Embedded dividend recognized on Series A convertible preferred shares - - - (105) Issuance of common stock for conversion of Series A convertible preferred shares - - - - Valuation of subordinated note warrants - - - - Valuation of Series B Preferred Stock warrants - - - - Beneficial conversion privilege applicable to Series B Preferred Stock - - - (7,909) Valuation of WorldCom options 3,490 - - Valuation of WorldCom phantom stock awards - 606 - Issuance of common stock for conversion of Series B Preferred Stock - - - - Dividends on Series B preferred stock - - - (262) Net income - - 2,514 ------- ----- ----- -------- BALANCE, October 31, 1998 $ 3,490 $ 606 $ - $ (5,698) ======= ===== ===== ======== Total -------- BALANCE, November 1, 1995 $ 17,466 Issuance of common stock to directors in connection with acquisition 43 Change in unrealized loss on investments (1) Net loss (5,910) -------- BALANCE, October 31, 1996 11,598 Issuance of common stock in connection with acquisition 621 Issuance of common stock for services 12 Issuance of common stock for exercise of options 732 Compensation recognized on stock options 338 Issuance of common stock for conversion of convertible preferred shares 34 Changes in unrealized loss on investments 54 Convertible preferred dividends paid (260) Embedded dividend recognized on convertible preferred shares (1,266) Tax benefit from exercise of options 527 Net income 2,857 -------- BALANCE, October 31, 1997 15,247 Issuance of common stock for GEC earnout 1,278 Compensation expense for below market options 93 Issuance of common stock for exercise of options, net of tax benefit 2,587 Dividends on Series A preferred stock (78) Embedded dividend recognized on Series A convertible preferred shares (105) Issuance of common stock for conversion of Series A convertible preferred shares 6,818 Valuation of subordinated note warrants 1,244 Valuation of Series B Preferred Stock warrants 5,400 Beneficial conversion privilege applicable to Series B Preferred Stock - Valuation of WorldCom options 3,490 Valuation of WorldCom phantom stock awards 606 Issuance of common stock for conversion of Series B Preferred Stock 1,385 Dividends on Series B preferred stock (262) Net income 2,514 -------- BALANCE, October 31, 1998 $ 40,217 ========
The accompanying notes are an integral part to these consolidated financial statements F-6
ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED (IN THOUSANDS): 1998 1997 1996 ------- ------ ------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) 2,514 2,857 (5,910) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities, net of effects of acquisitions: Depreciation 6,638 4,532 2,750 Amortization 962 Bad debt expense -- 160 1,094 Translation/transaction Losses 275 -- 1,180 Deferred income taxes 717 727 (891) Minority interest 618 293 (598) Write down of Latin American assets -- -- 1,593 Compensation recognized for conversion of stock options 93 338 -- Reduction in revenue for litigation -- (433) -- Other - net 156 10 313 ------- ------ ------ 11,973 8,501 (469) Changes in assets and liabilities, net of effects from acquisitions: Decrease in accounts receivable 2,694 842 1,855 Increase in costs and profits in excess of billings on uncompleted contracts (16,987) (4,661) (829) Decrease in inventory 2,602 118 1,871 Decrease (increase) in other current assets (268) 313 340 Decrease (increase) in other assets 1,247 (280) (287) Increase (decrease) in accounts payable and accrued expenses 2,273 (199) 160 Increase (decrease) in billings in excess of costs and estimated profits on uncompleted contracts 569 (927) 681 Increase in other liabilities 2,789 230 -- ------- ------ ------ Cash Provided by Operating Activities 6,892 3,937 3,322 ------- ------ ------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures, net (9,966) (4,487) (2,557) Net proceeds from sale of assets 90 96 129 Sales of investments 0 567 -- Cash acquired in acquisitions 4,661 404 1,761 Cash paid for acquisitions (8,681) (3,000) (3,500) ------- ------ ------ Net cash used in investing activities (13,896) (6,420) (4,167) ------- ------ ------ CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under lines of credit: 50,518 (4,626) 1,254 Payment of shareholder/directors loans (2,925) (250) (500) Borrowings from shareholder/directors 2,050 -- 500 Proceeds from long-term debt 10,000 11,014 4,547 Proceeds from debt to finance acquisition 10,000 3,000 3,000 Repayments on long-term debt (74,388) Distributions to minority interests (502) (293) (210) Foreign currency translation adjustment (275) -- (779) Proceeds from the issuance of preferred stock, net 18,110 5,418 -- Proceeds from the exercise of stock options 2,071 732 -- Dividends paid (341) (260) -- ------- ------ ------ Net cash provided by financing activities 14,318 5,446 1,561 ------- ------ ------ Effect of exchange rate changes on cash and cash equivalents -- -- (401) Increase (decrease) in cash and cash equivalents 7,314 2,963 315 Cash and cash equivalents at beginning of year 6,230 3,267 2,952 ------- ------ ------ Cash and cash equivalents at end of year 13,544 6,230 3,267 ======= ====== ====== Supplemental disclosures of cash flow information: Valuation of warrants 6,644 -- -- Discount on preferred stock 7,909 -- -- Issuance of common stock for acquisition 1,278 620 -- GEC earnout 4,595 (1,278) -- Compensation recognized on below market options 93 -- -- Valuation of below market options on acquisition 4,096 -- -- Interest paid 4,226 1,684 1,120 Income taxes paid 29 -- --
F-7 ABLE TELCOM HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1998 1. THE COMPANY: Able Telcom Holding Corp. (Able Telcom or the "Company") develops, builds and maintains communications systems for companies and governmental authorities. The Company is headquartered in West Palm Beach, Florida, and operates its subsidiaries throughout the United States, as well as in areas of South America. The Company has three main organizational groups: ORGANIZATIONAL GROUP SERVICES PROVIDED Network Services Group Design, development, engineering, installation, construction, operation and maintenance services for telecommunications systems Transportation Services Group Design, development, integration, installation, construction, project management, maintenance and operation of automated toll collection systems, electronic traffic management and control systems, and computerized manufacturing systems Communications Development Group Design, installation and maintenance (Latin America) services to foreign telephone companies Each group is comprised of subsidiaries of the Company with each having local executive management functioning under a decentralized operating environment. The Company's customers include local and long distance telephone companies, utilities, cable television operators, financial institutions, universities, medical facilities, correctional facilities and local, state and federal governments. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements are prepared on an accrual basis and include the accounts of the Company and its subsidiaries. A substantial portion of consolidated total assets, liabilities and revenues are generated by one subsidiary of the Company, MFS Network Technologies, Inc. (MFSNT) which was acquired during the fiscal year ended October 31, 1998. Operations for subsidiaries acquired in purchase business combinations are included in the consolidated results of operations since the date of acquisition. All material intercompany accounts and F-8 transactions have been eliminated. Certain items in the 1997 and 1996 consolidated financial statements have been reclassified to conform to the 1998 presentation. USE OF ESTIMATES The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS The Company considers all unrestricted highly liquid investments with original maturities of three months or less to be cash equivalents. ASSETS HELD FOR SALE Assets held for sale represent certain assets acquired in connection with the acquisition of MFSNT which are held for sale and are reported at the estimated fair value less costs to sell. PROPERTY AND EQUIPMENT Property and equipment are recorded, at cost. Depreciation is provided for using the straight-line method over the estimated useful lives of the assets which generally range from five to ten years. GOODWILL Goodwill represents the amount by which the purchase price of businesses acquired exceeds the fair market value of the net assets acquired under the purchase method of accounting. Goodwill is being amortized on a straight-line basis over 20 years. The Company, at each balance sheet date, evaluates the recoverability of the carrying amount of goodwill if circumstances suggest that it has been impaired. If this review indicates that goodwill is not recoverable, as principally determined based on the estimated undiscounted cash flows of the entity which gave rise to the goodwill, over the remaining amortization period, then the Company's carrying value of the goodwill is reduced by the estimated shortfall in cash flows. F-9 STOCK BASED COMPENSATION The Company accounts for its stock based compensation plan under Accounting Principle Board Opinion No. 25," Accounting for Stock Issued to Employees," and relating interpretations, and follows the disclosure provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Acounting for Stock-Based Compensation." REVENUE RECOGNITION Revenues from "per unit basis" contracts are recognized at the time services are rendered and accepted by the customer. Revenues from construction contracts and installation contracts are recognized as contract costs are incurred under the percentage-of-completion method measured on the cost to cost basis. Contract costs include all direct material and labor costs as well as those indirect costs relating to the contract such as indirect labor, supplies and equipment costs. Generally, the determination of substantial contract completion is made by the project owner. Changes in job performance, condition and the estimated profitability may result in changes in the estimates for project costs and profits. Revised estimates are recognized in the period in which the changes are determined. When the current estimates of total contract revenue and contract cost indicates a loss ("loss jobs"), a provision for the entire loss on the contract is made. During the fiscal year ended October 31, 1998, costs on loss jobs of approximately $15.1 million were charged to reserves for losses on uncompleted contracts which relate primarily to loss contracts acquired in connection with the acquisition of MFSNT. FOREIGN CURRENCY TRANSLATION The financial statements of the Company's Latin American subsidiaries are remeasured using the U.S. dollar as the functional currency. Monetary assets and liabilities denominated in a foreign currency are remeasured into U.S. dollars at the year end exchange rate. Nonmonetary assets and liabilities, and related income statement amounts are remeasured at historical exchange rates. INCOME TAXES The Company files consolidated federal income tax returns. The Company recognizes deferred tax assets and liabilities based on the difference between the financial statement and tax bases of assets and liabilities using estimated tax rates in effect for the year in which the differences are expected to reverse. F-10 INCOME (LOSS) PER COMMON SHARE In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 128, "Earnings Per Share" ("SFAS No. 128"), which specifies the computation, presentation and disclosure requirements for earnings per share (EPS). SFAS No. 128 is effective for periods ending after December 15, 1997, and requires retroactive restatement of EPS for all prior periods presented. The statement replaces the previous "primary earnings per share" computation with a "basic earnings per share" and redefines the "diluted earnings per share" computation. The difference between the Company's weighted average shares outstanding and diluted shares outstanding is due to the dilutive effect of stock options and convertible securities. There are no significant differences in the numerator of the Company's computations of basic and diluted earnings per share for any period presented. FINANCIAL INSTRUMENTS The carrying amounts of cash and cash equivalents, accounts receivable (generally unsecured), accounts payable and notes payable approximate fair value due to the short maturity of the instruments and the provision for what management believes to be adequate reserves for potential losses. The fair values of lines-of-credit and long-term debt approximate their carrying amount since the currently effective rates reflect market rates. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS SFAS No. 130 - In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income." This statement establishes standards for reporting and display of comprehensive income and its components in a full set of financial statements. This statement is effective for fiscal years beginning after December 15, 1997. Companies are also required to report comparative totals for comprehensive income in interim reports. The Company will report comprehensive income commencing in fiscal year 1999. SFAS No. 131 - In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information". This statement requires disclosures for each segment that are similar to those required under current standards with the addition of quarterly disclosure requirements and more specific and detailed geographic disclosures especially by countries as opposed to broad geographic regions. The provisions of SFAS No. 131 are effective for fiscal years beginning after December 15, 1997. The Company will adopt this statement in the fiscal year 1999. SFAS No. 133 - In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and for Hedging Activities." This statement revises the accounting for the recognition and measurement of derivatives and hedging transactions and is effective for fiscal years beginning after June 15, 1999. The Company does not anticipate the early adoption of this statement and has not determined the impact it will have on the consolidated financial statements. 3. ACQUISITIONS On July 2, 1998, the Company acquired the network construction and transportation systems business of MFS Network Technologies, Inc. ("MFSNT") from WorldCom, Inc. ("WorldCom") pursuant to a merger agreement dated April 26, 1998 ("Plan of Merger"). On September 9, 1998, the Company and WorldCom finalized the terms of the Plan of Merger through the execution of an amended agreement. The acquisition of MFSNT was accounted for using the purchase method of accounting at a total price of approximately $67.5 million, as described below. In conjunction with the acquisition of MFSNT, the Company granted an option to WorldCom (the "WorldCom Option") to purchase up to 2,000,000 shares of the Company's common stock, at an exercise price of $7.00 per share, but subject to a 1,817,941 share maximum limitation, and phantom stock awards (the "Phantom Stock Awards") equivalent to 600,000 shares of common stock, payable in cash, stock, or a combination of both at the Company's option. The WorldCom Phantom Stock Awards are exercisable only on the following three days: July 2, 1999, July 2, 2000, or July 2, 2001. WorldCom will be entitled to receive any appreciation of the Common Stock over a base price of $5 3/32 per share, but in no event shall the maximum payment exceed $25.00 per share. The fair values of the WorldCom Option and Phantom Stock Awards were estimated at the date of grant at $3.5 million and $0.6 million, respectively, and are included as a component of the total consideration paid for the acquisition of MFSNT. Subsequent to October 31, 1998, the Company and WorldCom agreed to convert the WorldCom Option to stock appreciation rights with similar terms and provisions. The purchase price for MFSNT was determined as follows (in millions): Contract price $58.8 Transaction related costs 4.6 WorldCom Option 3.5 WorldCom Phantom Stock Awards .6 ----- Total Purchase Price $67.5 ===== F-11 The Company allocated the purchase price to the assets acquired and the liabilities assumed based on the fair value of those assets and liabilities as follows (in millions): Cash and accounts receivable $47.0 Costs and profits in excess billing on uncompleted contracts 93.7 Assets held for sale 38.8 Prepaid expenses 1.0 Property 5.7 Goodwill(1) 16.5 Accounts payable (13.7) Billings in excess of costs and profits on uncompleted contracts (56.6) Reserve for losses on uncompleted contracts (40.5) Accrued restructuring costs(2) (2.0) Property taxes payable (15.0) Other accrued liabilities(3) (7.4) ----- Total allocated purchase price $67.5 ===== - ------------- (1) Goodwill is being amortized on a straight-line basis over 20 years. (2) Accrued restructuring costs related primarily to severance and benefit costs associated with the involuntary termination of employees pursuant to an approved restructuring plan. During the fiscal year ended October 31, 1998, approximately $1.7 million was charged against this reserve. (3) Includes allowances for costs related to litigation and claims of $5.0 million which, according to the Plan of Merger, is payable to WorldCom in the event specified litigation costs and claims are not paid by the Company. In conjunction with the acquisition of MFSNT, the Company entered into a five-year agreement with WorldCom to provide telecommunications infrastructure services to WorldCom (the "WorldCom Master Services Agreement") for a minimum of $40.0 million per year, provided that the aggregate sum payable to MFSNT shall be not less than $325.0 million, including a fee of 12 percent of reimbursable costs under the agreement ("Aggregate Sum"). If MFSNT declines any of the first $130.0 million of contract work in any year of the agreement, the value of the declined work reduces the Aggregate Sum. MFSNT has agreed that WorldCom Network will have met all of its obligations to MFSNT to the extent that payments to MFSNT reach an aggregate of $500.0 million at any time during the five-year term. During the fiscal year ended October 31, 1998, the Company recognized revenues of approximately $30.3 million from the WorldCom Master Services Agreement. F-12 The Company is entitled to use the name "MFSNT" during the 18-month transition period commencing July 2, 1998. PATTON MANAGEMENT CORPORATION On April 1, 1998, the Company purchased all of the outstanding common stock of Patton Management Corporation ("Patton") for a total purchase price of approximately $4.0 million. The acquisition was accounted for using the purchase method of accounting. Goodwill of approximately $2.8 million was recorded and is being amortized on a straight-line basis over 20 years. DIAL COMMUNICATIONS, INC. On December 2, 1996, Able acquired all the outstanding common stock of Dial Communications, Inc. (Dial). As consideration, the Company paid $3.0 million in cash, issued 108,489 shares of common stock (fair value of $0.6 million) and issued a $0.9 million promissory note with a three year term bearing interest at Prime plus 1/2 percent. The acquisition was accounted for using the purchase method of accounting. The results of operations are included in the consolidated statements of operations since the date of acquisition. Goodwill of $1.5 million was recorded in this transaction which is being amortized over 20 years using the straight-line method. F-13 GEORGIA ELECTRIC COMPANY On October 12, 1996, the Company, through a wholly owned subsidiary, acquired all of the outstanding common stock of Georgia Electric Company (GEC). As initial consideration, the Company paid $3.0 million in cash. Under the terms of the earn-out provision of the acquisition agreement, the Company will issue shares of common stock over a five year period beginning in fiscal 1997, contingent upon the operating performance of GEC and the market value of the Company's stock. Such amounts will be accounted for as purchase price adjustments. The acquisition was accounted for using the purchase method of accounting. The results of operations are included in the consolidated statements of operations since the date of acquisition. The Company recorded goodwill of $1.3 million at October 31, 1997 and additional goodwill of $4.6 million at October 31, 1998 as a result of additional purchase price due to the former owner of GEC under the terms of the earn-out provisions of the acquisition agreement. The goodwill is being amortized over 20 years using the straight-line method. Corresponding amounts are reflected as accounts payable and accrued liabilities in the consolidated balance sheets pending the issuance of the Company's common stock. F-14 H. C. CONNELL, INC. On December 8, 1995, the Company, through a wholly owned subsidiary, acquired all of the outstanding common stock of H.C. Connell, Inc. ("Connell"). As consideration, the Company paid $0.5 million in cash and issued a $1.9 million promissory note. The acquisition was accounted for using the purchase method of accounting. The results of operations of Connell are included in the consolidated statements of operations since the date of the acquisition. F-15 Pro Forma Financial Information (Unaudited) Unaudited pro forma financial information for the Company is presented below as if the Company's acquisitions had taken place as of November 1, for each of the respective years (in thousands, except per share amounts): Years Ended October 31, ------------------------ 1998 1997 1996 ---- ----- ---- Revenues $86,334 $85,095 Net income (loss) 1,369 (1,346) Basic Loss per Share: Loss applicable to common stock Loss per common stock Diluted Loss per share: Loss applicable to common stock Loss per common stock Income (loss) per share .16 (.17) This unaudited pro forma information does not purport to be indicative of the results of operations which would have resulted had the acquisitions been consummated at the dates assumed. 4. ACQUISITION OF COMSAT CONTRACTS: On February 25, 1998, GEC acquired 12 contracts (the "COMSAT Contracts") with the Texas Department of Transportation from CRSI Acquisition, Inc., a subsidiary of COMSAT Corporation ("COMSAT"). The COMSAT Contracts are for the installation of intelligent traffic management systems and the design and construction of wireless communication networks. In exchange for assuming the obligations to perform under the COMSAT Contracts, GEC received consideration from COMSAT of approximately $15.0 million. During the fiscal year ended October 31, 1998, the Company recognized revenues and cost of revenues related to the COMSAT contracts of $19.8 million and $10.7 million, respectively. At October 31, 1998, seven of the COMSAT Contracts were substantially complete. F-16 5. UNCOMPLETED CONTRACTS: Uncompleted contracts consist of the following at October 31, 1998 and 1997 (in thousands): 1998 1997 ----- ---- Costs incurred on uncompleted contracts $116,073 $43,237 Earnings recognized on uncompleted contracts 29,086 7,361 ------ ------ Total 145,159 50,598 Less billings to date (97,120) (45,274) ------- ------ Net $ 48,039 $ 5,324 ======== ======== Included in the accompanying balance sheets under the following headings (in thousands): 1998 1997 ---- ---- Costs and profits in excess of billings on uncompleted contracts $105,478 $5,615 Billings in excess of costs and profits on uncompleted contracts 57,439 291 -------- ------ Net $ 48,039 $5,324 ======== ====== 6. ASSETS HELD FOR SALE: Assets held for sale consist of certain fiber optic conduit and an interest in Kanas Telcom, Inc. ("Kanas") whose primary asset is a telecommunications network along the Alaskan pipeline (the "Alyeska Project"). These assets were acquired in connection with the acquisition of MFSNT and are reflected in the accompanying October 31, 1998 consolidated balance sheet at their estimated fair value less costs to sell. Subsequent to October 31, 1998, the Company negotiated the sale of the fiber optic conduit for approximately $26.0 million which approximated the October 31, 1998 carrying value. F-17 7. DEBT: The Company's debt consist of the following at October 31, 1998 and 1997 (in thousands):
1998 1997 ---- --- Note payable to bank under Revolving Credit Facility, maturing on June 20, 2001, interest payment dates and rates vary (____ percent at October 31, 1998), secured by the Company's existing and future restricted subsidiaries, excluding MFSNT $ 35,000 $ - Note payable to WorldCom maturing on December 15, 2000, interest is payable quarterly at an annual rate of 11.5 percent 30,000 - Senior Subordinated Notes, annual payments of $5.0 million on January 6, 2004 and 2005, 12 percent interest per annum, in arrears, paid semi-annually 10,000 - Notes payable to a bank, payable in monthly installments aggregating approximately $47,161, interest payable monthly ranging from 2.0 to 8.75 percent secured by substantially all the assets of the Company 491 3,560 Notes payable to former owner of Dial payable in monthly at October 31, 1998 installments of principal and interest of 8.75 percent 369 669 Bank lines of credit, $6.0 million maturing on March 1, 1998, interest payable monthly at prime (8.75 percent at October 31, 1997) secured by substantially all the assets of the Company - 6,000 Notes payable to banks, payable in monthly installments of principal and interest of 8.5 percent at October 31, 1997, secured by real and personal property of GEC - 2,500 Mortgage note payable to a bank, payable in monthly installments of $11,604 plus interest at prime (8.75 percent at October 31, 1997) - 269 Notes payable to bank, payable in monthly installments of principal and interest at prime (8.75 percent at October 31, 1997), secured by real and personal property of Dial - 2,876 Notes payable to banks, payable in monthly installments of principal and interest at prime (8.75 percent at October 31, 1997), secured by related equipment - 385 Notes payable to bank, payable in monthly installments of principal and interest at prime (8.75 percent at October 31, 1997), secured by related equipment - 511 ------ ------- 75,860 16,770 Property taxes payable under certain contractual agreements at the present value of estimated amounts payable over 20 years discounted at 15%, payments to commence in fiscal year 1999 15,000 - Capital leases 1,321 524 ------ ------- 92,181 17,294 Less- Discount on Senior Subordinate Notes (1,087) - ------ ------- 91,094 17,294 Less- Current portion (15,047) (3,154) ------ ------- Long-term debt, excluding current portion $ 76,047 $14,140 ====== =======
F-18 CREDIT FACILITIES On April 6, 1998, the Company obtained a $25.0 million three-year senior secured revolving credit facility (the "Credit Facility") with a $2.0 million sub-limit for the issuance of standby letter(s) of credit. The Credit Facility allowed the Company to select an interest rate based upon the prime rate or on a short-term LIBOR, in each case, plus an applicable margin, with respect to each draw the Company made thereunder. Interest was payable monthly in arrears on base rate advances and at the expiration of each interest period for LIBOR advances. The Credit Facility contained certain covenants which required, among other conditions, that the Company maintain certain net worth, minimum fixed charge coverage and limitations on total debt, and was secured by a perfected first priority security interest on all tangible assets of the Company. The proceeds of the Credit Facility were used to finance working capital requirements and for other general corporate purposes, including acquisitions and capital expenditures, not to exceed $15.0 million, associated with the Company's overall strategic plan. On June 11, 1998, this amount was repaid with proceeds from the Company's New Credit Facility defined below. On June 11, 1998, the Company replaced the Credit Facility with a new $35.0 million three-year senior secured revolving credit facility ("New Credit Facility") with a $5.0 million sub-limit for the issuance of standby letter(s) of credit. The New Credit Facility allows the Company to select an interest rate based upon the prime rate or on a short-term LIBOR, in each case plus an applicable margin, with respect to each draw the Company makes thereunder. Interest is payable monthly in arrears on base rate advances and at the expiration of each interest period for LIBOR advances. The New Credit Facility contains certain financial covenants which require, among other conditions, that the Company maintain certain minimum ratios, including current and debt leverage, minimum fixed charge coverage, interest coverage, as well as limitations on total debt. The New Credit Facility is secured by a perfected first priority security interest on all tangible assets of the Company and a pledge of the shares of stock of each of the Company's subsidiaries operating in the United States. On June 30, 1998, the New Credit Facility was amended to include (i) the Company's acquisition of MFSNT and the related financing of such transaction, (ii) changes in financial covenants related thereto, and (iii) other amendments relating to investments, pledging and intercompany matters. At October 31, 1998 and thereafter, the Company was in violation of certain of the covenants in the New Credit Facility which were subsequently waived through November 1, 1999. WORLDCOM NOTE: In conjunction with the acquisition of MFSNT, the Company executed a $30.0 million promissory note to WorldCom bearing interest of 11.5 percent per year (the "WorldCom Note"). The principal amount of the WorldCom Note is to be repaid in part by applying a portion of certain fees (i) due under the WorldCom Master Services Agreement and (ii) received by the Company in connection with the sale and installation of certain fiber optic conduit projects. Pursuant to an agreement, the Company has pledged all of the shares of capital stock in MFSNT to WorldCom to secure the Company's obligations under the WorldCom Note. The Company has classified $13.2 million of the WorldCom Note as a current liability based upon the estimates of the fiscal year 1999 repayments resulting from proceeds under the WorldCom Master Services Agreement and the sale of the fiber optic conduit. The WorldCom Note provides for covenants of which the Company was in compliance at October 31, 1998. Upon noncompliance or an event of default, the entire balance of the WorldCom Note shall automatically become due and payable, subject to certain subordination provisions. In addition, remedies available to WorldCom include the following: /bullet/ Acquire all of the stock in MFSNT. /bullet/ Keep all principal and interest already paid under the WorldCom Note. /bullet/ Require an 18 percent annual default rate of interest. /bullet/ Cause WorldCom to apply 12 percent of the payment it owes to the Company at the time of default under the WorldCom Master Services Agreement to the outstanding principal and interest due under the WorldCom Note. In addition, if the WorldCom Note is not repaid in full by December 15, 2000, it is anticipated that WorldCom will be able to: /bullet/ Reduce the minimum yearly and aggregate revenues under the WorldCom Master Services Agreement. /bullet/ Refuse to give additional work under the WorldCom Master Service Agreement while in default. SENIOR SUBORDINATED NOTES Effective January 6, 1998, the Company issued $10.0 million of unsecured 12 percent Senior Subordinated Notes due January 6, 2005 (the "Senior Subordinated Notes") with detachable warrants to purchase 409,505 shares of common stock at a price of $8.25 per share, which were valued at approximately $1.2 million resulting in a corresponding discount applicable to the Senior Subordinated Notes which is being amortized to interest expense over the life of such notes. The agreement, pursuant to which the Senior Subordinated Notes were issued, contains covenants which require, among other conditions, that the Company maintain certain tangible net worth, minimum fixed charge coverage and limitations on total debt and which limit the Company's ability to pay dividends and make certain other payments, make investments and sell assets or subsidiaries. At October 31, 1998, the Company was in violation of certain of the covenants in the Senior Subordinated Note agreement. These notes were redeemed from the holder of these notes subsequent to October 31, 1998. OTHER BORROWINGS On June 1, 1997, the Company entered into a $6.0 million Line of Credit Facility (the "Line of Credit"). The Line of Credit was due March 1, 1998 and was repaid in 1998. AGGREGATE MATURITIES The aggregate maturities of long-term debt and capital leases for years subsequent to October 31, 1998, are as follows: 1999 $ 15,047 2000 18,225 2001 36,021 2002 935 2003 872 Thereafter 21,081 -------- $92,181 ======== F-19 8. COMMITMENTS AND CONTINGENCIES: F-20 LITIGATION On May 21, 1998, SIRIT Technologies, Inc. ("SIRIT") filed a lawsuit in the United States District Count for the Southern District of Florida, against the Company and Thomas M. Davidson, who has since become a member of the Company's Board of Directors. SIRIT asserts claims against the Company for tortuous interference, fraudulent inducement, negligent misrepresentation and breach of contract in connection with the Company's agreement to purchase the shares of MFSNT and seeks injunction relief and compensatory damages in excess of $100.0 million. On September 10, 1998, Shipping Financial Services Corp. ("SFSC") filed a lawsuit in the United States District Court for the Southern District of Florida against the Company, and certain of its officers. SFSC asserts claims under the federal securities laws against the Company and four of its officers that the defendants allegedly caused the Company to falsely represent and mislead the public with respect to two acquisitions, COMSAT and MFSNT, and the ongoing financial condition of the Company as a result of the acquisitions and the related financing of those acquisitions. SFSC seeks certification as a class action on behalf of itself and all others similarly situated and seeks unspecified damages and attorneys' fees. The Company is subject to a number of shareholder and other lawsuits and claims for various amounts which arise out of the normal course of its business. The Company intends to vigorously defend itself in these matters. The disposition of all pending lawsuits and claims is not determinable and may have a material adverse effect on the Company's financial position. KANAS GUARANTY AGREEMENT In conjunction with the acquisition of MFSNT, the Company has agreed to guarantee the payment obligations of Kanas under its credit agreement. The aggregate commitment of the lenders under this agreement is $85.4 million, and the purpose of the Kanas Credit Agreement is to provide the funds necessary to complete the Alyeska Project. CONTRACTS The Company has and will continue to execute various construction and other contracts which may require the Company to, among other items, maintain specific financial parameters, meet specific milestones and post adequate collateral generally in the form of performance bonds. Failure by the Company to meet its obligation under these contracts may result in the loss of the contract and subject the Company to litigation and various claims, including liquidated damages. F-21 LEASED PROPERTIES As of October 31, 1998, the Company leased office space and equipment under various noncancelable long-term operating lease arrangements. Rental expense for operating leases amounted to $2.4 million, $0.8 million and $0.6 million for the fiscal years ended October 31, 1998, 1997 and 1996, respectively. During fiscal year 1998, the Company leased certain equipment under capitalized lease agreements which have been included in Property and Equipment. Cost and accumulated amortization of such assets as of October 31, 1998, totaled $3.2 million and $1.8 million, respectively. Future minimum lease payments required under operating and capital leases with initial terms in excess of one year are as follows (in thousands): CAPITAL OPERATING YEARS ENDING OCTOBER 31, LEASES LEASES -------- ---------- 1999 $ 788 $3,177 2000 454 1,738 2001 149 1,238 2002 64 1,125 2003 - 625 Thereafter - 416 ------ ------ Total minimum lease payments $1,455 $8,319 ====== ====== Present value of net minimum lease payments $1,321 Less current installments of obligations under capital leases 706 ------ Obligations under capital leases, excluding current installments $ 615 ====== F-22 9. PREFERRED STOCK: SERIES A PREFERRED Effective December 20, 1996, the Company completed a private placement transaction of 1,000 shares of $.10 par value, Series A Convertible Preferred Stock (the "Series A Preferred Stock") and warrants to purchase 200,000 shares of the Company's common stock at $9.82 per share. Proceeds from the offering totaled $6.0 million. Each share of Series A Preferred Stock was convertible into shares of the Company's common stock after April 30, 1997, at the lesser of $9.82 per share or at a discount (increased to a maximum of 20 percent for conversions after December 20, 1997) of the average closing bid price of a share of common stock for three days proceeding the date of conversion. The Company recognized the discount attributable to the beneficial conversion privilege of approximately $1.3 million by accreting the amount from the date of issuance, December 20, 1996, through the last date the discount rate increase can occur, December 20, 1997, as an adjustment of net income attributable to common shareholders. This accretion adjustment, which also represents the adjustment needed to accrete to the redemption value of the Preferred Stock, resulted in a charge to retained earnings and accompanying credit to the Preferred Stock. The Preferred Stock accrues dividends at an annual rate of five percent and is payable quarterly in arrears in cash or through a dividend of additional shares of Preferred Stock. During fiscal 1998, all remaining Series A Preferred Stock was converted into common stock pursuant to the terms thereof and the related number of warrants was reduced to 62,000, due to either conversion or forfeiture. SERIES B PREFERRED Effective June 30, 1998 (the "Closing"), the Company completed a private offering (the "Offering") of 4,000 shares of $0.10 par value, nonvoting Series B Convertible Preferred Stock (the "Series B Preferred Stock") which bear annual dividends of 4 percent, and warrants to purchase 1,000,000 shares of the Company's common stock at $19.80 per share for a period of five years from the date of grant (the "Warrants"). Net proceeds from the Offering totaled $18.1 million. In general, the conversion amount of each share of Series B Preferred Stock is convertible into shares of the Company's common stock commencing on June 30, 1998, at 97 percent of the lesser of the (i) average of the low trading prices for any three days during the twenty-two (22) trading days immediately preceding the conversion date, (ii) subject to a minimum equal to 95 percent of such conversion price. The conversion amount of each share of Series B Preferred Stock is equal to $5,000 plus any unpaid dividends thereon. Unless waived by a holder on not less than 61 days prior written notice, no holder may convert an amount which would result in such holders and its affiliates' beneficial ownership exceeding 4.99 percent of the then outstanding common stock of the Company. F-23 Of the $18.1 million of proceeds $5.4 million was assigned to the value of the warrants and $12.7 million was assigned as the Series B Preferred Stock. The warrants are exercisable for a five-year period commencing June 30, 1998. In addition, approximately $7.9 million was assigned to the beneficial conversion privilege and has been reflected as a reduction in income available to common stock for the fiscal year ended October 31, 1998. As of October 31, 1998, 436 shares of the Series B Preferred Stock were converted into 1,007,927 shares of common stock at a price of $2.17 per share. Subsequent to October 31, 1998, 2,785 shares were acquired from the holders of this stock by an affiliate of the Company. The Series B Preferred Stock agreements contain certain covenants including registration rights and limitations on common stock dividends. Subsequent to October 31, 1998, the Company was in violation of certain of the covenants related primarily to registration rights and intends to complete the required registration statement in the fiscal year 1999. The Series B Preferred Stock agreements provide for mandatory redemption at amounts up to 130% of the liquidation value under certain circumstances. 10. IMPAIRMENT OF LATIN AMERICAN OPERATIONS During the second quarter of fiscal 1996, the Company identified circumstances that suggested the carrying value of goodwill related to its Brazilian telecommunications company had been impaired. These included continuing losses from operations, consistent failure to meet budgeted operating results despite the Company's attempts to improve performance and the Company's resulting decision during the second quarter of 1996 to substantially curtail its telecommunications maintenance and construction operations. As a result, the Company estimated the expected income to be derived in future periods and the expected undiscounted future cash flows of the Brazilian telecommunications company. The results indicated that goodwill would not be recovered. Accordingly, during the second quarter, the carrying value of goodwill related to this acquisition was reduced from $447,010 to zero. This charge is included in "Charges and transaction/translation losses related to Latin American operations" in the Consolidated Statement of Operations for fiscal year 1997. 11. INCOME TAXES: An analysis of the components of income (loss) before income taxes and minority interest and the related provision (benefit) for income taxes is presented below (in thousands): 1998 1997 1996 ------ ------- ------- Domestic $6,084 $3,304 $(3,770) Foreign 453 573 (3,629) ------ ------ ------- $6,537 $3,877 $(7,399) ====== ====== ======== Provision (benefit) for income taxes: Federal Current $1,937 $ - $ - Deferred 792 657 (969) State Current 751 - - Deferred (75) 70 (167) Foreign Current - - - Deferred - - 245 ------ ------ ------- Provision (benefit) for income taxes $3,405 $ 727 $ (891) ====== ====== ======== Reconciliation of the federal statutory income tax rate to the Company's effective income tax rate is as follows: 1998 1997 1996 ---- ---- ---- Provision (benefit) tax at federal statutory rate 34% 34% (34)% State income tax, net 7 .2 4 Non-deductible goodwill 4 4 2 Reduction in valuation Allowance - - (1) Foreign operations, net 4 (20) 22 Other items, net 3 3.8 3 -- --- --- Effective income tax rate 52% 22% (12)% == === === The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below: 1998 1997 ------ ------ Deferred tax assets- Unrealized loss on investments $ 312 $ - Reserve for bad debts - 135 Net operating loss carryforward - 1,143 Foreign tax credit carryforwards - 424 Other 747 69 ------ ------ 1,059 1,771 ------ ------ Deferred tax liabilities- Plant, property and equipment (755) (660) Investment in foreign subsidiaries - (129) Other (39) - ------ ------ (794) (789) ------ ------ Net deferred tax asset $ 265 $ 982 ====== ====== On October 31, 1997, the Company had Federal net operating loss carryforwards of approximately $3.3 million which were fully utilized in 1998. F-24 12. STOCK OPTIONS: In fiscal 1996, the Company's shareholders adopted a stock option plan for the issuance of up to 550,000 shares which included provisions for both incentive and nonqualified stock options (the Plan) and which expires on September 19, 2005. Salaried employees are eligible to receive both incentive and nonqualified stock options, except that employees of the Company may not receive incentive stock options if at the date of grant they own more than ten percent (10%) of the Company's outstanding stock, unless (i) the incentive stock options are granted at an option price at least equal to 110 percent of the fair market value of the Company's common stock at the date of grant, and (ii) the options are not exercisable after five years from the date of the grant. Grants of incentive stock options are also limited under the Plan to the extent that the aggregate fair market value at the date of grant is exercisable for the first time by an employee of the Company during any calendar year in an amount which exceeds $100,000. Nonemployee directors who do not own more than five percent (5%) of any class of the Company's outstanding stock, consultants and advisors are eligible to receive nonqualified stock options under the Plan. The Plan specifies that all options must be granted at a price which is equal to or in excess of the fair market value of the Company's common stock, determined in accordance with the Plan (the average closing price of the Company's common stock for the ten (10) business days immediately preceding the date of grant) and are not transferable other than at the death of the optionee. Incentive stock options generally become exercisable over a three-year period in equal installments beginning in the year F-25 after the date of grant, while nonqualified stock options are exercisable, as determined by the plan administrator described below. The Plan is currently administered by the Company's Board of Directors, although the Plan provides that a committee of disinterested persons appointed by the Board of Directors may also administer the Plan. On April 24, 1998, the shareholders increased the number of shares issuable under the Plan to 1,300,000 and made certain other amendments to the Plan which relate primarily to the issuance of restricted stock awards. A summary of the Company's stock option activity under the Plan, and related information for the period from October 31, 1996, through October 31, 1998, follows: NUMBER OF OPTION PRICE SHARES PER SHARE --------- ---------- Options Outstanding at October 31, 1996 160,000 $5.75 - $6.875 Grants 323,500 6.00 - 7.813 Exercises (71,740) 6.00 - 6.875 Cancellations (39,320) 5.875 - 7.813 Option Outstanding at October 31, 1997 372,440 6.00 - 7.813 Grants 592,000 5.34 - 14.00 Exercises (211,935) 5.34 - 7.813 Cancellations (88,030) 6.375 - 7.813 -------------------------------- Options Outstanding at October 31, 1998 664,475 6.20 - 14.00 ================================ At October 31, 1998, 351,850 shares are reserved for future issuance under the Plan. In addition, stock options have been granted to certain officers prior to the adoption of the Plan and to certain employees of the Company outside of the Plan. During fiscal 1992, an option to purchase 260,000 shares of the Company's common stock at $0.05 per share was granted to a director of the Company. In addition, in fiscal 1993, an officer was granted an option to purchase 100,000 shares of common stock at $0.50 per share and a financial consultant for the Company was granted a total of 200,000 shares at an average price of $3.38 per option, all of which were exercised prior to October 31, 1996. During fiscal 1995, options to purchase 100,000 shares at the fair market value of $4,83 per share were granted to an officer, pursuant to an employment agreement. During fiscal 1996, options to purchase 40,000 were granted to an employee at an option price of $6.44 per share, which was above the fair market value at the date of grant ($6.00). During fiscal 1998, options to purchase 160,000 shares of the Company's common stock were granted to members of the Company's Board of Directors at option prices of $6.20 or $11.9375 per share, and 150,000 options were granted to certain employees of the Company at an option price of $14.00 per share. F-26 A summary of the Company's stock option activity outside the Plan, and related information for the period from October 31, 1996, through October 31, 1998, follows: NUMBER OF OPTION PRICE SHARES PER SHARE -------- ----------- Options Outstanding at October 31, 1996 300,500 $0.05 - $6.44 Grants - - Exercises (190,500) 0.05 - 4.83 Cancellations - - Option Outstanding at October 31, 1997 110,000 0.05 - 6.44 Grants 310,000 6.20 - 14.00 Exercises (110,000) 0.05 - 6.44 Cancellations - - -------------------------------- Options Outstanding at October 31, 1998 310,000 6.20 - 14.00 ================================ The estimated average remaining life of the stock options in the Plan and outside the Plan is approximately 3.5 years and 6 years, respectively. Subsequent to October 31, 1998, in an effort to correct certain of the actions taken by the Company's Board of Directors in order to maintain compliance with the Plan, as amended, the Board of Director's rescinded certain of the above stock option grants, or 530,000 options under the Plan and 310,000 options outside the Plan, and reissued these options at the calculated fair market value on December 31, 1998, as well as shortened certain of the expiration dates of the options. In addition, subsequent to October 31, 1998, the Board of Directors of the Company granted an additional 162,500 stock options under the Plan and 1,050,000 options outside the Plan to employees of the Company. Compensation expense associated with options issued at an option price less than fair market value for the fiscal year ended October 31, 1998 totaled $0.1 million. For the fiscal years ended October 31, 1997 and 1996, the Company did not have any compensation expense associated with stock options. The Financial Accounting Standards Board ("FASB") issued SFAS No. 123 in 1995, which requires expanded disclosures of stock based compensation arrangements with employees and encourages compensation cost to be measured based on the fair value of the equity instrument. Under SFAS No. 123, companies are permitted to continue to apply Accounting Principles Board ("APB") Opinion No. 25 "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES," which recognizes compensation cost based on the intrinsic value of the equity instrument awarded. The Company has elected to continue to apply APB Opinion No. 25, and related Interpretations in accounting for its employee stock options because the alternative fair value accounting provided for under SFAS No. 123 requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, to the extent the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. The following is the pro forma effect on net income and earnings per share as if the Company had adopted the expense recognition requirement of SFAS No. 123: YEAR ENDED OCTOBER 31, 1998 1997 1996 Proforma net income (loss) (7,303) 2,647 (5,760) Proforma earnings (loss) Per share: Basic (0.74) .31 (0.69) Diluted (0.74) .31 (0.69) 13. MAJOR CUSTOMERS/CONCENTRATION OF CREDIT RISK In fiscal years 1997 and 1996, a significant portion of the Company's business is derived from four major customers including a governmental agency, two telephone companies and an industrial manufacturer. At October 31, 1997, the Company had accounts receivable from these customers of $3,109,025 or 48% of total accounts receivable. Revenues from these customers totaled approximately $30.9 million and $22.8 million or 36% and 50% of consolidated revenues in fiscal years 1997 and 1996, respectively. Approximately 50% of the Company's Latin American revenues are derived from one customer in Venezuela. Revenues from this customer were approximately 2% of consolidated revenues in 1997 and 4% in 1996. Accounts receivable outstanding for this customer were $0.8 million at October 31, 1997. During fiscal year 1998, only one customer, WorldCom, accounted for ten percent or more of the Company's consolidated revenues. Revenues from WorldCom during the fiscal year ended October 31, 1998 totaled approximately $30.3 million, and receivables from WorldCom at October 31, 1998 totaled $11.8 million. 14. RELATED-PARTY TRANSACTIONS: In conjunction with certain finders fees associated with the acquisition of MFSNT, the Company entered into three-year, 10 percent note for $1.3 million with a third party who subsequently became a member of the Company's Board of Directors. At October 31, 1998, the outstanding balance of this note was $1.1 million and is reflected in accrued liabilities in the accompanying consolidated balance sheet. At various times in the past, certain of the Company's directors have loaned the Company money for a variety of purposes. Generally these loans are unsecured at market rates of interest. Other than the note described above, there were no notes to directors at October 31, 1998 and $0.9 million outstanding under such notes at October 31, 1997. F-27 In November 1997, a subsidiary of the Company assumed the obligations of Ten-Ray Utility Construction, Inc. ("Ten-Ray"), a North Carolina corporation, as contractor under two network construction contracts and paid the costs Ten-Ray had accrued under the contracts of approximately $0.1 million. On January 30, 1998, the Company purchased from Ten-Ray certain construction equipment used in connection with the contracts. The purchase price for the equipment was the satisfaction of Ten-Ray's bank loans secured by the equipment in the amount of $0.3 million, including principal and interest, which in the opinion of the executives of the subsidiary was not more than the fair market value of the equipment and at the time of this transaction. The Company's Chief Financial Officer, beneficially owned approximately 7.7 percent of the voting stock of Ten-Ray and had personally guaranteed the equipment loans to the bank. F-28 15. INDUSTRY AND GEOGRAPHIC AREA SEGMENT INFORMATION: The Company currently operates primarily in two industry segments: network services and transportation services. Transportation services are conducted primarily in the United States with small projects in South America, Canada and Asia, while telecommunication network services are conducted both in the United States and Latin America. Revenues, income (loss) from operations, identifiable assets, capital expenditures, and depreciation and amortization pertaining to the industries and geographic areas in which the Company operates are presented below (in thousands):
INDUSTRY SEGMENTS 1998 1997 1996 ----------------- ---- ---- ---- Sales to unaffiliated customers: Transportation services $ 84,022 $46,795 $22,661 Network services 133,459 39,539 26,245 -------- ------- ------- Total $217,481 $86,334 $48,906 ======== ======= ======= Income (loss) from operations: Transportation services $ 8,220 $3,772 $(3,454) Network services 3,189 1,069 (2,833) -------- ------- ------- Total $ 11,409 $4,841 $(6,287) ======== ======= ======= Identifiable assets: Transportation services $ 85,373 $28,884 $25,099 Network services 205,387 21,462 13,820 -------- ------- ------- Total $290,760 $50,346 $38,919 ======== ======= ======= Capital expenditures: Transportation services $ 5,753 $1,635 $1,275 Network services 7,778 2,851 2,216 -------- ------- ------ Total $ 13,531 $4,487 $3,491 ======== ====== ====== Depreciation and amortization: Transportation services $ 2,398 $1,710 $1,229 Network services 4,240 2,821 1,521 -------- ------- ------ Total $ 6,638 $4,532 $2,750 ======== ====== ====== GEOGRAPHIC AREAS Revenues: United States $212,152 $82,171 $45,160 Latin America 5,329 4,163 3,746 -------- ------- ------- Total $217,481 $86,334 $48,906 ======== ======= ======= Income (loss) from operations: United States $ 11,310 $ 4,824 $(2,073) Latin America 99 17 (4,214) -------- ------- -------- Total $ 11,409 $ 4,841 $(6,287) ======== ======= ======== Identifiable assets: United States $287,589 $47,781 $36,410 Latin America 3,191 2,565 2,509 -------- ------- ------- Total $290,760 $50,346 $38,919 ======== ======= =======
F-29 16. QUARTERLY FINANCIAL DATA (UNAUDITED): (Amounts in thousands, except per share amounts)
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------ ------- ------- ------- 1998(1) Revenues $22,268 $34,552 $58,305 $102,356 Operating income (loss) (1,261) 2,083 4,032 5,156 Net income (loss) (927) 867 790 1,785 Income (loss) applicable to common stock (1,081) 838 (7,186) 1,589 1997(2) Revenues $18,326 $20,871 $21,984 $25,153 Operating income (loss) 1,142 1,785 1,024 888 Net income (loss) 505 851 932 567 Income (loss) applicable to common stock 470 337 491 33
- ----------- (1) Quarterly amounts have been adjusted from amounts previously reported by the Company in their quarterly filings with the SEC for adjustments related to a) the beneficial conversion feature associated with the Series B Preferred Stock; b) the recognition of certain contract revenues; and c) several adjustments for depreciation and miscellaneous accruals. (2) Certain adjustments were made in the fourth quarter of 1997 which included a reduction in reserves associated with litigation between the Company and former owners of TSCI of $0.2 million. The previously reported financial data are as follows (amounts in thousands): FIRST SECOND THIRD QUARTER QUARTER QUARTER ------- ------- ------- 1998 ---- Revenues $22,268 $34,552 $57,705 Operating income (loss) (776) 3,725 4,763 Net income (loss) (670) 1,835 1,464 Income (loss) applicable to common stock (824) 1,792 824 17. SUBSEQUENT EVENT: Subsequent to October 31, 1998, WorldCom advanced the Company $32.0 million for purposes of arranging the purchase of 2,785 shares, or approximately 78%, of the Series B Preferred Stock and the purchase of the outstanding $10.0 million of Senior Subordinated Notes. The advance accrues interest at 11.5% and is repayable on the earlier of (i) October 31, 2000 or (ii) the dates of redemption and/or conversion of the Series B Preferred Stock or the Senior Subordinated Notes. In connection with these transactions, the Company expects to recognize an extraordinary loss on the purchase of the Senior Subordinated Notes of approximately $3.3 million and a reduction in income applicable to common stock of approximately $10.0 million on the purchase of the Series B Preferred Stock. In addition, the Company agreed to modify the terms of the existing Series B Preferred Stock conversion and warrant agreements which may have a significant effect on the underlying value of these securities and result in a material change to income applicable to common stock. WorldCom also agreed to make available additional advances to the Company of up to $15.0 million against amounts otherwise payable pursuant to the WorldCom Master Services Agreement. These additional advances accrue interest at 11.5% and are repayable to WorldCom on October 31, 2000. Had these transactions occurred in fiscal year 1998, convertible preferred stock and selected component of shareholders' equity at October 31, 1998 would have been as follows (in thousands): AS REPORTED PRO FORMA ----------- --------- Convertible Preferred Stock $11,325 $ 2,475 Additional paid-in apital 40,564 50,564 Retained deficit (5,698) (24,998) Total shareholders' equity 40,217 30,917 Additionally, had the transaction occurred in fiscal year 1998, basic earnings per share would have been reduced by $1.95 per common share. F-30 ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES SCHEDULE II Valuation and Qualifying Accounts Years ended October 31, 1998, 1997 and 1996
BALANCE AT CHARGED TO BALANCE AT BEGINNING COSTS AND END OF OF PERIOD ACQUISITIONS EXPENSES DEDUCTIONS PERIOD --------------- -------------- ------------- -------------- -------------- Allowance for doubtful accounts: October 31, 1998 $ 686 $ 75 $ 782 $ 677 $ 866 October 31, 1997 828 - 160 302 686 October 31, 1996 536 2 746 456 828 Restructuring charges: October 31, 1998 - 2,227 - 1,720 507 October 31, 1997 - - - - - October 31, 1996 - - - - - Reserves for litigation and claims October 31, 1998 5,000 986 4,014 Reserves for losses on uncompleted contracts October 31, 1998 40,500 15,110 25,390
EXHIBIT INDEX EXHIBIT DESCRIPTION - -------- ----------- 2.5.1.3 Agreement between WorldCom Network Services, Inc. and Able Telcom Holding Corp. dated January 26, 1999 2.5.2.1 11.5% Promissory Note between Able Telcom Holding Corp. and WorldCom Network Services, Inc. dated as of September 1, 1998 2.5.7 Modification to Stock Option Agreement between the Company and WorldCom, Inc. dated January 8, 1999 2.5.8 Agreement to Enter Into Stock Appreciation Rights Agreement between the Company and WorldCom, Inc. dated January 8, 1999 2.5.9 Financing Agreement between WorldCom Network Services, Inc. and Able Telcom Holding Corp. dated February 16, 1999 4.13 Preferred Stock Purchase Agreement by and among Able Telcom Holding Corp. RGC International Investors, LDC, and Cotton Communications, Inc. dated February 17, 1999 4.14 Warrant Amendment between Able Telcom Holding Corp. and Purchasers (as defined) dated February 17, 1999 10.33 Employment Agreement with Billy V Ray, Jr., dated October 1, 1998 10.36 Employment Agreement with G. Vance Cartee, dated January 4, 1999 10.37 Employment Agreement with Edward Pollock, dated January 1, 1999 10.38 Employment Agreement with Frazier L. Gaines, dated November 12, 1998 10.39 Employment Agreement with Gideon D. Taylor, dated December 7, 1998 10.40 Employment Agreement with Rick Boyle, dated April 1, 1998 10.41 Financing Agreement between Able Telcom Holding Corp. and Cotton Communications, Inc. dated February 17, 1999 (without exhibits) 10.42 11.5% Non-Recourse Promissory Note between Cotton Communications, Inc. and Able Telcom Holding Corp. dated February 17, 1999 10.43 Stock Pledge Agreement between Able Telcom Holding Corp. and Cotton Communications, Inc. dated February 17, 1999 23.1 Consent of Ernst & Young 27 Financial Data Schedule EX-2.5.1.3 2 EXHIBIT 2.5.1.3 AGREEMENT BETWEEN WORLDCOM NETWORK SERVICES INC. AND ABLE TELCOM HOLDING CORP. JANUARY 26, 1999 This Agreement ("Agreement") is the definitive agreement referred to in paragraph 7 of an agreement between the parties dated September 9, 1998 (the "September Agreement") and supersedes the September Agreement. The parties agrees as follows: 1. NOTE TERMS. The existing Promissory Note with Able Telcom Holding Corp. ("Able") as the maker and MFS Communications Company, Inc. ("MFS") as the payee shall be assigned to WorldCom Network Services, Inc. ("WorldCom") and shall be replaced by a promissory note of Able payable to WorldCom in the principal amount of $30,000,000 bearing interest at 11.5% from September 1, 1998. The Maturity Date of the Note will be December 15, 2000 (the "Maturity Date"). Interest shall accrue and be payable on February 28, 1999 and quarterly thereafter and on the Maturity Date. The Note may be prepaid in part or in total without penalty. The principal amount of the Note shall be prepaid as follows: a. Subject to the consent of NationsBank, N.A., after the date hereof, by applying as a credit thereto an amount equal to 8% of the amount otherwise payable by WorldCom, or any affiliate thereof, to Able, or any affiliate thereof, under any "Management Services Agreement" ("MSA"), including, without limitation, the MSA dated July 2, 1998; b. By Able paying WorldCom on the first business day after Able receives the proceeds of any of the following: i. $7,000,000 upon the sale of NYSTA conduit; ii. $1,500,000 upon payment by The Williams Companies of a fee for the installation of conduit; and iii. The greater of 50% of the net profits or 25% of the proceeds received from time to time under any maintenance agreement associated with the sale of NYSTA conduit. 2. ADDITIONAL PAYMENTS. On December 29, 2000, Able shall pay to WorldCom the following amounts, if positive: a. The difference between $12,000,000 related to losses on MFS Network Technologies, Inc. ("MFSNT") projects in existence on March 31, 1998 and recorded by MFSNT as of June 30, 1998 and the amount of the actual losses recorded as of the Maturity Date; and b. The difference between $5,000,000 recorded as reserves for the litigation described on SCHEDULE 1 attached hereto (the "Litigation") and the aggregate costs of Able in defending the Litigation, and payments made in settlement or in payment of judgments with respect to the Litigation, as of the Maturity Date. 3. OTHER DOCUMENTS. The Stock Pledge Agreement and the stock options dated July 2, 1998, shall remain outstanding and in full force and effect, except that the exercise and registration periods of each shall be extended one year and except that the lien is subordinated to NationsBank, N.A. 4. EQUITY AWARD. The Equity Award referred to in paragraph 4 of the September Agreement has been effected by the execution and delivery of Stock Appreciation Rights Agreements dated on or about January 8, 1999. 5. INDEMNIFICATION. Able will indemnify and hold harmless WorldCom, and its affiliates, and each of their respective employees, representatives, officers and directors (the "Indemnified Parties") from and against any and all claims, liabilities, losses, damages, actions, attorneys' fees and demands (the "Indemnified Losses") resulting from the claims, demands, investigations, proceedings or lawsuits of or by any person arising out of the business operations acquired in the MFSNT acquisition EXCEPT for Michigan township for access rights and the Sirit litigation. Able shall pay for or reimburse an Indemnified Party for any ascertained Indemnified Loss in advance of a final disposition of the matter as to which indemnification is sought within ten (10) days after submission of a claim for Indemnified Losses by an Indemnified Party. -2- 6. PERFORMANCE BONDS. Promptly after the closing of the transactions contemplated by this Agreement, Able shall cause WorldCom to be released from any and all liability on existing performance bonds and reimbursement agreements (other than bond E-470 Project) relating to any project to which MFSNT is or was a party. 7. MUTUAL RELEASES The parties shall enter into mutual releases in customary form with respect to matters arising before the date hereof, but excluding obligations hereunder and other outstanding documentation between WorldCom, Able and their affiliates. 8. LEGAL INTENT. The Parties intend to be legally bound by this Agreement and agree that this Agreement contains the necessary material items to be considered a contract. 9. REMEDIES. The parties agree that in addition to all other remedies which an aggrieved party may have, this Agreement may be enforced by either party by an action for specific performance in any court of competent jurisdiction. This Agreement is entered into this 26th day of January, 1999. WORLDCOM NETWORK ABLE TELCOM HOLDING CORP. SERVICES INC. By: /s/ DAVID E. MEYERS By: /s/ BILLY V. RAY -------------------------- ------------------------------ Name: DAVID E. MEYERS Name: BILLY V. RAY ------------------------ ---------------------------- Title: V.P. and Comptroller Title: CEO and President ----------------------- --------------------------- -3- EX-2.5.2.1 3 EXHIBIT 2.5.2.1 11.5% PROMISSORY NOTE Amount: $30,000,000 September 1, 1998 For value received, Able Telcom Holding Corp. ("Able") hereby agrees to pay to the order of WorldCom Network Services, Inc., its successors or assigns ("WorldCom"), in lawful money of the United States of America and immediately available funds, at its offices in Tulsa, Oklahoma (or at such other place or places as WorldCom may designate) the principal amount of Thirty Million and No/100 Dollars ($30,000,000) on December 15, 2000 ("Maturity Date"). INTEREST. Interest on the unpaid principal amount hereof from time to time shall accrue at an annual rate of 11.5% from the date hereof. Accrued interest shall be payable on February 28, 1999 and on May 31, August 31, November 30 and February 28 thereafter and on the Maturity Date. VOLUNTARY PREPAYMENTS. All or any portion of the unpaid principal balance of this Note, together with all accrued interest thereon, may be prepaid by Able at any time without penalty. Partial repayments of principal shall be made in tranches of $3,000,000. MANDATORY PREPAYMENTS. The principal amount of the Note shall be prepaid as follows: a. Subject to the consent of NationsBank, N.A., by applying as a credit thereto an amount equal to 8% of the amount otherwise payable by WorldCom, or any affiliate thereof, to Able, or any affiliate thereof, under any "Management Services Agreement" ("MSA"), including, without limitation, the MSA dated July 2, 1998; such credit to be made as of the date any payment is due by WorldCom to Able under an MSA; b. By Able paying WorldCom on the first business day after Able receives the proceeds of any of the following: i. $7,000,000 upon the sale of NYSTA conduit; ii. $1,500,000 upon payment by The Williams Companies of a fee for the installation of conduit; and iii. The greater of 50% of the net profits or 25% of the proceeds received from time to time under any maintenance agreement associated with the sale of NYSTA conduit. Whenever a payment on this Note is stated to be due on a day which is not a business day, such payment shall be made on the next succeeding business day with interest accruing to the date of payment. Interest hereunder shall be computed on the basis of the actual number of days elapsed over a year of 360 days. If any amount owed by Able hereunder is not paid when due, Able shall pay interest on all such past due amounts at a rate equal to 13.5% per annum (the "Default Rate"), payable on demand of WorldCom. Nothing herein contained shall be construed or so operate as to require Able to pay any interest, fees, costs or charges at a rate or in an amount greater than is permitted by applicable law. Upon the occurrence of a default in payment of principal, interest or other amounts owing hereunder when due, the unpaid principal amount of this Note, together with all accrued but unpaid interest thereon, may become, or may be declared to be, (or in the case of bankruptcy or insolvency of Able, shall, without action on the part of WorldCom, become), immediately due and payable, without presentation, demand, protest or notice of any kind, all of which are hereby waived by Able. Failure of the holder of this Note to assert any right herein shall not be a waiver thereof. Able agrees to pay on demand all direct out-of-pocket losses, and reasonable out-of-pocket costs and expenses, if any (including reasonable fees and expenses of outside counsel), of WorldCom in connection with the enforcement (whether by legal proceedings, negotiation or otherwise) of this Note and other documents delivered hereunder. Upon the occurrence and during the continuance of any default, WorldCom is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all amounts or other indebtedness at any time owing by WorldCom to or for the credit or the account of Able against any and all of the obligations of Able now or hereafter existing under this Note, irrespective of whether or not WorldCom shall have made any demand under this Note and of whether or not such obligations may be matured. WorldCom agrees promptly to notify Able after any such set-off and application made by WorldCom, but the failure to give such notice shall not affect the validity of such set-off and application. The rights of WorldCom under this paragraph are in addition to other rights and remedies (including, without limitation, other rights of set-off) which WorldCom may have. In the event that this Note is transferred, assigned or pledged, Able hereby waives, as against such transferee, assignee or pledgee, any defenses and counterclaims that Able may have against the holder hereof. This Note shall be governed by and construed in accordance with the laws of the state of New York without regard to conflicts of law provisions thereof. 2 If any provision or obligation of the Note shall be determined to be invalid, ineffective or unenforceable, the validity, effectiveness and enforceability of the remaining provisions or obligations shall not in any way be affected or impaired thereby. IN WITNESS WHEREOF, Able has caused this Note to be executed under seal and delivered by their respective duly authorized officers as of the date first above written. ABLE TELCOM HOLDING CORP. By: /s/ BILLY V. RAY -------------------------------------- Title: CEO and PRESIDENT ----------------------------------- 3 EX-2.5.7 4 EXHIBIT 2.5.7 AGREEMENT THIS AGREEMENT (the "Agreement") is entered into as of the 8th day of January, 1999 (the "Effective Date"), by and among Able Telcom Holding Corp., a Florida corporation (the "Company"), MFS Communications Company, Inc., a Delaware corporation ("MFS"), and WorldCom, Inc., a Georgia corporation ("WorldCom" and, collectively with MFS, "Holder"). RECITALS A. The Company's common stock, par value $.001 (the "Common Stock") is listed for trading on the Nasdaq National Market System and in connection therewith, is subject to certain rules and regulations promulgated by the Nasdaq Stock Market, Inc., including, among others, the Nasdaq Marketplace Rules. B. Nasdaq Marketplace Rule 4460(i)(C) ("Rule 4460(i)(C)") provides, among other things, that in connection with the acquisition of stock or assets of another company, if the number of shares of common stock to be issued is or will be equal to or in excess of 20% of the number of shares of common stock outstanding before the issuance of such stock or securities, shareholder approval is required. C. On April 26, 1998, the Company, MFS, WorldCom, and certain other related parties entered into an Agreement and Plan of Merger, as amended on July 2, 1998, and further amended, on September 9, 1998 (collectively the "Merger Agreement"), whereby, among other things, the Company (i) acquired MFS Network Technologies, Inc. ("MFSNT") and (ii) agreed to grant to MFS an option (the "Option") to purchase 2,000,000 shares of the Common Stock, pursuant to which the Option may be exercised by MFS in whole or in part at $7.00 per share. D. As of April 24, 1998, there were 9,379,824 shares of Common Stock outstanding, of which approximately 1,875,960 shares represented just less than 20% of the Common Stock outstanding prior to the issuance of any securities in connection with the MFSNT acquisition (the "MFSNT Transaction"). E. As of the Effective Date, no Options were exercised by MFS. F. On or about June 30, 1998, the Company completed an offering of certain of its securities to investors (the "Series B Offering"), the proceeds of which were used in connection with the MFSNT Transaction. G. The parties to this Agreement wish to modify and replace the terms and conditions of the Option with those set forth in this Agreement, in conformity with Rule 4460(i)(C). NOW THEREFORE, in consideration of the foregoing and the representations, warranties, covenants and agreements contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: 1. RECITALS. The above recitals are true, complete and are herein incorporated by reference. 2. MODIFICATION TO THE GRANT OF THE OPTION. Unless and until such time as shareholder approval is obtained by the Company (if ever) pursuant to Rule 4460(i)(C) to approve the issuance of 20% or more of the Common Stock in connection with the MFSNT Transaction (taking into account the issuances pursuant to the Series B Offering and the Options) (the "Approval Date"), the Option shall be modified to a stock appreciation rights award (the "SAR") on the following terms: a. GRANT OF SARS. Each SAR shall represent the right to participate in an increase in the value of one (1) share of Common Stock and all of the SARs in the aggregate shall represent the right to participate in an increase in the value of an aggregate of two million (2,000,000) shares of Common Stock (the "Aggregate Base Common Stock"). Holder shall be entitled to receive, for each SAR exercised, an amount equal to the excess (the "Appreciation Amount"), payable as set forth in Section 2.e.iii. hereof, of the "Fair Market Value", as hereinafter defined, of the Common Stock as of the applicable exercise date (as provided in Section 2.e.ii hereof) over $7.00 (the "Strike Price") during the exercise period, as described in Section 2.b below. For purposes of this Agreement, "Fair Market Value" shall mean the average on the last three (3) trading days immediately preceding the applicable exercise date of (i) the last closing bid price for the Common Stock on the Nasdaq National Market ("NASDAQ"), as reported by Bloomberg Financial Markets or its successors ("Bloomberg") or, (ii) if NASDAQ is not the principal trading market for the Common Stock, the last closing bid price of the Common Stock on the principal securities exchange or trading market where the Common Stock is listed or traded as reported by Bloomberg, or (iii) if the foregoing do not apply, the last closing bid price of the Common Stock in the over-the-counter market on the electronic bulletin board for the Common Stock reported by Bloomberg, or (iv) if no closing bid price is reported for the Common Stock by Bloomberg, the last closing trade price of the Common Stock by Bloomberg, or (v) if no closing bid price is reported for the Common Stock by Bloomberg, the average of the bid prices of any market makers for the Common Stock as reported in the "pink sheets" by the National Quotation Bureau, Inc. b. EXERCISE PERIOD. The SARs shall be exercisable, in whole or in part, at the times and in the manner specified by Section 2.e. below commencing on the earlier of: (i) one (1) business day after the date upon which the potential issuance of Common Stock under this Agreement is voted upon by the shareholders of the Company and (ii) May 1, 1999 (the "Commencement Date"), and ending on January 2, 2002 (the "Termination Date"). All rights with respect to any unexercised SARs shall expire, and these SARs shall become null and void, at 5:00 on the Termination Date. c. CERTAIN ADJUSTMENTS. i. In the event of any change in the capital structure or business of the Company by reason of any stock dividend or extraordinary dividend, stock split or reverse stock split, recapitalization, or reclassification of its capital stock, or any similar change affecting the Company's capital structure and the Company determines an adjustment is appropriate under this Section 2, then the number of shares constituting the Aggregate Base Common Stock and the Strike Price shall be appropriately adjusted consistent with such change. ii. In the event of a merger or consolidation in which the Company is not the surviving entity or in the event of any transaction that results in the acquisition of all or substantially all of the Company's outstanding Common Stock by a single person or entity or by a group of persons and/or entities acting in concert, or in the event of the sale or transfer of all or substantially all of the Company's assets (all of the foregoing being referred to as "Acquisition Events"), then the Company may, in its sole discretion, terminate all outstanding SARs, effective as of the date of the Acquisition Event, by delivering notice of termination to Holder at least thirty (30) days prior to the date of consummation of the Acquisition Event; provided, that during the period from the date on which such notice of termination is delivered to the consummation of the Acquisition Event, Holder shall have the right to exercise in full, subject to the limitations in Section 2.a., all of the SARs that are then outstanding as of the date immediately preceding the date of the Acquisition Event but contingent on the occurrence of the Acquisition Event, and further provided that, if the Acquisition Event does not take place within a specified period after giving such notice for any reason whatsoever, the notice and exercise shall be null and void. d. PRIVILEGE OF STOCK OWNERSHIP. Holder shall not be deemed to be the holder of, or to have any of the rights of a holder of Common Stock with respect to, any SARs. e. MANNER OF EXERCISING SARS. i. The SARs may be exercised in whole or in part after the Commencement Date, only by written notice signed by Holder and mailed or delivered to the President or Secretary of the Company at its principal office, which notice shall: (i) specify the number of SARs which are being exercised; (ii) the federal identification number of Holder (or transferee); (iii) if an SAR is being exercised by any party or parties other than Holder, be accompanied by proof satisfactory to the Company and its counsel, that such party or parties have the right to exercise the SAR, and (iv) such other documentation and representations as may be reasonably requested by the Company in connection with such exercise (an "SAR Exercise Notice"). Once exercised a particular SAR may not be further exercised. ii. An SAR shall be deemed to have been exercised with respect to the SARs specified in said notice at the time of timely receipt by the Company of an SAR Exercise Notice as specified in Section 2.e.i. above. iii. The Appreciation Amount shall be paid in cash or other immediately available funds within fifteen (15) days of receipt of an SAR Exercise Notice; provided, however, that to the extent that the Company would be required to pay in excess of $10 million in any twelve (12) month period as a result of any exercise(s) of the SARs, then the amount of such excess shall 3 be represented by a promissory note with quarterly payments amortized ratably over a period of six (6) months and bearing interest at ten percent (10%) per annum. 3. EFFECT ON SAR UPON SHAREHOLDER APPROVAL. In the event that shareholder approval is obtained to issue shares of common stock in connection with the MFSNT Transaction in accordance with Rule 4460(i)(C) then, after the Approval Date the provisions of Section 2 hereof (other than defined terms used herein from such Section) shall be void and of no further force or effect and any unexercised SARs shall revert back to Options on the following terms: a. GRANT OF THE OPTIONS. Subject to and upon the terms and conditions set forth in this Agreement, Holder shall have the right to purchase an aggregate of two million (2,000,000) shares of Common Stock (the "Option Shares") (less any number of SARs that Holder exercised pursuant to Section 2 hereof, if any) at $7.00 per share (the "Exercise Price") during the exercise period, as described in Section 3.b. below. b. EXERCISE PERIOD. The Options shall be exercisable, in whole or in part, at the times and in the manner specified by Section 3.e.i. below commencing on the Approval Date and ending on Termination Date. All rights with respect to any unexercised Option Shares shall expire, and the Option shall become null and void at 5:00 on the Termination Date. c. CERTAIN ADJUSTMENTS. i. In the event of any change in the capital structure or business of the Company by reason of any stock dividend or extraordinary dividend, stock split or reverse stock split, recapitalization or reclassification of its capital stock, any sale or transfer of all or substantially all of the Company's assets or business, or any similar change affecting the Company's capital structure and the Company determines an adjustment is appropriate under this Agreement, then the aggregate number of shares which thereafter may be issued and the Exercise Price of such shares pursuant to this Section 3 shall be appropriately adjusted consistent with such change. ii. In the event of a merger or consolidation or similar event in which the Company is not the surviving entity or in the event of any transaction that results in the acquisition of all or substantially all of the Company's outstanding Common Stock by a single person or entity or by a group of persons and/or entities acting in concert (an "Acquisition Event"), then the Holder shall thereafter upon exercise of an Option be entitled to receive the number of shares of capital stock or other securities or property of the successor corporation resulting from such Acquisition Event to which the Common Stock of the Company, deliverable upon the exercise of this Option, would have been entitled upon such Acquisition Event if this Option had been exercised immediately prior to such Acquisition Event. In any such case, appropriate adjustment (as reasonably determined in good faith by the Board of Directors of the Company) shall be made in the application of the provisions set forth in this Option with respect to the rights and interests thereafter of the Holder such that the provisions set forth in this Option (including those relating to adjustments of the Exercise Price and the number of shares issuable upon the exercise of this Option) shall thereafter be applicable, as near as reasonably may be, in relation to any shares or other property thereafter deliverable upon the exercise hereof as if this Option had been exercised immediately prior to such 4 Acquisition Event and the Holder hereof had carried out the terms of the exchange as provided for by such Acquisition Event. d. PRIVILEGE OF STOCK OWNERSHIP. Holder shall not be deemed to be the holder of, or to have any of the rights of a holder of Common Stock with respect to, any Option Shares. e. MANNER OF EXERCISING OPTIONS. i. The Option may be exercised in whole or in part, only by written notice signed by Holder and mailed or delivered to the President or Secretary of the Company at its principal office, which notice shall: (i) specify the number of Options which are being exercised; (ii) the federal identification number of Holder (or transferee); (iii) if the Option is being exercised by any party or parties other than Holder, be accompanied by proof satisfactory to the Company and its counsel, that such party or parties have the right to exercise the Option; and (iv) be accompanied by payment in full of the applicable Exercise Price in cash or other immediately available funds. Prior to issuance of any Option Shares, however, Holder shall execute and deliver such other documentation and representations as may be reasonably requested by the Company in connection with such exercise, including for purposes of applicable state and federal securities laws. ii. This Option shall be deemed to have been exercised with respect to the Option Shares specified in said notice at the time of timely receipt by the Company of: (i) the notice specified in Section 3.e.i. hereof; (ii) any other documentation or representation reasonably required by the Company pursuant to Section 3.e.i. hereof; and (iii) the payment required in Section 3.e.i. hereof. iii. Unless a Registration Statement with respect to the Option Shares is effective at the time of issuance, the certificates representing the Option Shares issued or to be issued hereunder shall be stamped or otherwise imprinted with legends substantially in the following form: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND HAVE BEEN ACQUIRED FOR AN INVESTMENT AND NOT BE SOLD, TRANSFERRED, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPTION OF COUNSEL ACCEPTABLE TO COUNSEL FOR THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH LAWS. iv. Upon satisfaction of the provisions of Section 3.e.ii., the Company shall have up to five (5) days to issue to Holder stock certificates representing the Option Shares so exercised. f. REGISTRATION RIGHTS. The Company will, on or before June 30, 1999, file with the Securities and Exchange Commission ("SEC") a registration statement to register on a "shelf" basis 5 the resale by Holder of any Option Shares purchased by it pursuant to the Option until they could be sold by Holder on an unrestricted basis under Rule 144 without regard to volume limitations (the "Registration Term"). The Company will use its best efforts to have such registration statement declared effective by the SEC as promptly as possible and to maintain the effectiveness of such registration statement throughout the Registration Term. 4. AMENDMENTS. The provisions of this Agreement may not be amended, supplemented, waived or changed orally, except by a writing signed by the party as to whom enforcement of any such amendment, supplement, waiver or modification is sought and making specific reference to this Agreement. 5. TRANSFERS. The SARs or Options, as the case may be, may not be transferred other than to an affiliate of Holder without the Company's prior written consent. 6. FURTHER ASSURANCES. The parties hereby agree from time to time to execute and deliver such further and other transfers, assignments and documents and do all matters and things which may be convenient or necessary to more effectively and completely carry out the intentions of this Agreement. 7. BINDING EFFECT. All of the terms and provisions of this Agreement, whether so expressed or not, shall be binding upon, inure to the benefit of, and be enforceable by the parties and their respective administrators, executors, legal representatives, heirs, successors and permitted assigns. 8. GOVERNING LAW. This Agreement and all transactions contemplated by this Agreement shall be governed by, and construed and enforced in accordance with, the internal laws of the State of Florida without regard to principles of conflicts of laws. 9. ENTIRE AGREEMENT. This Agreement represents the entire understanding and agreement among the parties with respect to the subject matter hereof, and supersedes all other agreements, negotiations, understandings and representations (if any) made by and among such parties, including without limitation, the terms of the Option as described in the Merger Agreement. [REMAINDER OF PAGE LEFT INTENTIONALLY BLANK] 6 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. THE COMPANY: ABLE TELCOM HOLDING CORP. By: /s/ BILLY V. RAY, JR. ----------------------------------- Name: BILLY V. RAY, JR. --------------------------------- Its: CEO and PRESIDENT ---------------------------------- MFS: MFS COMMUNICATIONS COMPANY, INC. By: /s/ DAVID E. MEYERS ----------------------------------- Name: DAVID E. MEYERS --------------------------------- Its: VP and CONTROLLER ---------------------------------- WORLDCOM: WORLDCOM NETWORK SERVICES, INC. By: /s/ DAVID E. MEYERS ----------------------------------- Name: DAVID E. MEYERS --------------------------------- Its: VP and CONTROLLER ---------------------------------- 7 EX-2.5.8 5 EXHIBIT 2.5.8 AGREEMENT THIS AGREEMENT (the "Agreement") is dated as of the 8th day of January, 1999 (the "Effective Date") by and between Able Telcom Holding Corp. (the "Company") and WorldCom Network Services, Inc. (the "WorldCom"). (The Company and WorldCom are sometimes individually referred to as a "Party" and collectively as the "Parties"). RECITALS A. Pursuant to the terms of the September 9, 1998 Agreement (the "September Agreement") between the Company and WorldCom, the Company agreed that it will grant to WorldCom certain stock appreciation or other rights (the "SARs") whereby WorldCom shall have the right to participate in an increase in the value of the Company's common stock, par value $.001 (the "Common Stock"). B. The Parties acknowledge that certain agreements of the Company with other third parties may restrict the ability of the Company to issue equity securities and/or other rights relating to the Company's capital stock (a "Restrictive Agreement"), which Restrictive Agreements include (i) a Credit Agreement dated June 11, 1998, as amended, with the Company's senior lenders (the "Credit Agreement") and (ii) a Stock Purchase Agreement dated June 26, 1998 ("Purchase Agreement") with certain purchasers of the Company's Series B Convertible Preferred Stock. C. The Parties intend that the SARs shall be issued promptly after the "Conditions to Issuance," as defined in Section 2.b. below, are satisfied. NOW, THEREFORE, in consideration of the mutual covenants set forth herein, and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged thereof, the parties hereto agree as follows: 1. INCORPORATION BY REFERENCE. The above recitals are true, correct and are incorporated herein by reference. 2. CONDITIONS TO ISSUANCE. a. The Company shall issue to WorldCom a Stock Appreciation Agreement ("SAR Agreement") in substantially the form attached hereto as Exhibit "A" promptly upon the satisfaction of the Conditions to Issuance as set forth in Section 2.b. below; provided that to the extent (i) that the issuance of such SAR Agreement would otherwise cause a default in connection with any agreement or arrangement with any other third parties, including any of the Restrictive Agreements, or (ii) if the Conditions to Issuance have not been satisfied on or before February 28, 1999, then in either of such events the Parties shall use their respective good faith efforts to agree upon such modifications to the terms of the SAR Agreement so that such SAR Agreement would not cause such a default or require a consent from a third party. b. Unless waived by the Company, the Conditions to Issuance are as follows: i. Although the Company does not believe that the issuance of the SAR Agreement is restricted by the terms of the Purchase Agreement because the SARs granted thereunder do not constitute equity securities or instruments convertible or exercisable for equity securities, the SAR Agreement will nonetheless not be issued until the restriction on the issuance of equity securities set forth in Section 3.13(a) of the Purchase Agreement (which restriction in pertinent part, provides that no equity securities will be issued by the Company until the "Registration Statement" has been declared effective by the "SEC" and the "Common Shares" are subject to "Effective Registration" (as such terms are defined in the Purchase Agreement)) is satisfied; and ii. The Company shall have obtained the consent or waiver of the senior lenders under the Credit Agreement to issue the SARs pursuant to the SAR Agreement. 3. FURTHER ASSURANCES. The Parties hereby agree from time to time to execute and deliver such further and other transfers, assignments and documents and do all matters and things which may be convenient or necessary to more effectively and completely carry out the intentions of this Agreement. 4. BINDING EFFECT. All of the terms and provisions of this Agreement, whether so expressed or not, shall be binding upon, inure to the benefit of, and be enforceable by the Parties and their respective administrators, executors, legal representatives, heirs, successors and permitted assigns. 5. GOVERNING LAW. This Agreement and all transactions contemplated by this Agreement shall be governed by, and construed and enforced in accordance with, the internal laws of the State of Florida without regard to principles of conflicts of laws. 6. ENTIRE AGREEMENT. This Agreement represents the entire understanding and agreement among the Parties with respect to the subject matter hereof, and supersedes all other negotiations, understandings and representations (if any) made by and among such Parties. [REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK] IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. THE COMPANY: ABLE TELCOM HOLDING CORP. By: /s/ BILLY V. RAY, JR. ----------------------------------- Name: BILLY V. RAY, JR. --------------------------------- Its: CEO and PRESIDENT ---------------------------------- WORLDCOM: WORLDCOM NETWORK SERVICES, INC. By: /s/ DAVID E. MEYERS ----------------------------------- Name: DAVID E. MEYERS --------------------------------- Its: VP and CONTROLLER ---------------------------------- EXHIBIT A STOCK APPRECIATION RIGHTS AGREEMENT THIS STOCK APPRECIATION RIGHTS AGREEMENT (the "SAR Agreement") is effective as of the ___ day of _______, ____ (the "Issue Date") by and between Able Telcom Holding Corp., a Florida corporation (the "Company") and WorldCom Network Services, Inc. (the "Optionee"). RECITALS A. Pursuant to the terms of the September 9, 1998, Agreement (the "September Agreement") between the Company and the Optionee, the Company agreed that it will grant to the Optionee certain Stock Appreciation Rights whereby the Optionee shall have the right to participate in an increase in the value of the Company's common stock, par value $.001 (the "Common Stock") (individually as to an increase in value for each share of Common Stock, an "SAR" and collectively "SARs"); and B. Optionee and the Company desire to establish the terms and conditions of such SARs in this SAR Agreement; NOW, THEREFORE, in consideration of the mutual covenants set forth herein, and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged thereof, the parties hereto agree as follows: 1. RECITALS. The above recitals are true, correct, and are incorporated herein by reference. 2. GRANT OF SARS. Subject to and upon the terms and conditions set forth in this SAR Agreement, the Company hereby grants and issues to Optionee, as of the Issue Date, the right to participate in an increase in the value of an aggregate of Six Hundred Thousand (600,000) shares of Common Stock (the "Aggregate Base Common Stock"). Each SAR shall represent the right to participate in an increase in the value of one (1) share of Common Stock. The Optionee shall be entitled to receive, for each SAR exercised, an amount payable in cash, Common Stock, or a combination thereof, at the Company's election (as hereinafter provided), equal to the excess of the "Fair Market Value", as hereinafter defined, of the Common Stock over $5-3/32, as of the applicable "Exercise Day(s)", as hereinafter defined; and provided that in no event shall the maximum amount payable hereunder, whether in cash, Common Stock or a combination thereof, exceed $25.00 per SAR. Without limiting the generality of the foregoing, it is the intent of the parties that Optionee shall not share in any appreciation in the Fair Market Value of the Common Stock over $30-3/32 per share. The foregoing $5-3/32 and $30-3/32 figures are sometimes referred to herein as the "Collar Prices." For purposes of this SAR Agreement, "Fair Market Value" shall mean the average in the last three (3) trading days immediately preceding the applicable Exercise Day of (i) the last closing bid price for the Common Stock on the Nasdaq National Market ("NASDAQ"), as reported by Bloomberg Financial Markets or its successors ("Bloomberg") or, (ii) if NASDAQ is not the principal trading market for the Common Stock, the last closing bid price of the Common Stock on the principal securities exchange or trading market where the Common Stock is listed or traded as reported by Bloomberg, or (iii) if the foregoing do not apply, the last closing bid price of the Common Stock in the over-the-counter market on the electronic bulletin board for the Common Stock reported by Bloomberg, or (iv) if no closing bid price is reported for the Common Stock by Bloomberg, the last closing trade price of the Common Stock by Bloomberg, or (v) if no closing bid price is reported for the Common Stock by Bloomberg, the average of the bid prices of any market makers for the Common Stock as reported in the "pink sheets" by the National Quotation Bureau, Inc. 3. SPECIFIED TERM; TIME OF EXERCISE. The SARs shall vest as of the Issue Date and shall be exercisable, in whole or in part, at the times and in the manner specified by Section 6.A. below solely with respect to the following days: (i) July 2, 1999, (ii) July 2, 2000, or (iii) July 2, 2001 (each an "Exercise Day" and collectively "Exercise Days"); provided that the determination of the Fair Market Value shall be determined only for the amount of SARs being exercised on such Exercise Day. All rights with respect to any unexercised SARs shall expire, and these SARs shall become null and void at 5:00 on July 7, 2001, or as otherwise provided in Section 4.B. hereof. 4. CERTAIN ADJUSTMENTS. A. In the event of any change in the capital structure or business of the Company by reason of any stock dividend or extraordinary dividend, stock split or reverse stock split, recapitalization or reclassification of its capital stock, or any similar change affecting the Company's capital structure and the Company determines an adjustment is appropriate under this SAR Agreement, then the aggregate number and kind of shares which thereafter may be issued under this SAR Agreement, the number and kind of shares or other property (including cash) to be issued upon exercise of an outstanding SAR granted under this SAR Agreement, the number of shares constituting the Aggregate Base Common Stock, and the Collar Prices thereof shall be appropriately adjusted consistent with such change. B. In the event of a merger or consolidation in which the Company is not the surviving entity or in the event of any transaction that results in the acquisition of all or substantially all of the Company's outstanding Common Stock by a single person or entity or by a group of persons and/or entities acting in concert, or in the event of the sale or transfer of all or substantially all of the Company's assets (all of the foregoing being referred to as "Acquisition Events"), then the Company may, in its sole discretion, terminate all outstanding SARs, effective as of the date of the Acquisition Event, by delivering notice of termination to each such Participant at least thirty (30) days prior to the date of consummation of the Acquisition Event; provided, that during the period from the date on which such notice of termination is delivered to the consummation of the Acquisition Event, the Optionee shall have the right to exercise in full, subject to the limitations in Section 2, all of the SARs that are then outstanding as of the date immediately preceding the date of the Acquisition Event (such date to be an additional Exercise Day within the meaning of this SAR Agreement) but contingent on the occurrence of the Acquisition Event, and further provided that, if the Acquisition Event does not take place within a specified period after giving such notice for any reason whatsoever, the notice and exercise shall be null and void. 2 5. PRIVILEGE OF STOCK OWNERSHIP. Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder of Common Stock with respect to, any SARs. 6. MANNER OF EXERCISING SARS. A. The SARs may be exercised in whole or in part, only by written notice signed by Optionee and mailed or delivered to the President or Secretary of the Company at its principal office, within five (5) days following any Exercise Day that the Optionee shall have elected to exercise any or all of its SARs, which notice shall: (i) specify the number of SARs which are being exercised; (ii) the federal identification number of the Optionee (or transferee); and (iii) if the Option is being exercised by any party or parties other than Optionee, be accompanied by proof satisfactory to the Company and its counsel, that such party or parties have the right to exercise the Option and (iv) such other documentation and representations as may be reasonably requested by the Company in connection with such exercise. Once exercised a particular SAR may not be further exercised. B. This Option shall be deemed to have been exercised with respect to the SARs specified in said notice at the time of timely receipt by the Company of the notice specified in Section 5(A) hereof. C. Upon receipt of such notice, the Company shall have up to thirty (30) days to pay the Optionee the value of any SARs so exercised. Such payment may, at the Company's election, be either in (i) cash or other immediately available funds; (ii) shares of Common Stock; or (iii) a combination thereof. To the extent that the Company elects to make any or all payments in the form of Common Stock, such shares of Common Stock shall be valued for purposes of this SAR Agreement, at the Fair Market Value of the Common Stock as of the corresponding Exercise Day for which Optionee has exercised such SARs. To the extent the shares of Common Stock are not then registered pursuant to the Securities Act of 1933, as amended (the "Act"), the Optionee acknowledges and agrees that it shall make such representations and warranties that the Company may reasonable request to support an exemption pursuant to Section 4(2) of such Act, including with respect to Optionee's investment intent, accredited investor status and restrictions on transfer. D. Notwithstanding anything to the contrary contained in this Agreement and specifically in Section 6.C., the parties to this Agreement acknowledge and agree that to the extent that the Company elects to make payments described in this Agreement to the Optionee in the form of shares of Common Stock (or a combination of shares of Common Stock or cash), the Company shall not issue any shares of Common Stock to the Optionee to the extent that such issuance(s) (i) is prohibited by any rule, regulation or policy of the Securities and Exchange Commission or of The Nasdaq Stock Market, Inc., or any exchange or market upon which the Common Stock may then be traded or (ii) whether alone, or in connection with any other issuance(s) in the past that may be deemed to be integrated with any such issuance(s) contemplated herein, would require shareholder approval as contemplated by the Nasdaq Marketplace Rules and specifically Rule 4460, as determined as of any Exercise Day; PROVIDED FURTHER, that this subsection (ii) shall not be applicable if the Company has previously sought and obtained shareholder approval for such issuance(s). 3 7. ADJUSTMENT OF SARS AND COLLAR PRICES; MAXIMUM PROCEEDS. A. Notwithstanding anything contained in this SAR Agreement to the contrary (subject to the limitation set forth in Section 7.B. below and subject to adjustment pursuant to Section 4 hereof), to the extent that the Fair Market Value of a share of common stock as of the date immediately preceding the executing of this SAR Agreement is greater than the floor Collar Price of $5-3/32 then: (i) the floor Collar Price shall be adjusted to the then Fair Market Value, and the ceiling Collar Price shall be adjusted to a dollar amount equal to the then Fair Market Value plus $25.00; and (ii) the Aggregate Base Common Stock shall be adjusted (the "Adjusted Aggregate Base Common Stock") by multiplying 600,000 by a fraction, (x) the numerator of which shall be the adjusted floor Collar Price and (y) the denominator of which shall be $5-3/32; provided that the Adjusted Aggregate Base Common Stock shall in no event exceed a maximum of Seven Hundred Thousand (700,000) shares of Common Stock. B. Notwithstanding anything contained in this SAR Agreement to the contrary, the maximum aggregate proceeds (whether in cash, stock or a combination thereof) that may be received by the Optionee from the Company from the exercise of the SAR rights issued pursuant to this SAR Agreement shall not exceed Fifteen Million Dollars ($15,000,000). 8. REGISTRATION RIGHTS. If shares of Common Stock are to be delivered, then (i) such shares must either be registered, or (ii) the Company will as soon as practicable thereafter, file with the Securities and Exchange Commission (the "SEC") under the Act a registration statement to register such shares of Common Stock and will use its reasonable best efforts to have such registration statement declared effective by the SEC as promptly as possible. In either event, the Company shall use its reasonable best efforts to maintain the effectiveness of such registration statement until such shares could be sold by Optionee on an unrestricted basis under Rule 144. 9. AMENDMENTS. The provisions of this SAR Agreement may not be amended, supplemented, waived or changed orally, except by a writing signed by the party as to whom enforcement of any such amendment, supplement, waiver or modification is sought and making specific reference to this SAR Agreement. 10. TRANSFERS. The SARs may not be transferred other than to an affiliate of the Optionee without the Company's consent. 11. FURTHER ASSURANCES. The parties hereby agree from time to time to execute and deliver such further and other transfers, assignments and documents and do all matters and things which may be convenient or necessary to more effectively and completely carry out the intentions of this SAR Agreement. 4 12. BINDING EFFECT. All of the terms and provisions of this SAR Agreement, whether so expressed or not, shall be binding upon, inure to the benefit of, and be enforceable by the parties and their respective administrators, executors, legal representatives, heirs, successors and permitted assigns. 13. GOVERNING LAW. This SAR Agreement and all transactions contemplated by this SAR Agreement shall be governed by, and construed and enforced in accordance with, the internal laws of the State of Florida without regard to principles of conflicts of laws. 14. ENTIRE AGREEMENT. This SAR Agreement represents the entire understanding and agreement among the parties with respect to the subject matter hereof, and supersedes all other negotiations, understandings and representations (if any) made by and among such parties. IN WITNESS WHEREOF, the undersigned have executed this SAR Agreement as of the date first above written. THE COMPANY: ABLE TELCOM HOLDING CORP. By: /s/ BILLY V. RAY, JR. ----------------------------------- Name: BILLY V. RAY, JR. --------------------------------- Its: CEO and PRESIDENT ---------------------------------- OPTIONEE: WORLDCOM NETWORK SERVICES, INC. By: /s/ DAVID E. MEYERS ----------------------------------- Name: DAVID E. MEYERS --------------------------------- Its: VP and CONTROLLER ---------------------------------- 5 EX-2.5.9 6 EXHIBIT 2.5.9 FINANCING AGREEMENT BETWEEN WORLDCOM NETWORK SERVICES INC. AND ABLE TELCOM HOLDING CORP. FEBRUARY 16, 1999 THIS AGREEMENT ("Agreement") confirms our discussion with respect to the subject matter hereof and the parties agree as follows: 1. DEFINITIONS. a. "Able" means Able Telcom Holding Corp. b. "Additional Advances" means the aggregate of up to $15,000,000 in advances paid by WorldCom to Able pursuant to paragraph 3 of this Agreement, or so much thereof as may be outstanding from time to time. c. "Advance" means the $32,000,000 advance paid by WorldCom to Able pursuant to paragraph 2 of this Agreement, or so much thereof as may be outstanding from time to time. d. "Master Services Agreement" means the Master Services Agreement between Able and WorldCom dated July 2, 1998. e. "Senior Notes" means the 12% Senior Subordinated Notes of Able initially due January 6, 2005, in the aggregate amount of $10,000,000. f. "Series B Preferred Stock" means up to 4,000 shares of Series B Convertible Preferred Stock of Able issued as of June 30, 1998 in the original aggregate amount of $20,000,000. g. "WorldCom" means WorldCom Network Services Inc. 2. ADVANCE. At the signing of this Agreement by WorldCom and Able, WorldCom agrees to pay Able $32,000,000 as an advance against amounts otherwise payable by WorldCom to Able pursuant to the Master Services Agreement. The Advance will be made by WorldCom by means of wire transfer of $32,000,000 to an account designated by Able. The Advance will accrue interest at the rate of 11.5% per annum from the date of this Agreement, which interest will be paid upon the repayment of the Advance from time to time. The Advance will be prepayable and repayable in whole or in part, as applicable, to WorldCom on the earlier of (i) October 31, 2000 or (ii) the dates on which (A) Able consummates the redemption of all or any part of the Series B Preferred Stock, (B) the holder of the Series B Preferred Stock sells all or any portion of such stock or all or any portion of shares of Common Stock of Able issued upon conversion of the Series B Preferred Stock or (c) pays in whole or in part the Senior Notes. Able will pay WorldCom the proceeds from any of the above events within one (1) business day after Able receives the proceeds. 3. ADDITIONAL ADVANCES. During the period from the date hereof through March 31, 2000, WorldCom will make available to Able an additional $15,000,000 in Additional Advances against amounts otherwise payable by WorldCom to Able pursuant to the Master Services Agreement. WorldCom agrees to make Able an Additional Advance in tranches of $5,000,000 each by wire transfer to an account designated by Able within five (5) business days after the request for an Additional Advance is made by Able. All Additional Advances are repayable to WorldCom on October 31, 2000. All Additional Advances accrue interest at the rate of 11.5% per annum from the date of the Additional Advance to the date paid. 4. NATURE OF AGREEMENT. This Agreement does not constitute a revolving line of credit. Accordingly, WorldCom's financial obligation hereunder to provide the Advance and Additional Advances shall terminate on a dollar for dollar basis as WorldCom is repaid for such Advances in whole or in part, as provided herein. 5. USE OF PROCEEDS. The proceeds of the Advance will be used to make a loan to an entity unaffiliated with Able which will purchase the Series B Preferred Stock and the Senior Notes. 6. OTHER DOCUMENTS. Able and WorldCom agree to act in good faith and to negotiate, prepare and sign such other documents as shall be reasonably required to further evidence the intent of this Agreement. 2 7. LEGAL INTENT. The parties intend to be legally bound by this Agreement and agree that this Agreement contains the necessary material items to be considered a contract. This Agreement is entered into this 16th day of February, 1999. WORLDCOM NETWORK SERVICES ABLE TELCOM HOLDING CORP. INC. By: /s/ DAVID E. MEYERS By: /s/ BILLY V. RAY, JR. ------------------------------- -------------------------- Name: DAVID E. MEYERS Name: BILLY V. RAY, JR. ----------------------------- ------------------------ Title: VP and CONTROLLER Title: CEO and PRESIDENT ---------------------------- ----------------------- 3 EX-4.13 7 EXHIBIT 4.13 PREFERRED STOCK PURCHASE AGREEMENT PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of February 17, 1999, by and among Able Telcom Holding Corp., a Florida corporation (the "COMPANY"), RGC International Investors, LDC, a Cayman Islands Limited duration company ("RGC"), and Cotton Communications, Inc., a Georgia corporation ("PURCHASER"). WHEREAS: A. The Company and RGC entered into a Convertible Preferred Stock Purchase Agreement, dated as of June 26, 1998 (the "PURCHASE AGREEMENT"), pursuant to which RGC (i) purchased shares of the Company's Series B Convertible Preferred Stock (the "SERIES B PREFERRED SHARES"), which are convertible into Common Stock, $.001 par value per share, of the Company (the "COMMON STOCK"), upon the terms and subject to the limitations and conditions set forth in the Articles of Amendment to the Articles of Incorporation of the Company (the "SERIES B CERTIFICATE OF DESIGNATION") and (ii) in consideration for the purchase of the Series B Preferred Shares, received a Common Stock Purchase Warrant to purchase 175,000 shares of Common Stock (the "SERIES B WARRANTS"); B. Contemporaneously with the issuance of the Series B Warrants, the Company issued to RGC an additional Common Stock Purchase Warrant to purchase 195,000 shares of Common Stock (the "ADDITIONAL WARRANTS" and together with the Series B Warrants, the "WARRANTS"); C. In connection with the Purchase Agreement, the Company and RGC entered into two Registration Rights Agreements, dated as of June 30, 1998 (the "REGISTRATION RIGHTS AGREEMENTS"), pursuant to which the Company was obligated to file and obtain effectiveness with the Securities and Exchange Commission (the "SEC"), on or before October 28, 1998, of a Registration Statement (as defined in the Registration Rights Agreements) (the "REGISTRATION STATEMENT") registering the resale by RGC of the Registrable Securities (as defined in Registration Rights Agreements). The Company is in breach of its obligations under the Registration Rights Agreements because, among other things, it failed to obtain effectiveness of such Registration Statement. The Company desires to comply with the provisions of the Registration Rights Agreements by registering for resale the Retained Conversion Shares (as defined below), Warrant Shares (as defined below) and Restricted Conversion Shares (as defined below); D. RGC has converted a portion of the Series B Preferred Shares into 461,907 shares of Common Stock which RGC presently is holding and which shares have not been registered for resale as required by the Registration Rights Agreements (the "RESTRICTED CONVERSION SHARES"); E. (i) Purchaser desires to purchase and RGC desires to sell 1,425 of the outstanding Series B Preferred Shares held by RGC for a purchase price of $11,000,000 (the "TRANSFERRED SERIES B PREFERRED SHARES") and (ii) RGC desires to retain 375 of the outstanding Series B Preferred Shares held by RGC (the "RETAINED SERIES B PREFERRED SHARES"). The shares of Common Stock issuable upon conversion of the Retained Series B Preferred Shares are referred to herein as the "RETAINED CONVERSION SHARES"; F. The Company desires to amend the terms of the Warrants in accordance with the terms of this Agreement. The shares of Common Stock issuable upon exercise of the Warrants are referred to herein as the "WARRANT SHARES"; G. All capitalized terms used but not defined in this Agreement shall have the meanings ascribed to them in either the Purchase Agreement, the Series B Certificate of Designation or the Registration Rights Agreements. The Series B Preferred Shares, the Transferred Series B Preferred Shares, the Retained Series B Preferred Shares, the Warrants, the Retained Conversion Shares, the Restricted Conversion Shares and the Warrant Shares are collectively referred to herein as the "SECURITIES". NOW THEREFORE, the Company, RGC and Purchaser severally (and not jointly) hereby agree as follows: 1. PURCHASE OF SERIES B PREFERRED SHARES; AMENDMENT OF WARRANTS AND GRANT OF PROXY. a. PURCHASE OF SERIES B PREFERRED SHARES. On the Closing Date (as defined below), (i) Purchaser shall purchase from RGC all of its rights, title and interest in the Transferred Series B Preferred Shares for an aggregate purchase price of $11,000,000 (the "PURCHASE PRICE"); PROVIDED, HOWEVER, that Purchaser and the Company acknowledge that notwithstanding RGC's transfer of the Transferred Series B Preferred Shares to Purchaser and notwithstanding anything contained in the Series B Certificate of Designation to the contrary, RGC shall retain the portion of the Cap Allowance Amount attributable to the Transferred Series B Preferred Shares and that the retained portion of the Cap Allocation Amount shall be allocated to the Retained Series B Preferred Shares held by RGC until such time as RGC has converted all of the Retained Series B Preferred Shares, whereupon the remainder of such portion of the Cap Allocation Amount originally attributable to the Transferred Series B Preferred Shares shall transfer to Purchaser, and (ii) RGC shall deliver the Transferred Series B Preferred Shares along with duly executed stock powers to Purchaser in exchange for the Purchase Price. b. AMENDMENT OF THE WARRANTS. On the Closing Date (as defined below), the Company hereby amends the outstanding Warrants held by RGC in the following manner: -2- (i) The Conversion Price (as defined in the Warrants) shall be reduced from $19.80 to $13.25; and (ii) The Company shall be entitled, on any day following the Closing Date on which the Closing Bid Price (as defined in the Series B Certificate of Designation) of the Common Stock for each trading day during the three (3) consecutive trading day period ending on the trading day immediately preceding such date (the "CALCULATION PERIOD") is equal to or greater than 150% of the then applicable Conversion Price (as defined in the Warrants and as amended hereby), to deliver a written notice to the Holder requiring such Holder to exercise the Warrants in accordance with the terms thereof on the date which is ten (10) trading days following the date of such notice (the "EXERCISE DATE"); PROVIDED, HOWEVER, that the Company shall have such right if and only if for a period of thirty (30) consecutive trading days prior to the beginning of such Calculation Period and at all times during such Calculation Period and continuing through the Exercise Date, the Warrant Shares are (1) authorized and reserved for issuance, (2) listed for trading on each principal exchange or market on which the shares of Common Stock of the Company were then traded and (3) registered for resale pursuant to an effective registration statement under the 1933 Act; PROVIDED, FURTHER, HOWEVER, that the Holder shall not be required to exercise the Warrants with respect to any such notice unless the Closing Bid Price of the Common Stock on the trading day immediately preceding the Exercise Date is at least equal to 145% of the Conversion Price. c. GRANT OF PROXY. Beginning on the Closing Date and ending on the date on which RGC no longer holds any Retained Series B Preferred Shares, Restricted Conversion Shares, Retained Conversion Shares, Warrant Shares or Warrants (the "PROXY PERIOD"), RGC hereby appoints Purchaser the true and lawful attorneys in fact and proxies of RGC to vote all shares of Common Stock held by RGC during the Proxy Period with the same force and effect as RGC would be entitled to vote if personally present at any meeting in which such shares may be voted (the "PROXY"). d. CLOSING DATE. Subject to the satisfaction (or waiver) of the conditions thereto set forth in Sections 7, 8 and 9 below, the date and time of the purchase of the Transferred Series B Preferred Shares, the amendment of the Warrants and the commencement of the Proxy Period pursuant to this Agreement (the "CLOSING DATE") shall be 12:00 noon Eastern Standard Time on February 17, 1999. The closing of the transactions contemplated by this Agreement (the "CLOSING") shall occur on the Closing Date at the offices of Morgan, Lewis & Bockius LLP, 1701 Market Street, Philadelphia, Pennsylvania 19103, or at such other location as may be agreed to by the parties. 2. REPRESENTATIONS AND WARRANTIES OF RGC. RGC represents and warrants to Purchaser and the Company that: -3- a. AUTHORIZATION; ENFORCEMENT. This Agreement has been duly and validly authorized. This Agreement has been duly executed and delivered on behalf of RGC, and this Agreement constitutes a valid and binding agreement of RGC enforceable in accordance with its terms. b. OWNERSHIP OF PREFERRED SHARES. RGC is the beneficial and record owner of the Transferred Series B Preferred Shares to be sold to Purchaser pursuant to this Agreement and RGC has good and valid title to the shares free from all taxes, liens, claims and encumbrances. 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to RGC and Purchaser that: a. ORGANIZATION AND QUALIFICATION. The Company is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated, with full power and authority (corporate and other) to own, lease, use and operate its properties and to carry on its business as and where now owned, leased, used, operated and conducted. b. AUTHORIZATION; ENFORCEMENT. (i) the Company has all requisite corporate power and authority to enter into and perform this Agreement, to amend the Warrants and to consummate the transactions contemplated hereby and thereby in accordance with the terms hereof and thereof, (ii) the execution and delivery of this Agreement by the Company and the consummation by it of the transactions contemplated hereby (including, without limitation, the amendment of the Warrants and the issuance and reservation for issuance of the Warrant Shares issuable upon exercise of the Warrants and the Retained Conversion Shares issuable upon conversion of the Retained Series B Preferred Shares) have been duly authorized by the Company's Board of Directors and no further consent or authorization of the Company, its Board of Directors, or its stockholders is required, (iii) this Agreement has been duly executed and delivered by the Company, and (iv) this Agreement constitutes a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms. c. NO CONFLICTS. The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby (including, without limitation, the amendment of the Warrants and the issuance and reservation for issuance of the Warrant Shares issuable upon exercise of the Warrants and the Retained Conversion Shares issuable upon conversion of the Retained Series B Preferred Shares) will not (i) conflict with or result in a violation of any provision of the Certificate of Incorporation or By-laws (each as defined in the Purchase Agreement) or (ii) violate or conflict with, or result in a breach of any provision of, or constitute a default (or an event which with notice or lapse of time or both could become a default) under, or give to others any rights of termination, amendment, acceleration or -4- cancellation of, any agreement, indenture, patent, patent license or instrument to which the Company or any of its subsidiaries is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and regulations of any self regulatory organizations to which the Company or its securities are subject) applicable to the Company or any of its subsidiaries or by which any property or asset of the Company or any of its subsidiaries is bound or affected. Except as specifically contemplated by this Agreement and as required under the 1933 Act and any applicable state securities laws, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court, governmental agency, regulatory agency, self-regulatory organization or stock market or any third party in order for it to execute, deliver or perform any of its obligations under this Agreement, the Series B Certificate of Designation, the Registration Rights Agreements or the Warrants in accordance with the terms hereof or thereof, to amend the Warrants in accordance with the terms hereof and to issue the Warrant Shares upon exercise of the Warrants and to issue the Retained Conversion Shares upon conversion of the Retained Series B Preferred Shares. All consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. 4. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents and warrants to RGC and the Company that: a. ORGANIZATION AND QUALIFICATION. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized, with full power and authority (corporate and other) to own, lease, use and operate its properties and to carry on its business as and where now owned, leased, used, operated and conducted. b. AUTHORIZATION; ENFORCEMENT. (i) Purchaser has all requisite corporate power and authority to enter into and perform this Agreement and to consummate the transactions contemplated hereby in accordance with the terms hereof, (ii) the execution and delivery of this Agreement by Purchaser and the consummation by it of the transactions contemplated hereby have been duly authorized by Purchaser's board of directors and no further consent or authorization of Purchaser, its board of directors, or its stockholders is required, (iii) this Agreement has been duly executed and delivered by Purchaser, and (iv) this Agreement constitutes a legal, valid and binding obligation of Purchaser enforceable against Purchaser in accordance with its terms. 5. COVENANTS. a. BEST EFFORTS. The parties shall use their best efforts to satisfy timely each of the conditions described in Sections 7, 8 and 9 of this Agreement. -5- b. EXPENSES. Each of the parties to this Agreement shall bear their own expenses. c. AGREEMENTS AS TO SERIES B PREFERRED SHARES. (i) Purchaser covenants and agrees that, until the earlier of (a) the date on which RGC shall have converted all of the Retained Series B Preferred Shares held by RGC and (b) the date the Company has obtained the approval of its stockholders as required by applicable rules and regulations of Nasdaq for issuances of Common Stock in excess of the Exchange Cap, (the earlier of such dates being hereafter referred to as the "Conversion Restriction Release Date"), Purchaser (or any successors or assigns of the Transferred Series B Preferred Shares) will not convert any of the Transferred Series B Preferred Shares into shares of Common Stock. The Company covenants and agrees that until the Conversion Restriction Release Date, it will not honor any conversion notices submitted by Purchaser (or any successors or assigns of the Transferred Series B Preferred Shares) or issue any shares of Common Stock upon conversion of the Transferred Series B Preferred Shares. (ii) The Company hereby acknowledges RGC's right to fully convert the Retained Series B Preferred Shares in accordance with the terms of the Series B Certificate of Designation into an aggregate of up to 534,981 shares of Common Stock based on the Exchange Cap. The Company further acknowledges that the Conversion Price under the Series B Certificate of Designation is $3.5075 as of the date of this Agreement. (iii) RGC agrees to convert the Retained Series B Preferred Shares in accordance with the Series B Certificate of Designation within 30 days after the date on which the Registration Statement is declared effective by the SEC (provided such Registration Statement remains in effect at all times during such 30-day period). d. ACKNOWLEDGMENT OF OBLIGATIONS UNDER THE PURCHASE AGREEMENT, SERIES B CERTIFICATE OF DESIGNATION, WARRANTS AND REGISTRATION RIGHTS AGREEMENTS. The Company hereby acknowledges its obligations and the rights of RGC under the Purchase Agreement, the Series B Certificate of Designation, the Warrants and the Registration Rights Agreements and, except to the extent those agreements are expressly modified by the provisions of this Agreement, such agreements and instruments shall remain in full force and effect. e. CONSENT TO AMENDMENTS OF PURCHASE AGREEMENT, SERIES B CERTIFICATE OF DESIGNATION AND REGISTRATION RIGHTS AGREEMENT. The Company and, to the extent Purchaser has rights under the Purchase Agreement, Series B Certificate of Designation and Registration Rights Agreements, Purchaser covenant and agree that they will not amend or agree to amend any of the terms of the Purchase Agreement, Series B Certificate of Designation or the Registration Rights Agreements without the consent of RGC; PROVIDED, HOWEVER, the Company and -6- Purchaser may amend the Series B Certificate of Designation without RGC's consent after the date on which RGC has converted all of the Retained Series B Preferred Shares in accordance with the terms of the Series B Certificate of Designation. f. RECISSION OF REDEMPTION NOTICE. RGC agrees that its Notice of Redemption at Option of Holder Upon Triggering Event (the "REDEMPTION NOTICE") contained in that certain letter to Edward Pollock, Esquire, dated January 19, 1999, shall be rescinded effective as of the Closing Date. RGC further agrees that it will not, within 90 days of the date of this Agreement, deliver a Notice of Redemption at Option of Holder Upon Triggering Event based upon any event or condition in existence as of the Closing Date; PROVIDED, HOWEVER, that notwithstanding anything contained herein to the contrary, nothing herein shall be construed to waive RGC's right to deliver a Notice of Redemption at Option of Holder Upon Triggering Event or Notice of Redemption at Option of Holder Upon Major Transaction for any event or condition giving rise to such right occurring after the Closing Date. g. NO DELIVERY OF NOTICE OF REDEMPTION AT OPTION OF HOLDER UPON TRIGGERING EVENT OR NOTICE OF REDEMPTION AT OPTION OF HOLDER UPON MAJOR TRANSACTION. Purchaser covenants and agrees that it will not deliver a Notice of Redemption at Option of Holder Upon Triggering Event or Notice of Redemption at Option of Holder Upon Major Transaction to the Company for any reason so long as RGC holds any of the Retained Series B Preferred Shares or Warrants. 6. REGISTRATION RIGHTS. a. REGISTRATION RIGHTS. The Company acknowledges its obligations under the Registration Rights Agreements including its obligation to cause the Registration Statement to become effective and that the Company is in breach of such obligations. The Company shall use its best efforts to cause the Registration Statement to be declared effective by the SEC as soon as possible. Such Registration Statement shall cover the resale by RGC of (i) the Restricted Conversion Shares, (ii) the Warrant Shares issuable upon exercise of the Warrants and (iii) the Retained Conversion Shares issuable upon exercise of the Retained Series B Preferred Shares. 7. CONDITIONS TO THE COMPANY'S OBLIGATIONS. The obligation of the Company hereunder to amend the Warrants is subject to the satisfaction, at or before the Closing Date, of each of the following conditions thereto, provided that these conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion: a. RGC and Purchaser shall have executed this Agreement and delivered the same to the Company. b. Purchaser shall have delivered the Purchase Price to RGC. -7- c. RGC shall have delivered the Transferred Series B Preferred Shares to Purchaser. d. The representations and warranties of each of RGC and Purchaser shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at that time, and each of RGC and Purchaser shall have performed, satisfied and complied in all material respects with their respective covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by RGC or Purchaser at or prior to the Closing Date. e. No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement. 8. CONDITIONS TO PURCHASER'S OBLIGATIONS. The obligation of Purchaser hereunder to purchase the Transferred Series B Preferred Shares at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for Purchaser's sole benefit and may be waived by Purchaser at any time in its sole discretion: a. The Company and RGC shall have executed this Agreement and delivered the same to Purchaser. b. RGC shall have delivered to Purchaser certificates representing the Transferred Series B Preferred Shares along with duly executed stock powers for such certificates in accordance with Section 1(a) above. c. The representations and warranties of the Company and RGC set forth in this Agreement shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at such time and the Company and RGC shall have performed, satisfied and complied in all material respects with their respective covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company and RGC at or prior to the Closing Date. d. No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement. -8- 9. CONDITIONS TO RGC'S OBLIGATIONS. The obligation of RGC hereunder to sell the Transferred Series B Preferred Shares to Purchaser, grant Purchaser the Proxy at the Closing and rescind the Redemption Notice is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for RGC's sole benefit and may be waived by RGC at any time in its sole discretion: a. The Company and Purchaser shall have executed this Agreement and delivered the same to RGC. b. Purchaser shall have delivered to RGC the Purchase Price for the Transferred Series B Preferred Shares in accordance with Section 1(a) above. c. The representations and warranties of the Company and Purchaser set forth in this Agreement shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at such time and the Company and Purchaser shall have performed, satisfied and complied in all material respects with their respective covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Closing Date. d. No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement. e. All of the holders of Series B Preferred Shares for which The Palladin Group signed the Purchase Agreement as attorney-in-fact (the "PALLADIN GROUP") shall have rescinded their Notice of Redemption at Option of Holder Upon Triggering Event sent to Edward Pollock, Esquire on or about January 19, 1999. The Palladin Group shall have also agreed that they will not, within 90 days of the date of this Agreement, deliver a Notice of Redemption at Option of Holder Upon Triggering Event based upon any event or condition in existence as of the Closing Date; PROVIDED, HOWEVER, that notwithstanding anything contained herein to the contrary, the Palladin Group may retain the right to deliver a Notice of Redemption at Option of Holder Upon Triggering Event or Notice of Redemption at Option of Holder Upon Major Transaction for any event or condition giving rise to such right occurring after the Closing Date. f. Purchaser shall have purchased 1,360 Series B Preferred Shares held by the Palladin Group. 10. GOVERNING LAW; MISCELLANEOUS. -9- a. GOVERNING LAW. This Agreement shall be governed by and interpreted in accordance with the laws of the State of New York without regard to the principles of conflict of laws. The parties hereto hereby submit to the exclusive jurisdiction of the United States Federal Courts located in the Borough of Manhattan in the State of New York with respect to any dispute arising under this Agreement, the agreements entered into in connection herewith or the transactions contemplated hereby or thereby. b. COUNTERPARTS; SIGNATURES BY FACSIMILE. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement. c. HEADINGS. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. d. SEVERABILITY. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction. e. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the other agreements, documents and instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, none of the parties makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the party to be charged with enforcement. f. NOTICES. Any notices required or permitted to be given under the terms of this Agreement shall be sent by certified or registered mail (return receipt requested) or delivered personally or by courier (including a recognized overnight delivery service) or by facsimile and shall be effective five (5) days after being placed in the mail, if mailed by regular United States mail, or upon receipt, if delivered personally or by courier (including a recognized overnight delivery service) or by facsimile, in each case addressed to a party. The addresses for such communications shall be: -10- If to the Company: Able Telcom Holding Corp. 1601 Forum Place, Suite 1110 West Palm Beach, FL 33401 Attention: Chief Executive Officer Facsimile: (561) 688-0455 With a copy to: Able Telcom Holding Corp. 1601 Forum Place, Suite 1110 West Palm Beach, FL 33401 Attention: Edward Pollock, Esquire Facsimile: (561) 688-0455 If to RGC: c/o Rose Glen Capital Management, L.P. 3 Bala Plaza - East, Suite 200 251 St. Asaphs Road Bala Cynwyd, PA 19004 Attention: Wayne D. Bloch Facsimile: (610) 617-0570 With a copy to: Morgan, Lewis & Bockius LLP 1701 Market Street Philadelphia, PA 19103 Attention: Keith S. Marlowe, Esquire Facsimile: (215) 963-5299 If to Purchaser: Cotton Communications, Inc. 120 Allen Road Atlanta, GA 30328 Attention: Tyler Dixon, Esquire Facsimile: -11- Each party shall provide notice to the other party of any change of address. g. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. Neither the Company, RGC nor Purchaser shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other. Notwithstanding the foregoing, RGC may assign its rights hereunder to any person that purchases the Retained Series B Preferred Shares or the Warrants in a private transaction from RGC or to any of its "affiliates," as that term is defined under the 1934 Act, without the consent of the Company or Purchaser. h. THIRD PARTY BENEFICIARIES. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person. i. SURVIVAL. The representations and warranties of the Company and Purchaser and the agreements and covenants set forth in Sections 1(a), 1(b), 1(c), 1(d), 3, 4, 5, 6 and 10 shall survive the closing hereunder notwithstanding any due diligence investigation conducted by or on behalf of RGC. j. PUBLICITY. The Company, Purchaser and RGC shall have the right to review a reasonable period of time before issuance of any press releases, SEC, NASDAQ or NASD filings, or any other public statements with respect to the transactions contemplated hereby; PROVIDED, HOWEVER, that the Company shall be entitled, without the prior approval of each of RGC and Purchaser, to make any press release or SEC, NASDAQ or NASD filings with respect to such transactions as is required by applicable law and regulations (although each of RGC and Purchaser shall be consulted by the Company in connection with any such press release prior to its release and shall be provided with a copy thereof and be given an opportunity to comment thereon). k. FURTHER ASSURANCES. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. l. REMEDIES. The Company and Purchaser acknowledge that a breach by them of their respective obligations hereunder will cause irreparable harm to RGC, by vitiating the intent and purpose of the transactions contemplated hereby. Accordingly, the Company and Purchaser acknowledge that the remedy at law for a breach of their respective obligations under this Agreement will be inadequate and agree, in the event of a breach or threatened breach by the Company and/or Purchaser of the provisions of this Agreement, that RGC shall be entitled, in addition to all other available remedies in law or in equity, to an injunction or injunctions to prevent -12- or cure any breaches of the provisions of this Agreement and to enforce specifically the terms and provisions of this Agreement, without the necessity of showing economic loss and without any bond or other security being required. m. NO STRICT CONSTRUCTION. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -13- IN WITNESS WHEREOF, Purchaser, RGC and the Company have caused this Agreement to be duly executed as of the date first above written. ABLE TELCOM HOLDING CORP. By: /s/ BILLY V. RAY ------------------------------------ Name: Billy V. Ray Title: President & CEO RGC INTERNATIONAL INVESTORS, LDC By: Rose Glen Capital Management, L.P., Investment Manager By: RGC General Partner Corp., as General Partner By: /s/ GARY S. CAMINSKY ------------------------------------ Name: Gary S. Caminsky Title: Managing Director COTTON COMMUNICATIONS, INC. By: /s/ TYLER DIXON ------------------------------------ Name: Tyler Dixon Title: President -14- EX-4.14 8 EXHIBIT 4.14 WARRANT AMENDMENT This WARRANT AMENDMENT (the "Warrant Amendment") is made and entered into as of February 17, 1999, by and between Able Telcom Holding Corp., a Florida corporation (the "Company") and Halifax Fund L.P., The Gleneagles Fund Company, Palladin Overseas Fund Limited, Colonial Penn Life Insurance Company, Palladin Securities L.L.C. and Palladin Partners I, L.P. (collectively, together with their successors, assigns and transferees, the "Purchasers"). WHEREAS, the Company and the Purchasers have entered into that certain Convertible Preferred Stock Purchase Agreement, dated June 26, 1998, including all exhibits thereto (the "Purchase Agreement"), pursuant to which Common Stock Purchase Warrants, dated June 30, 1998 for an aggregate of 625,000 shares of the Company's common stock, par value $0.001 per share (the "Common Stock") were issued to the Purchasers (the "Warrants"); capitalized terms used herein but not defined herein shall have the meanings assigned thereto in the Purchase Agreement; WHEREAS, in consideration of the mutual promises set forth herein, the Company and Purchasers have agreed to amend the Warrants on the terms and conditions set forth herein. NOW, THEREFORE, the Company and the Purchasers agree as follows: Section 1. AMENDMENT OF THE CONVERSION PRICE. The Company and the Purchasers hereby agree that the Conversion Price set forth in the Warrants shall be amended to be $13.50. Section 2. COMPANY CALL FOR REDEMPTION OF WARRANTS. (a) The Company and the Purchasers hereby agree that on any date on or before April 30, 1999 (a "Call Date"), in the event (i) that the Closing Bid Price of the Company's Common Stock is above $17.00 per share for five (5) consecutive Trading Days preceding the Call Date and (ii) there is on the Call Date Effective Registration, which shall remain in effect for thirty (30) days after the Call Date, then the Company shall, if the below conditions are satisfied, be deemed to have called for the redemption of the Warrants. (b) In the event that there is a call for the redemption of the Warrants pursuant to Section 2(a) above, the Company will provide to the Purchasers thirty (30) days from the date on which the condition described in Section 2(a) is first met in which to exercise the Warrants prior to the effectiveness of the call for redemption and the retirement of the Warrants. (c) In the event that there is a call for redemption of the Warrants pursuant to this Section 2, the Company and the Purchasers hereby agree to waive, upon the Purchasers' receipt of the notice pursuant to Section 2(b) above, the restrictions on the Purchasers' ability to exercise the Warrants as set forth in Section 10 of the Warrants so as to permit their immediate exercise up to the limit referred to in this Section 2(c); provided, that Palladin's Restricted Ownership Percentage as set forth in Section 10 of the Warrants shall be increased from 4.9% to 9.9%, and Palladin shall not be permitted to exercise the Warrants as provided in Section 10 thereof, to the extent that it would be the Beneficial Owner of more than 9.9% of the Common Stock. (d) After the period referred to in Section 2(b) hereof, the Warrants shall, to the extent not exercised, be retired and redeemed by the Company without any payment by the Company and shall no longer be exercisable by the Purchasers or any other person. (e) Effective immediately, the fourth sentence of Section 10 of the Warrants, which reads "The term 'deemed beneficially owned' as used in this Warrant shall exclude shares that might otherwise be deemed beneficially owned by reason of the convertibility of the Preferred Shares." shall be deleted from Section 10. Section 3. CONTINUING EFFECTIVENESS OF THE WARRANT. Except as expressly provided herein, no other provision of the Warrants is amended hereby and the Warrants shall remain in full force and effect. Section 4. ATTACHMENT TO WARRANTS. This Warrant Amendment shall be considered as part of the Warrants as if incorporated therein by reference as if made part thereof. - 2 - IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written. HALIFAX FUND, L.P. THE GLENEAGLES FUND COMPANY PALLADIN OVERSEAS FUND LIMITED COLONIAL PENN LIFE INSURANCE COMPANY By: /s/ [ILLIGIBLE] --------------------------------- By: The Palladin Group, L.P., as Attorney-in-Fact and Investment Advisor By: Title: PALLADIN SECURITIES L.L.C. By: /s/ ROBERT CHENDER --------------------------------- Name: Title: PALLADIN PARTNERS I, L.P. By: /s/ JEFFREY DEVERS --------------------------------- By: The Palladin Group, L.P., as Attorney-in-Fact and Investment Advisor By: Title: Accepted and Agreed to: ABLE TELCOM HOLDING CORP. By: /s/ BILLY V. RAY -------------------------------- Billy V. Ray Title: President & CEO [CORPORATE SEAL] Attest: By: __________________________________ Name: Elizabeth Terrero Title: Corporate Secretary - 3 - EX-10.33 9 EXHIBIT 10.33 [LOGO] EMPLOYMENT AGREEMENT Agreement dated this 1st day of December, 1998, by and between Able Telcom Holding Corp., with its address at 1601 Forum Place, Suite 1110, West Palm Beach, Florida, 33401, ("Employer"), and Billy V. Ray 2919 Truitt Drive Burlington, NC 27215 ("Employee"). WITNESSETH: WHEREAS, Employer is engaged in the telephone and telecommunication installation and service, business and manufacture, sale and installation of highway signs and traffic control products, and WHEREAS, Employer desires to employ Employee as the Interim Chief Executive Officer and President; and WHEREAS, Employer desires to avail itself of the services of the Employee in order that his knowledge and ability may be utilized in the conduct and development of the business and affairs of Employer; and WHEREAS, Employee has evidenced his willingness to enter into an employment agreement with respect to his employment by Employer, pursuant to the terms and conditions hereinafter set forth. NOW THEREFORE, is consideration of the foregoing and mutual promises and covenants herein contained, it is agree as follows: 1. EMPLOYMENT: DUTIES Employer hereby Employs the employee as the Interim Chief Executive Officer and Interim President. Subject at all times to the direction of the Board of Directors, the Employee shall be in charge of the overall business operations of Employer and of such other services and duties as the Board of Directors shall determine. However, the duties and responsibilities assigned to the employee during the term of employment shall be substantially similar in type and character to those ordinarily assigned to and performed by persons employed as high level executives by corporations carrying on a business similar to Employer. 2. FULL TIME EMPLOYMENT Employee hereby accepts employment by Employer upon the terms and conditions contained herein and agrees that during the term of this Agreement, Employee shall devote all of his business time, attention and energies to the business of Employer. 3. TERM Employee's employment hereunder shall be for a term of two (2) years to commence on the date hereof. This Agreement may be extended for an additional two year term after the initial term of two (2) years. The Employee/Employer must give a minimum of ninety (90) days prior written notice to the Employee/Employer that either party elects to have the Agreement terminate effective at the end of any term. If Employer violates a major provision of this Agreement, Employee may terminate this Agreement and receive an amount equal to the provisions under paragraph 5 of this agreement titled " Termination without Cause". At the end of the two-year period, the Employee may sign a consulting agreement. The terms of either an extension of this Agreement or of a consulting agreement will be negotiated not later than the 20th month of this Agreement. 4. TERMINATION FOR CAUSE Notwithstanding any other provision of this Agreement, Employee may be terminated on ninety (90) days notice without further benefits or compensation for any of the following reasons: a) misuse, misappropriation or embezzlement of any Employer property or funds; b) conviction of a felony or c) breach of any material provision of this Agreement. 5. TERMINATION WITHOUT CAUSE Termination without cause can only be effected by an action by the Board of Directors representing a majority of the members approving such termination. In the event of termination without cause or a substantial change of job responsibility, employee will receive bi-weekly the balance of his yearly base salary for the remaining term of this agreement plus regular company fringe benefits. All of said payments will be without any rights of mitigation. In no case shall Employee receive less than 90 days severance pay. 6. COMPENSATION As full compensation for the performance of his duties on behalf of Employer, Employee shall be compensated as follows: i) BASE SALARY. Employer during the term hereof shall pay Employee a base salary at the rate of one hundred eighty thousand ($180,000) per annum, payable no less frequently than in monthly installments. ii) REIMBURSEMENT OF EXPENSES. Employer shall reimburse Employee for the expenses incurred by Employee in connection with his duties hereunder, including travel and entertainment, such reimbursement to be made in accordance with regular Employer policy and upon presentation by Employee of the details of, and vouchers for, such expenses. iii) SALARY ADJUSTMENTS. Prior to the expiration of each contract year, the Board of Directors may review Employee's salary and benefits and, if appropriate, in its sole and absolute discretion, may increase such salary and benefits for the next succeeding year. iv) AUTOMOBILE ALLOWANCE. Employer shall provide Employee with an automobile allowance of five hundred dollars ($500) per month. v) HOUSING ALLOWANCE: Employer shall provide employee with a housing allowance of fifteen hundred ($1,500) per month. 7. OPTIONS Employee will receive as of December 31, 1998 an option to purchase 100,000 shares of common stock with a strike price equal to the NASDAQ price at the close of business on December 31, 1998. Said option will vest immediately. 8. FRINGE BENEFITS During the term of this Agreement, Employer shall provide at its sole expense to the Employee hospitalization, major medical, life insurance and other fringe benefits on the same terms and conditions as it shall afford other executive management employees. 9. UPON TERMINATION OF EMPLOYMENT Subsequent to the termination of the employment of Employee, Employee will not interfere with or disrupt or attempt to disrupt Employer's business relationship with its customers or suppliers. Further, Employee will not solicit any of the employees of Employer to leave the Employer for a period of two (2) years following such termination. In addition, Employee agrees that all information received from principals and agents of Employer will be held in total confidence for a period of two (2) years following termination of employment, to the extent such information is proprietary and not generally available to the public or sources outside the company. 10. INCAPACITY In the event that Employee shall become incapacitated or unable to perform the duties of his employment hereunder for the balance of the current two year period (hereinafter referred to as the "Disability Period"), the Employee nevertheless shall be entitled to full salary and other payments not including bonus, provided for hereunder during the Disability Period; provided, however, that any amount paid to the Employee under any Employer provided disability insurance will be subtracted from payments to be made to the Employee by the Employer. In the event that Employee is incapacitated for a period which exceeds the Disability Period, Employee shall not be entitled to receive the compensation and other payments provided for hereunder for any time after the end of the Disability Period. In no event shall the disability payment period exceed the period of this Agreement. Employee shall be considered to be incapacitated when he is unable to perform the normal duties required of him hereunder. Incapacity shall be determined by two (2) medical doctors assigned by Employer. 11. NOTICES All notices hereunder shall be in writing and shall be sent to the parties at the respective addresses above set forth. All notices shall be delivered in person or given by registered or certified mail, postage prepaid, and shall be deemed to have been given when delivered in person or deposited in the United States mail. Either party may designate any other address to which notice shall be given, by giving notice to the other such change of address in the manner herein provided. Employer, or its management, directors, representatives, employees or affiliates will not make any public announcements or any other information related to Employee, directly or indirectly, without the express written consent of Employee, except as required by law or regulation 12. SEVERABILITY OF PROVISIONS If any provision of this Agreement shall be declared by a court of competent jurisdiction to be invalid, illegal or incapable of being enforced in whole or in part, the remaining conditions and provisions or portions thereof shall nevertheless remain in full force and effect and enforceable to the extent they are valid, legal and enforceable, and no provision shall be deemed dependent upon any other covenant or provision unless so expressed herein. 13. ENTIRE AGREEMENT: MODIFICATION All prior agreements (prior to December 1, 1998) with respect to the subject matter hereof between the parties are hereby canceled. This Agreement contains the entire agreement of the parties relating to the subject matter hereof, and the parties hereto have made no agreements, representations or warranties relating to the subject matter of this Agreement which are not set forth herein. No modification of this Agreement shall be valid unless made in writing and signed by the parties hereto. 14. BINDING EFFECT The rights, benefits, duties and obligations under this Agreement shall inure to, and be binding upon, the Employer, its successors and assigns, and upon the Employee and his legal representatives, heirs and legatees. This Agreement constitutes a personal service agreement, and the performance of the Employee's obligations hereunder may not be transferred or assigned by the Employee. 15. NON-WAIVER The failure of either party to insist upon the strict performance of any of the terms, conditions and provisions of this Agreement shall not be construed as a waiver or relinquishment of this Agreement and shall not be construed as a waiver or relinquishment of future compliance therewith, and said terms, conditions and provisions shall remain in full force and effect. No waiver of any term or condition of this Agreement on the part of either party shall be effective for any purpose whatsoever unless such waiver is in writing and signed by such party. 16. GOVERNING LAW This Agreement shall be construed and governed by the laws of the State of Florida. 17. ARBITRATION Any controversy or claim arising under, out of, or in connection with this Agreement or any breach or claimed breach hereof, shall be settled by arbitration before the American Arbitration Association, in Palm Beach County, Florida, before a panel of three arbitrators, in accordance with its rules, and judgment upon any award rendered may be entered in any court having jurisdiction thereof. Neither party shall resort to litigation. 18. HEADINGS The headings of the paragraphs herein are inserted for convenience and shall not affect any interpretation of this Agreement. IN WITNESS WHEREOF the parties have set their hands and seals this 22 day of December, 1998. Witness: Employer: ABLE TELCOM HOLDING CORP. By: /s/ J. ALLEN MAINES By: /s/ C. FRANK SWARTZ --------------------------- -------------------------------- C. Frank Swartz Chairman of the Board Witness: Employee: By: /s/ J. ALLEN MAINES By: /s/ BILLY V. RAY --------------------------- -------------------------------- Billy V. Ray EX-10.36 10 EXHIBIT 10.36 EMPLOYMENT AGREEMENT Agreement dated this 4th day of January, 1999, by and between Able Telcom Holding Corp. with its address at 1601 Forum Place, Suite 1110, West Palm Beach, Florida 33401, its subsidiary MFS Transportation Systems, Inc. with its address at 200 East Park Drive, Suite 200, Mt. Laurel, NJ 08054, ("Employer"), and G. Vance Cartee, with his address at 3831 Turtle Dove Blvd., Punta Gorda, Florida 33950, ("Employee"). WITNESSETH: WHEREAS, Employer is engaged in telephone and telecommunication installation and service, as well as system development, project management, and installation of conventional and electronic toll and traffic management systems; and WHEREAS, Employer desires to employ Employee as President and CEO of its MFS Transportation Systems, Inc. subsidiary; and WHEREAS, Employer desires to avail itself of the services of the Employee in order that his knowledge and ability may be utilized in the conduct and development of the business and affairs of the Employer; and WHEREAS, Employee has evidenced his willingness to enter into an employment agreement with respect to his employment by Employer, pursuant to the terms and conditions hereinafter set forth. NOW THEREFORE, in consideration of the foregoing and mutual promises and covenants herein contained, it is agreed as follows: 1. EMPLOYMENT: DUTIES Employee shall devote his full time to the performance of services as President and CEO of its MFS Transportation Systems, Inc. subsidiary, subject at all times to the Board of Directors and CEO of Able Telcom Holding Corp. Employee shall be in charge of all of the business of MFS Transportation Systems, Inc. and MFS Transtech, Inc. and the performance of such services and duties as the Board of Directors and/or CEO of Able Telcom Holding Corp. shall determine. 2. FULL TIME EMPLOYMENT Employee hereby accepts employment by Employer upon the terms and conditions contained herein and agrees that during the term of this Agreement, Employee shall devote all of his business time, attention and energies to the business of Employer. 3. TERM Employee's employment hereunder shall be for a term of two (2) years to commence on the date hereof. In the event employee voluntarily resigns, Employer's obligations are limited to payment of the base salary through the last day of Employee's employment. Stock options are exercisable per the stock option plan provisions and no acceleration of the un-vested shares will be made to employee. 4. TERMINATION FOR CAUSE Not withstanding any other provision of this Agreement, Employee may be terminated on ninety (90) days notice without further benefits or compensation for any of the following reasons: a) misuse, misappropriation or embezzlement of any Employer property or funds; b) conviction of a felony; or c) breach of any material provision of this Agreement. 5. TERMINATION WITHOUT CAUSE Termination without cause can only be effected by an action of the CEO of Able Telcom Holding Corp. and /or its Board of Directors representing a majority of the members approving such termination. In the event of a termination without cause, the Employee shall be paid the remainder of the base salary due under the one year contract period, with a minimum of one hundred and eighty (180) days severance pay (base salary only). Stock options shall automatically become vested and exercisable. 6. COMPENSATION As full compensation for the performance of his duties on behalf of Employer, Employee shall be compensated as follows: i) BASE SALARY Employer during the term hereof shall pay Employee a base salary at the rate of One Hundred and Fifty Thousand dollars($150,000) per annum, payable no less frequently than monthly installments. ii) REIMBURSEMENT OF EXPENSES. Employer shall reimburse Employee for the expenses incurred by Employee in connection with his duties hereunder, including travel and entertainment, such reimbursement to be made in accordance with regular Employer policy and upon presentation by Employee of the details of, and vouchers for, such expenses. iii) SALARY ADJUSTMENTS Prior to the expiration of each contract year, the CEO and/or the Board of Directors of Able Telcom Holding Corp. shall review the Employee's salary and benefits and if appropriate, at their sole discretion, shall increase the salary and benefits for the next succeeding year. IV) PERFORMANCE BONUS Employee shall be eligible to receive a performance bonus at the expiration of each contract year. The amount of such bonus to be determined by the Employee's success in the performance of his duties as determined by the CEO and Board of Directors of Able Telcom Holding Corp. and shall be awarded at their sole discretion. 7. OPTIONS Subject to the approval of the Board of Directors of Able Telcom Holding Corp., Employee will receive an option to acquire Forty Thousand (40,000) shares of Able Telcom Holding Corp., stock at a price equal to the opening price as quoted by NASDAQ on the date of grant by the Board. This option shall become fully vested as follows: 20,000 immediately, 10,000 on December 31,1999, and 10,000 on December 31, 2000. This option will automatically vest if Able Telcom Holding Corp. is sold and/or if there is a change in control of Able Telcom Holding Corp. as of the date of such change in control, if such date is prior to January 1, 2000, if such change in control or sale results from a transaction not formally under consideration by the Board, as of the date of this agreement. 8. FRINGE BENEFITS During the term of this Agreement, Employer shall provide at its sole expense to the Employee hospitalization, major medical, life insurance and other fringe benefits on the same terms and conditions as it shall afford other management employees of equivalent rank. 9. UPON TERMINATION OF EMPLOYMENT Subsequent to the termination of the employment of Employee, Employee will not interfere with or disrupt or attempt to disrupt Employer's business relationship with its customers or suppliers. Further, Employee will not solicit any of the employees of Employer to leave the Employer for a period of one (1) year following such termination. In addition, Employee agrees that all information received from principals and agents of Employer will be held in total confidence for a period of one (1) year following termination of employment, to the extent such information is proprietary and not generally available to the public or sources outside the Employer's Company. 10. INCAPACITY In the event that Employee shall become incapacitated or unable to perform the duties of his employment hereunder for the balance of the current one year period (hereinafter referred to as the "Disability Period"), the employee, nevertheless, shall be entitled to full salary and other payments not including bonus, provided for hereunder during the Disability Period; provided, however, that any amount paid to the Employee under any Employer provided disability insurance will be subtracted from payments to be made to the Employee by the Employer. In the event that the Employee is incapacitated for a period which exceeds the Disability Period, Employee shall not be entitled to receive the compensation and other payments provided for hereunder for any time period of this contract. Employee shall be considered to be incapacitated when he is unable to perform the normal duties required of him hereunder. Two (2) licensed medical doctors, chosen by the Employer, shall determine incapacity. 11. NOTICES All notices hereunder shall be in writing and shall be sent to the parties at the respective addresses above set forth. All notices shall be delivered in person or given by registered or certified mail, postage prepaid, and shall be deemed to have been given when delivered in person or deposited in the United States mail. Either party may designate any other address to which notice shall be given, by giving notice to the other such change of address in the manner herein provided. Employer, or its management, directors, representatives, employees or affiliates will not make any public announcements or provide any other information related to Employee, directly or indirectly, without the express written consent of Employee. 12. SEVERABILITY OF PROVISIONS If any provision of this Agreement shall be declared, by a court of competent jurisdiction, to be invalid, illegal or incapable of being enforced in whole or in part, the remaining conditions and provisions or portions thereof shall nevertheless remain in full force and effect and enforceable to the extent they are valid, legal and enforceable, and no provision shall be deemed dependent upon any other covenant or provision unless so expressed herein. 13. ENTIRE AGREEMENT: MODIFICATION All prior agreements (prior to January 1, 1999) with respect to the subject matter hereof between the parties are hereby cancelled. This Agreement contains the entire agreement of the parties relating to the subject matter hereof, and the parties hereto have made no agreements, representations or warranties relating to the subject matter of this Agreement which are not set forth herein. No modification of this Agreement shall be valid unless made in writing and signed by the parties hereto. 14. BINDING EFFECT The rights, benefits, duties and obligations under this Agreement shall inure to, and be binding upon, the Employer, its successors and assigns, and upon the Employee and his legal representatives, heirs and legatees. This Agreement constitutes a personal service agreement, and the performance of the Employee's obligations hereunder may not be transferred or assigned by the Employee. 15. NON-WAIVER The failure of either party to insist upon the strict performance of any of the terms, conditions and provisions of this Agreement shall not be construed as a waiver or relinquishment of this Agreement shall not be construed as a waiver or relinquishment of future compliance therewith, and said terms, conditions and provisions shall remain in full force and effect. No waiver of any term or condition of this Agreement on the part of either party shall be effective for any purpose whatsoever unless such waiver is in writing and signed by such party. 16. GOVERNING LAW This Agreement shall be construed and governed by the laws of the State of Florida. 17. ARBITRATION Any controversy or claim arising under, out of, or in connection with this Agreement or any breach or claimed breach hereof, shall be settled by arbitration before the American Arbitration Association, in Palm Beach County, Florida, before a panel of three arbitrators, in accordance with its rules, and judgment upon any award rendered may be entered in any court having jurisdiction thereof. 18. CONTRACT This contract supersedes all previous contracts between Employer and Employee. 19. HEADINGS The headings of the paragraphs listed herein are inserted for convenience and shall not affect any interpretation of the Agreement. IN WITNESS WHEREOF the parties have set their hands and seals this 4th day of January, 1999. Witness: Employer: Able Telcom Holding Corp. By: __________________________ By: /s/ BILLY V. RAY, JR. ------------------------------ Billy V. Ray, Jr. Chief Executive Officer Witness: Employee: By: __________________________ By: /s/ G. VANCE CARTEE ------------------------------- G. Vance Cartee EX-10.37 11 EXHIBIT 10.37 [LOGO] EMPLOYMENT AGREEMENT Agreement dated this 1st day of January, 1999, by and between Able Telcom Holding Corp., with its address at 1601 Forum Place, Suite 1110, West Palm Beach, Florida, 33401, ("Employer"), and Edward Pollock of 3730 Sandpiper Road Boynton Beach, FL 33436 WITNESSETH: WHEREAS, Employer is engaged in the telephone and telecommunication installation and service, and manufacture, sale and installation of highway signs and traffic control products; and WHEREAS, Employer desires to employ Employee as its In-House counsel; and WHEREAS, Employer desires to avail itself of the services of the Employee in order that his knowledge and ability may be utilized in the conduct and development of the business and affairs of Employer; and WHEREAS, Employee has evidenced his willingness to enter into an employment agreement with respect to his employment by Employer, pursuant to the terms and conditions hereinafter set forth. NOW THEREFORE, is consideration of the foregoing and mutual promises and covenants herein contained, it is agreed as follows: 1. EMPLOYMENT: DUTIES Employee shall devote his full time to the performance of services as in-house counsel or to such other services as may from time to time be designated by the Company's President or Board of Directors. Employee agrees to perform Employee's services well and faithfully and to the best of Employee's ability to carry out the policies and directives of the Company. Employee shall be based in West Palm Beach, FL but Employee may be required from time to time to perform duties hereunder for reasonably short periods of time outside said area. 2. FULL TIME EMPLOYMENT Employee hereby accepts employment by Employer upon the terms and conditions contained herein and agrees that during the term of this Agreement, Employee shall devote all of his business time, attention and energies to the business of Employer. 3. TERM Employee's employment hereunder shall be for a term of two (2) years to commence on the date hereof. This Agreement may be extended for an additional two year term after the initial term of two (2) years. The Employee/Employer must give a minimum of ninety (90) days prior written notice to the Employee/Employer that either party elects to have the Agreement terminate effective at the end of any term. If Employer violates a major provision of this Agreement, Employee may terminate this Agreement and receive an amount equal to the provisions under paragraph 5 of this agreement titled " Termination without Cause". At the end of the two- year period, the Employee may sign a consulting agreement. The terms of this Agreement will be negotiated not later than the 21st month of this Agreement. 4. TERMINATION FOR CAUSE Notwithstanding any other provision of this Agreement, Employee may be terminated on ninety (90) days notice without further benefits or compensation for any of the following reasons: a) misuse, misappropriation or embezzlement of any Employer property or funds; b) conviction of a felony or, c) breach of any material provision of this Agreement. 5. TERMINATION WITHOUT CAUSE Termination without cause can only be effected by an action of the CEO. In the event of the termination without cause, the Employee will be paid severance pay equal to the term remaining in this agreement plus regular company fringe benefits for the remaining term of the contract. Severance will be paid on the day of termination of $50,000 with the balance paid bi-weekly over the next 12 months. 6. COMPENSATION As full compensation for the performance of his duties on behalf of Employer, Employee shall be compensated as follows: i)BASE SALARY. Employer during the term hereof shall pay Employee a base salary as follows: January 1, 1999-June 30, 1999 $10,000 monthly July 1, 1999 - December 31, 1999 11,000 monthly January 1, 2000-June 30, 2000 12,000 monthly July 1, 2000-December 31, 2000 12,500 monthly ii) REIMBURSEMENT OF EXPENSES. Employer shall reimburse Employee for the expenses incurred by Employee in connection with his duties hereunder, including travel and entertainment, such reimbursement to be made in accordance with regular Employer policy and upon presentation by Employee of the details of, and vouchers for, such expenses. iii) AUTOMOBILE ALLOWANCE. Employer shall provide Employee with an automobile allowance of three hundred dollars ($300) per month. 7. OPTIONS Employee will receive as at January 1, 1999 an option to purchase 40,000 shares of common stock with a strike price equal to the NASDAQ price at the close of business on December 31, 1998. Said option will vest as follows: January 1, 1999 15,000 January 1, 2000 15,000 January 2, 2001 10,000 In the event of a change in control/ownership these options will vest immediately. 8. FRINGE BENEFITS During the term of this Agreement, Employer shall provide at its sole expense to the Employee hospitalization, major medical, life insurance and other fringe benefits on the same terms and conditions as it shall afford other management employees. 9. UPON TERMINATION OF EMPLOYMENT Subsequent to the termination of the employment of Employee, Employee will not interfere with or disrupt or attempt to disrupt Employer's business relationship with its customers or suppliers. Further, Employee will not solicit any of the employees of Employer to leave the Employer for a period of three (3) years following such termination. In addition, Employee agrees that all information received from principals and agents of Employer will be held in total confidence for a period of three (3) years following termination of employment, to the extent such information is proprietary and not generally available to the public or sources outside the company. 10. NOTICES All notices hereunder shall be in writing and shall be sent to the parties at the respective addresses above set forth. All notices shall be delivered in person or given by registered or certified mail, postage prepaid, and shall be deemed to have been given when delivered in person or deposited in the United States mail. Either party may designate any other address to which notice shall be given, by giving notice to the other such change of address in the manner herein provided. Employer, or its management, directors, representatives, employees or affiliates will not make any public announcements or any other information related to Employee, directly or indirectly, without the express written consent of Employee, except as required by law or regulation 11. SEVERABILITY OF PROVISIONS If any provision of this Agreement shall be declared by a court of competent jurisdiction to be invalid, illegal or incapable of being enforced in whole or in part, the remaining conditions and provisions or portions thereof shall nevertheless remain in full force and effect and enforceable to the extent they are valid, legal and enforceable, and no provision shall be deemed dependent upon any other covenant or provision unless so expressed herein. 12. ENTIRE AGREEMENT: MODIFICATION All prior agreements (prior to January 1, 1999) with respect to the subject matter hereof between the parties are hereby cancelled. This Agreement contains the entire agreement of the parties relating to the subject matter hereof, and the parties hereto have made no agreements, representations or warranties relating to the subject matter of this Agreement which are not set forth herein. No modification of this Agreement shall be valid unless made in writing and signed by the parties hereto. 13. BINDING EFFECT The rights, benefits, duties and obligations under this Agreement shall inure to, and be binding upon, the Employer, its successors and assigns, and upon the Employee and his legal representatives, heirs and legatees. This Agreement constitutes a personal service agreement, and the performance of the Employee's obligations hereunder may not be transferred or assigned by the Employee. 14. NON-WAIVER The failure of either party to insist upon the strict performance of any of the terms, conditions and provisions of this Agreement shall not be construed as a waiver or relinquishment of this Agreement shall not be construed as a waiver or relinquishment of future compliance therewith, and said terms, conditions and provisions shall remain in full force and effect. No waiver of any term or condition of this Agreement on the part of either party shall be effective for any purpose whatsoever unless such waiver is in writing and signed by such party. 15. GOVERNING LAW This Agreement shall be construed and governed by the laws of the State of Florida. 16. ARBITRATION Any controversy or claim arising under, out of, or in connection with this Agreement or any breach or claimed breach hereof, shall be settled by arbitration before the American Arbitration Association, in Palm Beach County, Florida, before a panel of three arbitrators, in accordance with its rules, and judgment upon any award rendered may be entered in any court having jurisdiction thereof. 17. HEADINGS The headings of the paragraphs herein are inserted for convenience and shall not affect any interpretation of this Agreement. IN WITNESS WHEREOF the parties have set their hands and seals this 4th day of January, 1999. Witness: Employer: ABLE TELCOM HOLDING CORP. By: /s/ ELIZABETH TERRERO By: /s/ BILLY V. RAY --------------------------- -------------------------------- Billy V. Ray Chief Executive Officer Witness: Employee: By: /s/ ELIZABETH TERRERO By: /s/ EDWARD POLLOCK --------------------------- -------------------------------- Edward Pollock EX-10.38 12 EXHIBIT 10.38 [LOGO] EMPLOYMENT AGREEMENT Agreement dated this 12 day of November, 1998, by and between Able Telcom Holding Corp., with its address at 1601 Forum Place, Suite 1110, West Palm Beach, Florida, 33401, ("Employer"), and Frazier L. Gaines, 212 Briny Avenue, Apt. B-1 Pompano Beach, Florida 33062("Employee"). WITNESSETH: WHEREAS, Employer is engaged in the telephone and telecommunication installation and service, and manufacture sale and installation of highway signs and traffic control products. WHEREAS, Employer desires to employ Employee as the CEO Of Able International of Employer. WHEREAS, Employer desires to avail itself of the services of the Employee in order that his knowledge and ability may be utilized in the conduct and development of the business and affairs of Employer. WHEREAS, Employee has evidenced his willingness to enter into an employment agreement with respect to his employment by Employer, pursuant to the terms and conditions hereinafter set forth. NOW THEREFORE, is consideration of the foregoing and mutual promises and covenants herein contained, it is agree as follows: 1. EMPLOYMENT: DUTIES Employer hereby Employs as the Chief Executive Officer of Able International, a subsidiary of Employer. Subject at all times to the direction of the Board of Directors and CEO of Employer, Employee shall be in charge of the overall business operations of International and the performance of such services and duties as the Board of Directors and CEO shall determine. However, the duties and responsibilities assigned to the employee during the term of employment shall be substantially similar in type and character to those ordinarily assigned to and performed by persons employed as CEO by corporations carrying on a business similar to Employer. 2. FULL TIME EMPLOYMENT Employee hereby accepts employment by Employer upon the terms and conditions contained herein and agrees that during the term of this Agreement, Employee shall devote all of his business time, attention and energies to the business of Employer. 3. TERM Employee's employment hereunder shall be for a term of three (3) years to commence on the date hereof. This Agreement may be extended for additional one (1) one year terms after the initial term of three (3) years. The Employee/Employer must give a minimum of ninety (90) days prior written notice to the Employee/Employer that either party elects to have the Agreement terminate effective at the end of any term. If Employer violates a major provision of this Agreement, Employee may terminate this Agreement and receive an amount equal to the provisions under item 5 of this agreement titled " Termination without Cause". At the end of the three- year period, the Employee may sign a consulting agreement. The terms of this agreement will be negotiated not later than the 30th month of this Agreement. 4. TERM1NATION FOR CAUSE Notwithstanding any other provision of this Agreement, Employee may be terminated on thirty (30) days notice without further benefits or compensation for any of the following reasons: a) misuse, misappropriation or embezzlement of any Employer property or funds; b) conviction of a felony, c) breach of any material provision of this Agreement. 5. TERMINATION WITHOUT CAUSE Termination without cause can only be effected by an action by the Board of Directors representing a majority of the members approving such termination. In the event of the termination without cause, the Employee will be paid one-year's severance pay plus regular company fringe benefits. Severance of $100,000 will be paid on the date of termination with the remainder of $100,000 payable within 45 days from the date of termination. 6. COMPENSATION As full compensation for the performance of his duties on behalf of Employer, Employee shall be compensated as follows: i) BASE SALARY. Employer during the term hereof shall pay Employee a base salary at the rate of two hundred thousand dollars ($200,000) per annum, payable no less frequently than in monthly installments. ii) REIMBURSEMENT OF EXPENSES. Employer shall reimburse Employee for the expenses incurred by Employee in connection with his duties hereunder, including travel and entertainment, such reimbursement to be made in accordance with regular Employer policy and upon presentation by Employee of the details of, and vouchers for, such expenses. iii) SALARY ADJUSTMENTS. Prior to the expiration of each contract year, the Board of Directors may review Employee's salary and benefits and if appropriate in its sole and absolute discretion may increase such salary and benefits for the next succeeding year. iv) AUTOMOBILE ALLOWANCE. Employer shall provide Employee with an automobile allowance of five hundred dollars ($500) per month. 7) OPTIONS Employee will receive a 100,000 share stock option subject to approval of Board of Directors. If there is a change of control or sale of Able Telcom Holding then the 100,000 share option will vest immediately. Otherwise 34,000 options will vest after one year of employment and 33,000 options will vest each year thereafter. 8) FRINGE BENEFITS During the term of this Agreement, Employer shall provide at its sole expense to the Employee hospitalization, major medical, life insurance and other fringe benefits on the same terms and conditions as it shall afford other management employees. Employer shall also pay all fringe benefits plus $60,000 per year for the number of years equal to his years of service. This $60,000 per year will start at the Employee's termination date. 9) UPON TERMINATION OF EMPLOYMENT Subsequent to the termination of the employment of Employee, Employee will not interfere with or disrupt or attempt to disrupt Employer's business relationship with its customers or suppliers. Further, Employee will not solicit any of the employees of Employer to leave the Employer for a period of three (3) years following such termination. In addition, Employee agrees that all information received from principals and agents of Employer will be held in total confidence for a period of three (3) years following termination of employment, to the extent such information is proprietary and not generally available to the public or sources outside the company. 10) INCAPACITY In the event that Employee shall become incapacitated or unable to perform the duties of his employment hereunder for the balance of the current one year period (hereinafter referred to as the "Disability Period"), the Employee nevertheless shall be entitled to full salary and other payments not including bonus, provided for hereunder during the Disability Period; provided, however, that any amount paid to the Employee under any Employer-provided disability insurance will be subtracted from payments to be made to the Employee by the Employer. In the event that Employee is incapacitated for a period which exceeds the Disability Period, Employee shall not be entitled to receive the compensation and other payments provided for hereunder for any time after the end of the Disability Period. In no event shall the disability payment period exceed the period of this Agreement. Employee shall be considered to be incapacitated when he is unable to perform the normal duties required of him hereunder. Incapacity shall be determined by two (2) medical doctors assigned by Employer. 11) NOTICES All notices hereunder shall be in writing and shall be sent to the parties at the respective addresses above set forth. All notices shall be delivered in person or given by registered or certified mail, postage prepaid, and shall be deemed to have been given when delivered in person or deposited in the United States mail. Either party may designate any other address to which notice shall be given, by giving notice to the other such change of address in the manner herein provided. Employer, or its management, directors, representatives, employees or affiliates will not make any public announcements or any other information related to Employee, directly or indirectly, without the express written consent of Employee, except as required by law or regulation 12. SEVERABILITY OF PROVISIONS If any provision of this Agreement shall be declared by a court of competent jurisdiction to be invalid, illegal or incapable of being enforce in whole or in part, the remaining conditions and provisions or portions thereof shall nevertheless remain in full force and effect and enforceable to the extent they are valid, legal and enforceable, and no provision shall be deemed dependent upon any other covenant or provision unless so expressed herein. 13. ENTIRE AGREEMENT: MODIFICATION All prior agreements with respect to the subject matter hereof between the parties are hereby canceled. This Agreement contains the entire agreement of the parties relating to the subject matter hereof, and the parties hereto have made no agreements, representations or warranties relating to the subject matter of this Agreement which are not set forth herein. No modification of this Agreement shall be valid unless made in writing and signed by the parties hereto. 14. BINDING EFFECT The rights, benefits, duties and obligations under this Agreement shall inure to, and be binding upon, the Employer, its successors and assigns, and upon the Employee and his legal representatives, heirs and legatees. This Agreement constitutes a personal service agreement, and the performance of the Employee's obligations hereunder may not be transferred or assigned by the Employee. 15. NON-WAIVER The failure of either party to insist upon the strict performance of any of the terms, conditions and provisions of this Agreement shall not be construed as a waiver or relinquishment of this Agreement shall not be construed as a waiver or relinquishment of future compliance therewith, and said terms, conditions and provisions shall remain in full force and effect. No waiver of any term or condition of this Agreement on the part of either party shall be effective for any purpose whatsoever unless such waiver is in writing and signed by such party. 16. GOVERNING LAW This Agreement shall be construed and governed by the laws of the State of Florida. 17. ARBITRATION Any controversy or claim arising under, out of, or in connection with this Agreement or any breach or claimed breach hereof, shall be settled by arbitration before the American Arbitration Association, in Palm Beach County, Florida, before a panel of three arbitrators, in accordance with its rules, and judgment upon any award rendered may be entered in any court having jurisdiction thereof. 18. HEADINGS The headings of the paragraphs herein are inserted for convenience and shall not affect any interpretation of this Agreement. IN WITNESS WHEREOF the parties have set their hands and seals this 30 day of November, 1998. Witness: Employer: ABLE TELCOM HOLDING CORP. By: /s/ HAMMONN By: /s/ GIDEON D. TAYLOR --------------------------- -------------------------------- Gideon D. Taylor Chairman of the Board Witness: Employee: By: /s/ EDWARD POLLOCK By: /s/ FRAZIER L. GAINES --------------------------- -------------------------------- Frazier L. Gaines [SEAL] [SEAL] /s/ ELIZABETH TERRERO /s/ ELIZABETH TERRERO EX-10.39 13 EXHIBIT 10.39 EMPLOYMENT AGREEMENT Agreement dated this 7th day of December, 1998, by and between Able Telcom Holding Corp., with its address at 1601 Forum Place, Suite 1110, West Palm Beach, Florida, 33401, ("Employer"), and Gideon Taylor 265 Harper Road Dry Fork, VA 24549 ("Employee"). WITNESSETH: WHEREAS, Employer is engaged in the telephone and telecommunication installation and service, business and the manufacture, sale and installation of highway signs and traffic control products; and WHEREAS, Employer desires to continue to employ as Vice President of Special Projects; WHEREAS, Employer desires to avail itself of the services of the Employee in order that his knowledge and ability may be utilized in the conduct and development of the business and affairs of Employer; and WHEREAS, Employee has evidenced his willingness to enter into an employment agreement with respect to his employment by Employer, pursuant to the terms and conditions hereinafter set forth. NOW THEREFORE, is consideration of the foregoing and mutual promises and covenants herein contained, it is agreed as follows: 1. EMPLOYMENT: DUTIES Employer hereby employs Employee as VP of Special Projects, subject at all times to the direction of the Board of Directors and CEO of Employer. 2. FULL TIME EMPLOYMENT Employee hereby accepts employment by Employer upon the terms and conditions contained herein and agrees that during the term of this Agreement, Employee shall devote all of his business time, attention and energies to the business of Employer. 3. TERM Employee's employment hereunder shall be for a term of 6 months to commence on the date hereof. This Agreement may be extended for additional one (1) year term after the initial term. The Employer must give a minimum of thirty (30) days prior written notice to the Employee that they elect to have the Agreement extended effective at the end of any term. 4. TERM1NATION FOR CAUSE Notwithstanding any other provision of this Agreement, Employee may be terminated on thirty (30) days notice without further benefits or compensation for any of the following reasons: a) misuse, misappropriation or embezzlement of any Employer property or funds; b) conviction of a felony, c) breach of any material provision of this Agreement, d) breach of responsibility to act in best interest of Company or at the direction of the Board. 5. TERMINATION WITHOUT CAUSE Termination without cause can only be effected by a majority vote of the Board of Directors approving such termination. In the event of the termination without cause, the Employee will be paid one-year's severance pay or the remaining balance of the contract plus regular company fringe benefits for a period of six months from the date of severance. Severance will be paid on the date of termination. 6. COMPENSATION As full compensation for the performance of his duties on behalf of Employer, Employee shall be compensated as follows: i) BASE SALARY. Employer during the term hereof shall pay Employee a base salary at the rate of one hundred eighty thousand dollars ($180,000) per annum (with an expected total to be paid over the original contract term of $90,000) payable no less frequently than in monthly installments. ii) REIMBURSEMENT OF EXPENSES. Employer shall reimburse Employee for the expenses incurred by Employee in connection with his duties hereunder, including travel and entertainment, such reimbursement to be made in accordance with regular Employer policy and upon presentation by Employee of the details of, and vouchers for such expenses. iii) SALARY ADJUSTMENTS. Prior to the expiration of each contract term, the Board of Directors may review Employee's salary and benefits and if appropriate in its sole and absolute discretion may increase such salary and benefits for the next succeeding year. iv) AUTOMOBILE ALLOWANCE. Employer shall provide Employee with an automobile allowance of five hundred dollars ($500) per month or in lieu thereof, a company automobile. 7) FRINGE BENEFITS During the term of this Agreement, Employer shall provide at its sole expense to the Employee hospitalization, major medical, life insurance and other fringe benefits on the same terms and conditions as it shall afford other management employees. Employer shall also pay all fringe benefits plus $75,000 per year for the number of years equal to his years of employment (years as of the date hereof) with the minimum years being ten (10). This $75,000 per year will start at the Employee's termination date. 8) UPON TERMINATION OF EMPLOYMENT Subsequent to the termination of the employment of Employee, Employee will not interfere with or disrupt or attempt to disrupt Employer's business relationships with its customers or suppliers. Further, Employee will not solicit any of the employees of Employer to leave the Employer for a period of three (3) years following such termination. In addition, Employee agrees that all information received from principals and agents of Employer will be held in total confidence for a period of three (3) years following termination of employment, to the extent such information is proprietary and not generally available to the public or sources outside the company. 9) INCAPACITY In the event that Employee shall become incapacitated or unable to perform the duties of his employment hereunder for the balance of the current term (hereinafter referred to as the "Disability Period"), the Employee nevertheless shall be entitled to full salary and other payments not including bonus, provided for hereunder during the Disability Period; provided, however, that any amount paid to the Employee under any Employer provided disability insurance will be subtracted from payments to be made to the Employee by the Employer or insurance company. In the event that Employee is incapacitated for a period which exceeds the Disability Period, Employee shall not be entitled to receive the compensation and other payments provided for hereunder for any time after the end of the Disability Period excepting the employee will be entitled to receive the benefits called for in paragraph 7 hereof. In no event shall the disability payment period exceed the period of this Agreement. Employee shall be considered to be incapacitated when he is unable to perform the normal duties required of him hereunder. Incapacity shall be determined by two (2) medical doctors assigned by Employer. 10) NOTICES All notices hereunder shall be in writing and shall be sent to the parties at the respective addresses above set forth. All notices shall be delivered in person or given by registered or certified mail, postage prepaid, and shall be deemed to have been given when delivered in person or deposited in the United States mail. Either party may designate any other address to which notice shall be given, by giving notice to the other of such change of address in the manner herein provided. Employer, or its management, directors, representatives, employees or affiliates will not make any public announcements or any other information related to Employee, directly or indirectly, without the express written consent of Employee, except as required by law or regulation 11. SEVERABILITY OF PROVISIONS If any provision of this Agreement shall be declared by a court of competent jurisdiction to be invalid, illegal or incapable of being enforced in whole or in part, the remaining conditions and provisions or portions thereof shall nevertheless remain in full force and effect and enforceable to the extent they are valid, legal and enforceable, and no provision shall be deemed dependent upon any other covenant or provision unless so expressed herein. 12. ENTIRE AGREEMENT: MODIFICATION All prior agreements with respect to the subject matter hereof between the parties are hereby canceled. This Agreement contains the entire agreement of the parties relating to the subject matter hereof, and the parties hereto have made no agreements, representations or warranties relating to the subject matter of this Agreement which are not set forth herein. No modification of this Agreement shall be valid unless made in writing and signed by the parties hereto. 13. BINDING EFFECT The rights, benefits, duties and obligations under this Agreement shall inure to, and be binding upon, the Employer, its successors and assigns, and upon the Employee and his legal representatives, heirs and legatees. This Agreement constitutes a personal service agreement, and the performance of the Employee's obligations hereunder may not be transferred or assigned by the Employee. 14. NON-WAIVER The failure of either party to insist upon the strict performance of any of the terms, conditions and provisions of this Agreement shall not be construed as a waiver or relinquishment of this Agreement and shall not be construed as a waiver or relinquishment of future compliance therewith, and said terms, conditions and provisions shall remain in full force and effect. No waiver of any term or condition of this Agreement on the part of either party shall be effective for any purpose whatsoever unless such waiver is in writing and signed by such party. 15. GOVERNING LAW This Agreement shall be construed and governed by the laws of the State of Florida. 16. ARBITRATION Any controversy or claim arising under, out of, or in connection with this Agreement or any breach or claimed breach hereof, shall be settled by arbitration before the American Arbitration Association, in Palm Beach County, Florida, before a panel of three arbitrators, in accordance with its rules, and judgment upon any award rendered may be entered in any court having jurisdiction thereof. 17. HEADINGS The headings of the paragraphs herein are inserted for convenience and shall not affect any interpretation of this Agreement. IN WITNESS WHEREOF the parties have executed this Agreement on 9th day of December, 1998. Witness: Employer: ABLE TELCOM HOLDING CORP. By: /s/ ELIZABETH TERRERO By: /s/ BILLY V. RAY --------------------------- -------------------------------- Billy V. Ray By: /s/ C. FRANK SWARTZ CEO - ------------------------------ Witness: Employee: By: /s/ ELIZABETH TERRERO By: /s/ GIDEON D. TAYLOR --------------------------- -------------------------------- Gideon D. Taylor By: /s/ C. FRANK SWARTZ --------------------------- [SEAL] /s/ ELIZABETH TERRERO Approval from the Board of Directors of Able Telcom Holding Corp. SUBJECT: Employment Agreement for Gideon D. Taylor DATE: December 9, 1998 Signatures: /s/ C. FRANK SWARTZ - ----------------------------- Carl Frank Swartz, Chairman [ABSTAINED] - ----------------------------- Gideon D. Taylor, Director /s/ FRAZIER L. GAINES - ----------------------------- Frazier L. Gaines, Director /s/ TOM DAVIDSON - ----------------------------- Tom Davidson, Director - ----------------------------- Jonathan Bratt, Director EX-10.40 14 EXHIBIT 10.40 EMPLOYMENT AGREEMENT This Employment Agreement (the "Agreement"), dated and effective as of April 1, 1998 (the "Effective Date"), is entered into by and between Able Telcom Holding Corp., a Florida corporation (the "Company"), and Rick Boyle (the "Employee"). PRELIMINARY STATEMENTS The Company and its Subsidiaries were contemporaneously herewith acquired by Able Telcom Holding Corp. ("Able"). Employee is one of the Sellers who sold his stock in the Company to Able. Prior to the acquisition by Able, Employee was employed by the Company, and he desires to continue such employment under the new ownership of the Company by Able. The Company is engaged in the business of telecommunications installation and construction, and desires to employ the Employee, and the Employee desires to accept such employment with the Company, on the terms and conditions set forth in this Agreement. In view of the Employee's prior relationships with customers, suppliers and others doing business with the Company and its Subsidiaries, and his experience and knowledge in the Business (as that term is hereinafter defined), and as a material inducement to the Company to enter into this Agreement and provide the compensation and benefits provided for herein, the Employee is willing to agree to refrain from certain activities in competition with the Company and its affiliates and to maintain the confidentiality of information as to the Company or Able to which he may have or gain access. AGREEMENT In consideration of the premises and the respective covenants and agreements of the parties set forth below, and intending to be legally bound hereby, the parties agree as FOLLOWS: 1. EMPLOYMENT. The Company hereby employs the Employee, and the Employee hereby accepts such employment, upon the terms and subject to the conditions set forth in this Agreement. 2. TERM. The term of the Employee's employment hereunder (the "Term") shall commence on the Effective Date and continue for a period of 24 months, unless sooner terminated as hereinafter provided. 3. DUTIES AND RESPONSIBILITIES. The Employee shall serve as a Group Vice President of the Company, reporting to the President of the Company, and shall perform such duties and responsibilities commensurate with his position as shall be assigned to him from time to time by the President of the Company. During the Term, the Employee shall (i) devote his full business time and attention to the performance of services under this Agreement, (ii) use his best efforts, skills and abilities to promote the interests of the Company, and (iii) diligently and competently perform his employment duties pursuant to this Agreement. Employee shall owe to the Company a strict fiduciary duty of good faith, loyalty, diligence and fair dealing. 4. COMPENSATION AND BENEFITS. During the term of this Agreement, the Employee shall receive the compensation and benefits described below. (A) BASE SALARY. The Company shall pay to the Employee, and the Employee shall accept from the Company, as compensation for the performance of services to the Company in all capacities and the Employee's observance and performance of all of the provisions hereof, a base salary at the annualized rate of $159,000.00 per annum (the "Base Salary"). The Base Salary shall be payable in accordance with the normal payroll practices of the Company and shall be subject to withholding for applicable taxes and other amounts. (B) INCENTIVE COMPENSATION. In addition to the Base Salary, with respect to each fiscal year of the Company ending during the Term, the Employee shall be eligible to (i) earn incentive or bonus compensation pursuant to such plan or plans of the Company as may be in effect from time to time, compensation under which may in the form of cash, shares of parent company common stock, or a combination of the foregoing, and (ii) receive grants of options to purchase shares of parent company common stock pursuant to such plan or plans as may be in effect from time to time. (C) EMPLOYMENT BENEFITS. The Employee shall receive such health, dental and life insurance benefits as are made available to employees of the Company generally, and shall be entitled to participate in the Company's 401(k) plan (subject to applicable eligibility requirements). The Employee shall be entitled to paid vacation in accordance with Company policies as in effect from time to time. 5. REPRESENTATIONS OF EMPLOYEE. The Employee represents and warrants to the Company that: (a) He is not a party to, or bound by, any agreement or commitment, or subject to any restriction, including but not limited to agreements related to previous employment containing confidentiality or noncompetition covenants, which would prevent or materially impair his ability to accept and perform the employment duties contemplated by this Agreement. (b) He has not, at any time, been convicted in any criminal proceeding and is not currently the named subject of a pending criminal proceeding. (c) He is not and has not been the subject of any court order, judgment or decree that permanently or temporarily enjoins him from engaging in any type of business practice. (d) He has not, at any time, been found by a court in a civil action or by the Securities and Exchange Commission to have violated any federal or state securities law where such judgment has not subsequently been reversed, suspended or vacated. (e) No petition under the Bankruptcy Code (Title 11 of the United States Code) or any state insolvency law has been filed by or against, nor has any receiver or similar officer been appointed by a court for the business or property of, (i) the Employee, (ii) any partnership in which the Employee was a general partner at or within two years before the time of filing, or (iii) any corporation or business association of which the Employee was an executive officer or director at or within two years before the time of such filing. (f) Except as set forth on Schedule 5 attached hereto, neither the Employee nor any member of Employee's Family (as defined below), owns, directly or indirectly, any interest in, or is an officer, director or employee or consultant of, any entity which is, or is engaged in business as, a competitor, lessor, lessee, supplier, distributor, sales agent or customer of the Company IN the Business. As used herein, "Employee's Family" shall mean the Employee's extended family, which shall include his parents, spouse, siblings, aunts, uncles, nieces, nephews, children and grandchildren. During the Term, the Employee shall be under a continuing obligation to revise Schedule 5 to assure that the representations and warranties contained in Section 5(f) are true and correct as if made every day subsequent to the date thereof. 6. CONFIDENTIALITY. (A) CONFIDENTIAL INFORMATION. The Employee acknowledges that as a result of his prior employment with the Company and in the course of his employment pursuant to this Agreement, he has had and is expected to continue to have extensive contact with customers of the Company and its affiliates, and to have knowledge of and access to trade secrets and other proprietary and confidential information of the Company and its affiliates, including, without limitation, the identity of customers and suppliers and other persons with whom the Company and its affiliates have business relationships, technical information, know-how, plans, specifications, and information relating to the financial condition, results of operations, employees, inventions, sources, leads or methods of obtaining business, pricing formulae, methods or procedures, cost of supplies or services and marketing strategies of the Company or its affiliates or any other information relating to the Company or its affiliates that could reasonably be regarded as confidential or proprietary or which is not available to the public (collectively, the "Confidential information"), and that such information, even to the extent it may be or have been developed or acquired by or through the efforts of the Employee, constitutes valuable, special and unique assets of the Company and its affiliates developed or acquired at great expense which are the exclusive property of the Company and its affiliates. Accordingly, the Employee shall not at any time, either during or subsequent to the term of this Agreement, use or purport to authorize any person to use, reveal, report, publish, transfer or otherwise disclose to any person, corporation or other entity, any of the Confidential information without the prior written consent of the Company, except to responsible officers of the Company and other responsible persons who are in a contractual or fiduciary relationship with the Company and who have a need for such information for purposes in the best interests of the Company. Without limiting the generality of the foregoing, the Employee shall not, directly or indirectly, disclose or otherwise make known to any Person the names or addresses of any of the customers of the Company or its affiliates, whether such persons are customers as of the Effective Date or become such in the future and whether or not such persons have previously conducted business with the Employee in any capacity, or any information as to the Company's employees and others providing services to the Company or its affiliates, including with respect to their abilities, compensation, benefits and other terms of employment or engagement. The Employee acknowledges that the Company would not enter into this Agreement without the assurances provided above with respect to the Confidential Information of the Company and its affiliates. The restrictions following expiration of the Term or termination, whichever is later, shall be for a period of two (2) years following such expiration or termination for Confidential Information that does not consist of trade secrets, but there shall be no time limitation for the restrictions on disclosure of trade secrets. (B) RETURN OF CONFIDENTIAL INFORMATION. Upon the termination of the Employee's employment with the Company, the Employee shall promptly deliver to the Company all customer files, correspondence, manuals, notes, notebooks, reports and copies thereof, and all other materials relating to the Company's business, including without limitation any materials incorporating Confidential information, which are in the possession or control of the Employee. (C) CONFIDENTIALITY PROCEDURES. Employee shall be responsible for establishing, maintaining and enforcing procedures to protect the confidentiality of the Company's trade secrets and other confidential information, including also such trade secrets and confidential information of Able and its affiliates as may be disclosed or made available to him as a result of or in conjunction with his employment with the Company since its inception. 7. RESTRICTIVE COVENANTS. The Employee acknowledges that in order to assure the Company that it will retain its value as a "going concern" and will retain the value of its business relationships, it is reasonable that the Employee be limited in utilizing his special knowledge of the business of the Company and his relationships with customers, suppliers and others to compete with the Company, as hereinafter provided. The parties acknowledge that the Territory (as defined below) consists of a geographic area where the Company currently conducts business or intends to conduct business during the Term. The Employee acknowledges that the Company would not enter into this Agreement and pay the compensation and provide the benefits provided for herein without the covenants and agreements of the Employee set forth in this Section 7. (A) RESTRICTION ON COMPETITION. During a period commencing on the Effective Date and ending on the expiration of the Term or effective date of termination, whichever is later (the "Restricted Period"), the Employee shall not, and shall not permit any persons subject to his direction or control to, directly or indirectly, anywhere within the States of Georgia, Tennessee, North Carolina, South Carolina, Virginia, Kentucky, Florida, Alabama, Mississippi, Louisiana or Arkansas, or in the District of Columbia (the "Territory"), whether alone or in association with others, or as principal, officer, agent, employee, director or stockholder of any corporation, partnership, association or other entity, or through the investment of capital, lending of money or property, rendering of services or otherwise, engage in, significantly influence, control, have an ownership interest in or otherwise become actively involved with any business competitive with the Company in the Business. (B) NONSOLICITATION. During the Restricted Period and for one (1) year thereafter, the Employee shall not, and shall not permit any persons subject to his direction or control to, directly or indirectly, on their own behalf or on behalf of any other person (except the Company or its affiliates), (i) (Deleted], (ii) otherwise divert or attempt to divert any Business from the Company or any of its Subsidiaries operating in the Territory, (iii) interfere with the business relationships between the Company and any of its Subsidiaries operating in the Territory, on the one hand, and any of their respective Customers, suppliers or others with whom they have business relationships in the Business, on the other hand, or (iv) recruit or otherwise solicit or induce, or enter into or participate in any plan or arrangement to cause any person who is an employee of, or otherwise performing services for, the Company or any of its Subsidiaries to terminate his or her employment or other relationship with the Company or any of its Subsidiaries, or (v) hire or assist someone else in hiring any person who has left the employ of the Company or any of its Subsidiaries during the twelve months preceding such hiring. (C) EXCEPTION. The ownership or control by the Employee or his affiliates, as a passive investor, of up to five percent of the outstanding voting securities or securities of any class of a company with a class of securities registered under the Securities Exchange Act of 1934, as amended, shall not be deemed to be a violation of the provisions of this Section 7. (D) DEFINITIONS. As used herein the term "Business" means and includes the construction and installation (above ground or below ground) of telecommunications lines and equipment or materials appurtenant thereto. "Customer" means and includes (i) any and all persons for or to whom the Company or its Subsidiaries provided services or materials or with whom the Company or any of its Subsidiaries had contracts for the provision of services or materials at any time within the 14 month period ending on the date of termination of employment or expiration of the Term hereof, whichever last occurs, (ii) any and all persons or entities to whom proposals or bids were submitted by the Company or its Subsidiaries during the 14 month period prior to the date of termination or expiration of Term, whichever last occurs, and (iii) any and all persons or entities from whom the Company or any of its Subsidiaries received requests for bids or proposals during said 14 month period. 8. REMEDIES. The restrictions set forth in Sections 6 and 7, including the length of the Restricted Period, the geographic scope of the Territory and the activities included in the Business, are considered by the parties to be reasonable for the purposes of protecting the value of the business and goodwill of the Company and the legitimate business interests of Able. The Employee acknowledges that compliance with the restrictions set forth in Sections 6 and 7 will not prevent him from earning a livelihood, and that in the event of a breach by the Employee of any of the provisions of Section 6 and 7, monetary damages would not provide an adequate remedy to the Company. Accordingly, the Employee agrees that, in addition to any other remedies available to the Company, the Company shall be entitled to injunctive and other equitable relief to secure the enforcement of these provisions, and shall be entitled to receive reimbursement from the Employee for attorneys, fees and expenses incurred by it in enforcing these provisions. In addition to its other rights and remedies hereunder, the Company shall have the right to require the Employee to account for and pay over to it all compensation, profits, money, accruals and other benefits derived or received, directly or indirectly, by the Employee from any breach of the provisions of Section 7. If the Employee breaches the covenant set forth in Section 7, the running of the Restricted Period shall be tolled for so long as such breach continues. It is the desire and intent of the parties that the provisions of Sections 6, 7 and 8 be enforced in full; however, if any provisions of Sections 6, 7 or 8 relating to the time period, scope of activities or geographic area of restrictions is declared by a court of competent jurisdiction to exceed the maximum permissible time period, scope of activities or geographic area, the maximum time period, scope of activities or geographic area, as the case may be, shall be reduced to the maximum which such court deems enforceable with respect only to the jurisdiction in which such adjudication is made. If any provisions of Sections 6, 7 or 8 other than those described in the preceding sentence are adjudicated to be invalid or unenforceable, the invalid or unenforceable provisions shall be deemed amended (with respect only to the jurisdiction in which such adjudication is made) in such manner as to render them enforceable and to effectuate as nearly as possible the original intentions and agreement of the parties. 9. TERMINATION. The Employee's employment hereunder may be terminated prior to the expiration of the Term only under the following circumstances: (A) DEATH. The Employee's employment hereunder shall terminate upon his death. Following termination pursuant to this Section 9(a), the Employee shall not be entitled to receive any further compensation from the Company pursuant to this Agreement except any accrued and unpaid Base Salary through the date of termination. (B) DISABILITY. The Company may terminate the Employee's employment hereunder and the Term, effective upon written notice to the Employee, if the Employee becomes unable to perform his duties under this Agreement for a period of 90 consecutive days or for an aggregate of 120 days, whether or not consecutive, in any twelve month period, due to illness, accident or any other physical or mental incapacity, as reasonably determined by Company Management (a "Disability"). Notwithstanding any Disability referred to in this Section 9(b), until the date of termination for Disability, the Company shall continue to pay the Employee his Base Salary, less any insurance proceeds or other disability benefits received by the Employee by virtue of such disability, and provide the Employee's benefits under Section 4(c) up to and including the date of such termination. Following termination pursuant to this Section 9(b), the Employee shall not be entitled to receive any further compensation from the Company pursuant to this Agreement except any accrued and unpaid Base Salary through the date of termination. (C) TERMINATION FOR CAUSE. The Company may terminate the Term and the Employee's employment hereunder for "Cause," effective upon written notice to the Employee. Upon termination of the Employee's employment for Cause, the Employee shall have no right to receive any further compensation or benefits hereunder after the date of termination except any accrued and unpaid Base Salary through the date of termination. As used herein, "Cause" shall mean the occurrence of one or more of the following: (i) material breach by the Employee of any provision of this Agreement; (ii) Employee's gross negligence, willful misconduct or willful refusal or failure to perform any of his duties or responsibilities under this Agreement or to follow any of the Company's lawful policies or directives; (iii) fraud, commission of a felony or a crime involving moral turpitude, dishonesty or embezzlement by the Employee; (iv) the Employee's misappropriation for personal use of assets or business opportunities of the Company or any of its affiliates; (v) the Employee's engaging in conduct that is materially injurious to the Company or its affiliates, whether monetary or otherwise; or (vi) refusal to follow the specific instructions of the Board of Directors or the Chief Executive Officer of Able or the Company. (D) DATE OF TERMINATION. "Date of termination" shall mean (i) if the Employee's employment is terminated by his death, the date of his death, and (ii) if the Employee's employment is terminated for Disability or Cause, the date specified in the written notice referred to in Sections 9(b) and (c), as the case may be. 10. ORIGINAL MATERIAL. The Employee acknowledges that the compensation paid to the Employee by the Company during the Employee's employment by the Company is intended to and does compensate the Employee for the Employee's originality, innovativeness and inventiveness as it relates to the Business. The Employee agrees that any inventions, discoveries, improvements, ideas, concepts or original works of authorship relating to the Business, including, without limitations, computer apparatus and programs, whether or not protectable by patent or copyright, that are or have been originated, developed, made conceived, authored or reduced to practice by the Employee alone or jointly with others during the Employee's employment with the Company shall be the property of and belong exclusively to the Company. The Employee shall promptly and fully disclose to the Company the origination or development by the Employee of any such material and shall provide the Company with any information that it may reasonable request about such material. 11. MISCELLANEOUS. (A) DEFINITION OF TERMS. The term "affiliate," when used in this Agreement with respect to any person, means any person that, directly or indirectly, controls, is controlled by or is under common control with such person, and with respect to any natural person, includes the members of such person's immediate family (spouse, children and parents). The term "person," when used in this Agreement means any natural person or entity with legal status. (B) NO OBLIGATION TO RENEW. Nothing contained in this Agreement shall constitute an obligation on the part of the Company or the Employee to renew this Agreement or the Employee's employment with the Company upon expiration of the Term, and neither party shall be required to give prior notice to the other party of the termination of this Agreement upon the expiration of the Term. Unless the parties otherwise agree in writing, continuation of Employee's employment with the Company beyond the expiration of the Term shall be deemed an employment at will (but with all terms and conditions other than the Term of employment remaining in full force and effect) and Employee's employment may thereafter be terminated at will by Employee or the Company without further obligation of either party hereunder. In such event, the date on which Employee's employment is terminated after expiration of the Term shall be the commencement date for the Restricted Period. (C) SURVIVAL. The provisions of Sections 6, 7 and 8 shall survive the termination of this Agreement for the periods set forth therein. (D) ENTIRE AGREEMENT. This Agreement, including the schedules hereto, sets forth the entire understanding of the parties with respect to the subject matter hereof and merges and supersedes any prior or contemporaneous agreements between the parties pertaining thereto. (E) AMENDMENT. This Agreement may not be amended except by an instrument in writing signed by the parties hereto. (F) WAIVER. No waiver by any party of any of its rights under this Agreement shall be effective unless in writing and signed by the party against which the same is sought to be enforced. No such waiver by any party of its rights under any provision of this Agreement shall constitute waiver of such party's rights under any other provision of this Agreement. No failure by any party hereto to take any action against any breach of this Agreement or default by another party shall constitute a waiver of the former party's right to enforce any provision of this Agreement or to take action against such breach or default or any subsequent breach or default by such other party. (G) SUCCESSORS AND ASSIGNS. This is an agreement for the provision of personal services, and the Employee shall not have the right to assign his rights or obligations hereunder without the prior written consent of the Company, which may be given or withheld in the Company's sole discretion. The Company shall not have the right to assign its rights or obligations under this Agreement without the prior written consent of the Employee, provided that this Agreement may be assigned by the Company without the consent of the Employee to another corporation under common control with the Company, and upon the sale of all or substantially all of the assets, business and goodwill of the Company to another company, or upon the merger or consolidation of the Company with another company, this Agreement may be assigned by the Company to the purchaser of such assets and shall inure to the benefit of, and be binding upon, both the Employee and the company purchasing such assets, business and goodwill, or surviving such merger or consolidation, as the case may be, in the same manner and to the same extent as though such other company were the Company. Subject to the foregoing, this Agreement shall inure to the benefit of, and be binding upon, the parties hereto and their legal representatives, heirs, successors and permitted assigns. The rights and obligations of the parties under this Agreement shall be unaffected by a change in control of the Company or any of its parent corporations. (H) ADDITIONAL ACTS. The Employee and the Company shall execute, acknowledge and deliver and file, or cause to be executed, acknowledged and delivered and filed, any and all further instruments, agreements or documents as may be necessary or expedient in order to consummate the transactions provided for in this Agreement and do any and all further acts and things as may be necessary or expedient in order to carry out the purpose and intent of this Agreement. (I) COMMUNICATIONS. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been given at the time personally delivered, on the business day following the day such communication is sent by recognized overnight courier service, on acknowledgment of receipt of a facsimile of such communication, or five days after being deposited in the United States mail enclosed in a registered or certified postage prepaid envelope, return receipt requested, and addressed to the intended recipient at the address set forth beneath such person's signature on the signature pages hereto, or sent to such other address as a party may specify by notice to the other party; provided, however, that any notice of change of address shall be effective only upon receipt. (J) SEVERABILITY. If any provision of this Agreement is held to be invalid or unenforceable by a court of competent jurisdiction, such invalidity or unenforceability shall not affect the validity and enforceability of the other provisions of this Agreement and the provision held to be invalid or unenforceable shall be enforced as nearly as possible according to its original terms and intent to eliminate such invalidity or unenforceability. (K) WITHHOLDING TAXES. The Company may withhold from amounts payable under this Agreement such federal, state and local taxes as are required to be withheld pursuant to any applicable law or regulation and the Company shall be authorized to take such action as may be necessary in the opinion of the Company's counsel (including, without limitation, withholding from amounts from any compensation or other amount owing from the Company to Employee) to satisfy all obligations for the payment of such taxes. (L) GOVERNING LAW. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Georgia applicable to agreements made and to be performed entirely in such state, without regard to the conflict of laws principles of such state. (M) CONFIDENTIALITY. The Employee shall not disclose the existence of this Agreement or any of the terms or conditions hereof to any person without the prior written consent of Company Management, except for disclosures to such of Employee's personal advisors or representatives who have a need to know such information in connection with the performance of their services to the Employee. (N) HEADINGS. The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of any provisions of this Agreement. (O) COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. (P) LITIGATION; PREVAILING PARTY. If any litigation is instituted regarding this Agreement, the prevailing party shall be entitled to receive from the non-prevailing party, and the non-prevailing party shall pay, all reasonable fees and expenses of counsel for the prevailing party. (Q) WAIVER OF JURY TRIAL. Each party hereto knowingly, irrevocably and voluntarily waives its right to a trial by jury in any litigation which may arise under or involving this Agreement. (R) VENUE; JURISDICTION. If any litigation is to be instituted regarding this Agreement, it shall be instituted in the state and federal courts located in metropolitan Atlanta, Georgia, and each party irrevocably consents and submits to the personal jurisdiction of such courts in any such litigation, and waives any objection to the laying of venue in such courts. Service of process in any such litigation shall be effective as to any party if given to such party by registered or certified mail, return receipt requested, or by any other means of mail that requires a signed receipt, postage prepaid, mailed to such party as provided in Section 11(i). (S) PARTICIPATION OF PARTIES. The parties hereto acknowledge that this Agreement and all matters contemplated herein have been negotiated among all parties hereto and their respective legal counsel and that all such parties have participated in the drafting and preparation of this Agreement from the commencement of negotiations at all times through the execution hereof. (T) INJUNCTIVE RELIEF. It is possible that remedies at law may be inadequate and, therefore, the parties hereto shall be entitled to equitable relief including, without limitation, injunctive relief, specific performance or other equitable remedies in addition to all other remedies provided hereunder or available to the parties hereto at law or in equity. (U) REMEDIES CUMULATIVE. No remedy made available by any of the provisions of this Agreement is intended to be exclusive of any other remedy, and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity. IN WITNESS WHEREOF, the parties hereto have each duly executed this Agreement as of the date set forth above. ABLE TELCOM HOLDING CORP. BY: /s/ FRAZIER L. GAINES ------------------------------ Frazier Gaines President The Centurion Building 1601 West Forum Place Suite 1110 West Palm Beach, Florida 33401 EMPLOYEE: /s/ RICHARD A. BOYLE ------------------------------ Rick Boyle 1422 Spainwood Street Columbia, Tennessee 38401 SCHEDULE 5 FAMILY INTERESTS [to be added by Employee] N/A EX-10.41 15 EXHIBIT 10.41 FINANCING AGREEMENT BETWEEN ABLE TELCOM HOLDING CORP. AND COTTON COMMUNICATIONS, INC. FEBRUARY 17, 1999 THIS AGREEMENT ("Agreement") confirms our discussion with respect to the subject matter hereof and the parties agree as follows: 1. DEFINITIONS. a. "Able" means Able Telcom Holding Corp. b. "Borrower" means Cotton Communications, Inc. c. "Loan" means the $32,000,000 loaned by Able to Borrower pursuant to the terms of this Agreement. d. "Note" means the non-recourse promissory note attached hereto as EXHIBIT A evidencing the Loan. e. "Senior Notes" means the 12% Senior Subordinated Notes of Able initially due January 6, 2005, in the aggregate amount of $10,000,000. f. "Series B Preferred Stock" means up to 4,000 shares of Series B Convertible Preferred Stock of Able issued as of June 30, 1998 in the aggregate amount of $20,000,000. 2. LOAN. Able agrees to lend Borrower $32,000,000 on the signing of this Agreement by Able and Borrower. The Loan will be made by Able advancing funds by means of wire transfer to an account designated by Borrower. The Loan will be evidenced by the Note and will be prepayable and repayable, in whole or in part, as applicable, pursuant to the terms of said Note on the earlier of (i) October 31, 2000 or (ii) the dates on which (A) Able consummates the redemption of all or any part of the Series B Preferred Stock, (B) Borrower sells all or any portion of the Series B Preferred Stock or all or any portion of the Common Stock of Able issued upon conversion of the Series B Preferred Stock or (C) Able pays, in whole or in part, the Senior Notes. Upon the occurrence of any of the above events, Borrower will immediately pay, in accordance with the terms of the Note, the proceeds received by Borrower to Able within one (1) business day after Borrower receives the proceeds. Upon payment in full of the principal of the Note and all interest accrued thereon, Able will mark the Note "paid" and return it to Borrower. 3. USE OF PROCEEDS. The proceeds of the Loan will be used by Borrower to purchase the Series B Preferred Stock from the holders thereof pursuant to Stock Purchase Agreements substantially in the forms attached hereto as EXHIBIT B and EXHIBIT C and to purchase the Senior Notes in accordance with two letter agreements substantially in the forms attached hereto as EXHIBIT D and EXHIBIT E. 4. SECURITY FOR REPAYMENT. The Loan will be secured by a pledge of the Series B Preferred Stock stock certificates and the Senior Notes pursuant to a Pledge Agreement substantially in the form attached hereto as EXHIBIT F. 5. INDEMNIFICATION. In the event that Borrower, or its shareholders, directors or officers (collectively and individually, the "Indemnified Parties") become involved in any action, proceeding or investigation in connection with any matter contemplated by this Agreement, Able shall reimburse the Indemnified Parties for their reasonable legal and other expenses (including the cost of any investigation and preparation) as they are incurred by the Indemnified Parties. Able shall also indemnify and hold harmless the Indemnified Parties from and against any and all losses, claims, damages and liabilities, joint or several, related to or arising out of any matters contemplated by this Agreement unless and to the extent that it shall be finally judicially determined that such losses, claims, damages or liabilities resulted from the negligence or willful misconduct of the Indemnified Parties. 6. DISCLOSURE. Neither this Agreement nor the undertaking and commitment contained herein may be disclosed to or relied upon by any person or entity other than the parties hereto, and their accountants, attorneys and other advisors, without the prior written consent of the other party, except that public disclosure hereof may be made as required by law, including the filing of a Form 13D and a Form 8K with the Securities and Exchange Commission. 7. AMENDMENT; ASSIGNMENT. This Agreement may be modified or amended only in writing. This Agreement is not assignable by Borrower without the prior written consent of Able. 8. OTHER DOCUMENTS. Able and Borrower agree to act in good faith and to negotiate, prepare and sign such other documents as shall be reasonably required to further evidence the intent of this Agreement. 9. EXCULPATORY PROVISION. Borrower's obligations under this Financing Agreement are subject to the Exculpatory Provision contained in the Note. 2 10. LEGAL INTENT. The parties intend to be legally bound by this Agreement and agree that this Agreement contains the necessary material items to be considered a contract. This Agreement is entered into this 17th day of February, 1999. COTTON COMMUNICATIONS, INC. ABLE TELCOM HOLDING CORP. By: /s/ TYLER DIXON By: /s/ BILLY V. RAY -------------------------------- ------------------------------ Name: Tyler Dixon Name: Billy V. Ray Title: President Title: President & CEO 3 EXHIBIT A Note EXHIBIT B Stock Purchase Agreement EXHIBIT C Stock Purchase Agreement EXHIBIT D Letter Agreement EXHIBIT E Letter Agreement EXHIBIT F Stock Pledge Agreement EX-10.42 16 EXHIBIT 10.42 11.5% NON-RECOURSE PROMISSORY NOTE Amount: $32,000,000 February 17, 1999 For value received, Cotton Communications, Inc. ("Borrower") hereby agrees to pay to the order of Able Telcom Holding Corp., its successors or assigns ("Able"), in lawful money of the United States of America and immediately available funds, at its offices in West Palm Beach, Florida (or at such other place or places as Able may designate) the principal amount of Thirty-Two Million and No/100 Dollars ($32,000,000) on October 31, 2000 ("Maturity Date"). INTEREST. Interest on the unpaid principal amount hereof from time to time shall accrue at an annual rate of 11.5% from the date hereof. Accrued interest shall be payable on payment of a Voluntary Prepayment or Mandatory Prepayment and on the Maturity Date. VOLUNTARY PREPAYMENTS. All or any portion of the unpaid principal balance of this Note, together with all accrued interest thereon, may be prepaid by Borrower at any time without penalty. Partial repayments of principal shall be made in tranches of $3,000,000. MANDATORY PREPAYMENTS. The principal amount of the Note shall be prepaid in whole or in part, together with all accrued interest thereon, by Borrower paying Able on the first business day after Borrower receives the proceeds of any of the following: i. the redemption or sale of all or any portion of the outstanding shares of the Series B Preferred Stock; ii. the sale of all or any portion of the Common Stock ("Common Stock") issued to Borrower upon conversion of the Series B Preferred Stock; or, iii. the prepayment or payment of all or any portion of the Senior Notes. Capitalized terms used herein but not defined herein shall have the meanings ascribed to them in the Financing Agreement (the "Agreement") between Borrower and Able dated the date hereof. Whenever a payment on this Note is stated to be due on a day which is not a business day, such payment shall be made on the next succeeding business day with interest accruing to the date of payment. Interest hereunder shall be computed on the basis of the actual number of days elapsed over a year of 360 days. If any amount owed by Borrower hereunder is not paid when due, Borrower shall pay interest on all such past due amounts at a rate equal to 13.5% per annum (the "Default Rate"), 1 payable on demand of Able. Nothing herein contained shall be construed or so operate as to require Borrower to pay any interest, fees, costs or charges at a rate or in an amount greater than is permitted by applicable law. Upon the occurrence of a default in payment of principal, interest or other amounts owing hereunder when due, the unpaid principal amount of this Note, together with all accrued but unpaid interest thereon, may become, or may be declared to be, (or in the case of bankruptcy or insolvency of Borrower, shall, without action on the part of Able, become), immediately due and payable, without presentation, demand, protest or notice of any kind, all of which are hereby waived by Borrower. Failure of the holder of this Note to assert any right herein shall not be a waiver thereof. Borrower agrees to pay on demand all direct out-of-pocket losses, and reasonable out-of-pocket costs and expenses, if any (including reasonable fees and expenses of outside counsel), of Able in connection with the enforcement (whether by legal proceedings, negotiation or otherwise) of this Note and other documents delivered hereunder. Upon the occurrence and during the continuance of any default, Able is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all amounts or other indebtedness at any time owing by Able to or for the credit or the account of Borrower against any and all of the obligations of Borrower now or hereafter existing under this Note, irrespective of whether or not Able shall have made any demand under this Note and of whether or not such obligations may be matured. Able agrees promptly to notify Borrower after any such set-off and application made by Able, but the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Able under this paragraph are in addition to other rights and remedies (including, without limitation, other rights of set-off) which Able may have. In the event that this Note is transferred, assigned or pledged, Borrower hereby waives, as against such transferee, assignee or pledgee, any defenses and counterclaims that Borrower may have against the holder hereof. Nothing herein shall be construed as a waiver by any party of the exculpatory provisions set forth below. This Note shall be governed by and construed in accordance with the laws of the state of Florida without regard to conflicts of law provisions thereof. If any provision or obligation of the Note shall be determined to be invalid, ineffective or unenforceable, the validity, effectiveness and enforceability of the remaining provisions or obligations shall not in any way be affected or impaired thereby. EXCULPATORY PROVISION. Notwithstanding anything to the contrary in this Note or in the Agreement, this Note (A) is payable solely from (1) the Voluntary Prepayments or the Mandatory Prepayments described herein or, (2) payable at the Maturity Date, by the delivery of the 2 remainder of the Series B Preferred Stock, the Common Stock and the Senior Notes then held by Borrower and (B) does not constitute a personal obligation of Borrower. IN WITNESS WHEREOF, Borrower has caused this Note to be executed under seal and delivered by their respective duly authorized officers as of the date first above written. COTTON COMMUNICATIONS, INC. By: /s/ TYLER DIXON ----------------------------------- Name: Tyler Dixon Title: President 3 EX-10.43 17 EXHIBIT 10.43 STOCK PLEDGE AGREEMENT THIS STOCK PLEDGE AGREEMENT (the "Agreement"), given as of this 17th day of February, 1999, by Cotton Communications, Inc. a Georgia corporation (the "Pledgor") in favor of Able Telcom Holding Corp. ("Able"). W I T N E S S E T H : WHEREAS, Able and Pledgor entered into a Financing Agreement (the "Agreement") dated the date hereof pursuant to which Able loaned Borrower $32,000,000 to purchase the Series B Preferred Stock and the Senior Notes, which loan is evidenced by the Note; WHEREAS, the Pledgor is the owner of 2,785 shares of the Series B Preferred Stock and all the Senior Notes; WHEREAS, the Pledgor has agreed to pledge and assign to Able all of the Pledgor's right, title, and interest in and to the Series B Preferred Stock and the Senior Notes (collectively, the "Securities") as security for the payment and performance of the Note; NOW, THEREFORE, in consideration of the premises, the mutual covenants hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Pledgor hereby covenants and agrees with Able that capitalized terms used herein shall have the meanings ascribed thereto in the Agreement, unless otherwise defined or limited herein, and the Pledgor further covenants and agrees with Able as follows: 1. WARRANTY. The Pledgor hereby warrants to Able that except for the security interest created hereby, the Pledgor owns the Securities and has the unrestricted right to pledge the Securities. 2. SECURITY INTEREST. The Pledgor hereby grants, conveys, and pledges to Able a security interest in and security title to all of its right, title, and interest in and to the Securities, together with all proceeds thereof and all dividends or other amounts paid or payable with respect thereto, as security for the payment of the Note. The Pledgor has, on this date delivered the Securities to and deposited the Securities with Able, together with stock powers endorsed in blank by the Pledgor. The Pledgor hereby appoints Able the Pledgor's true and lawful attorney-in-fact to execute such documents (including, without limitation, a stock power) and as shall be necessary to effect a transfer of the Securities by Able (which power of attorney is coupled with an interest and is irrevocable so long as any of the Note is outstanding. 3. ADDITIONAL SHARES. In the event that, during the term of this Agreement: (a) Any stock dividend, stock split, reclassification, readjustment, or other change is declared or made in the capital structure of Able, all new, substituted, and additional shares, or other securities, issued by reason of any such change and received by the Pledgor or to which the Pledgor shall be entitled shall be immediately transferred to Able, by delivery, together with stock powers endorsed in blank by the Pledgor, and shall thereupon constitute Securities to be held by Able under the terms of this Agreement; and (b) Subscriptions, warrants, or any other rights or options shall be issued in connection with the Securities, all new stock, or other securities acquired through such subscriptions, warrants, rights, or options by the Pledgor shall be immediately transferred by delivery to Able and shall thereupon constitute Securities to be held by Able under the terms of this Agreement. 4. DEFAULT. Upon the failure of Pledgor to make prepayments on or payment of the Note, or upon a breach by Pledgor of the Agreement, Able may transfer, sell, or otherwise dispose of the Securities or any portion of the Securities at a public or private sale or make other commercially reasonable disposition of the Securities or any portion thereof after ten (10) days' notice to the Pledgor, and Able may purchase the Securities or any portion thereof at any public or private sale. The proceeds of the public or private sale or other disposition shall be applied to the Note costs incurred in connection with the sale and to the payment of the Note. 5. ADDITIONAL RIGHTS OF SECURED PARTY. In addition to its rights and privileges under this Agreement, Able shall have all the rights, powers, and privileges of secured parties under the Uniform Commercial Code of the State of Florida. All rights of Able shall be cumulative and not exclusive. 6. TERMINATION. This Agreement, and the security interest hereunder granted to Able in the Securities, shall terminate on the earlier of the date on which the Note is paid in full or all the Securities are sold or redeemed or paid in full or October 31, 2000. 7. SECURITY AGREEMENT. This Agreement shall constitute a security agreement under the Uniform Commercial Code as in effect in the State of Florida. 8. GENERAL. -2- (a) Time is of the essence of this Agreement. No waiver by Able of any power or right hereunder or of any default by the Pledgor hereunder shall be binding upon Able unless in writing signed by Able. No failure or delay by Able to exercise any power or right hereunder or binding waiver of any default hereunder shall operate as a waiver of any other or further exercise of such power or any other default. This Agreement, together with all documents referred to herein, constitutes the entire agreement between the Pledgor and Able and may not be modified except by a writing executed by Able and delivered by Able to the Pledgor. (b) If any paragraph or part thereof shall for any reason be held or adjudged to be invalid, illegal, or unenforceable by any court of competent jurisdiction, such paragraph or part thereof so adjudicated invalid, illegal, or unenforceable shall be deemed separate, distinct, and independent, and the remainder of this Agreement shall remain in full force and effect and shall not be affected by such holding or adjudication. (c) The rights and obligations of the parties hereunder shall inure to the benefit of and bind their respective successors and assigns. (d) This Agreement shall be governed by and construed in accordance with the laws of the State of Florida. (e) All notices and demands required or permitted hereunder or by law shall be in writing or by telecopy and shall be mailed or delivered to the party to whom notice is intended to be given at such address as shall be designated in writing by such party. -3- IN WITNESS WHEREOF, the Pledgor has executed this Agreement by and through its duly authorized officers as of the day and year first above written. PLEDGOR: COTTON COMMUNICATIONS, INC. By: /s/ TYLER DIXON -------------------------------- Tyler Dixon Title: President Attest: ____________________________ Title: _________________________ [CORPORATE SEAL] [ ___________________________(SEAL)] -4- EX-23.1 18 EXHIBIT 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated January 19, 1998, with respect to the 1997 and 1996 financial statements and schedules of Able Telcom Holding Corp. included in the Annual Report (form 10-K) for the year ended October 31, 1998 which is incorporated by reference in the Registration Statements (Form S-3, No. 333-22105 and Form S-8, No. 333-04377 pertaining to the 1996 Stock Option Plan of Able Telcom Holding Corp.). West Palm Beach, Florida Ernst & Young LLP February 24, 1999 EX-27 19 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS OCT-31-1998 NOV-01-1998 OCT-31-1998 13,544 0 65,025 866 146,869 224,572 54,257 22,183 290,760 160,434 0 0 11,325 11 0 290,760 0 217,481 179,505 206,072 320 0 5,534 6,537 3,405 2,514 0 0 0 2,514 (0.59) (0.59)
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