-----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, HAJlb8QXqFEVpuFSo6zJIJ+qY+nhRyr1Tbl9MXVC8PkfQNkyMI+oMo5+sENDitaX eM19JBZDL91amNvX4IaFiQ== 0001016843-99-000661.txt : 19990615 0001016843-99-000661.hdr.sgml : 19990615 ACCESSION NUMBER: 0001016843-99-000661 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990430 FILED AS OF DATE: 19990614 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-Q SEC ACT: SEC FILE NUMBER: 000-21986 FILM NUMBER: 99646204 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-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED APRIL 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND 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 OF 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) (561) 688-0400 -------------------------------------------------- (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) NOT APPLICABLE --------------------------------------------------- (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT) 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 [ ] As of June 11, 1999, there were 11,754,593 shares, par value $.001 per share, of the Registrant's Common Stock outstanding. ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES TABLE OF CONTENTS
PAGE NUMBER ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of April 30, 1999 (Unaudited) and October 31, 1998............................... 3 Condensed Consolidated Statements of Operations (Unaudited) for the three months and six months ended April 30, 1999 and 1998.................................. 4 Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three months and six months ended April 30, 1999........................................... 5 Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended April 30, 1999 and 1998............... 6 Notes to Condensed Consolidated Financial Statements (Unaudited). 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................................... 14 Item 3. Quantitative and Qualitative Disclosures about Market Risk...... 21 PART II. OTHER INFORMATION Items 1, 4 and 5 - Not Applicable Item 2. Changes in Securities and Use of Proceeds....................... 21 Item 3. Defaults Upon Senior Securities................................. 23 Item 6. Exhibits and Reports on Form 8-K................................ 24 SIGNATURES................................................................... 31
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
APRIL 30, OCTOBER 31, 1999 1998(1) ---------- ---------- (Unaudited) ASSETS Currents Assets: Cash and cash equivalents......................................................... $ 31,223 $ 13,544 Accounts receivable, net.......................................................... 79,699 64,159 Costs and profits in excess of billings on uncompleted contracts.................. 74,441 105,478 Prepaid expenses and other current assets......................................... 14,372 2,641 -------- -------- Total current assets......................................................... 199,735 185,822 -------- -------- Property and equipment, net.......................................................... 29,629 32,074 -------- -------- Other assets: Goodwill, net..................................................................... 29,217 31,374 Assets held for sale.............................................................. 12,750 38,750 Other non-current assets.......................................................... 6,145 2,740 ------- -------- Total other assets........................................................... 48,112 72,864 -------- -------- Total assets................................................................. $277,476 $290,760 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of long-term-debt................................................. $ 3,278 $15,047 Accounts payable and accrued liabilities.......................................... 50,824 62,558 Billings in excess of costs and profits on uncompleted contracts.................. 69,661 82,829 Stock appreciation rights payable................................................. 2,931 -- -------- -------- Total current liabilities.................................................... 126,694 160,434 Long-term debt, non-current portion............................................... 79,324 76,047 Advances from WorldCom............................................................ 32,000 -- Other non-current liabilities..................................................... 6,466 2,737 -------- -------- Total liabilities............................................................ 244,484 239,218 Contingencies. Series B Preferred Stock, $.10 par value; aggregate liquidation value of $3,895,000 and $17,820,000; 4,000 shares authorized; 779 and 3,564 shares issued and outstanding..................................... 2,455 11,325 Shareholders' Equity: Common stock, $.001 par value, authorized 25,000,000 shares; 11,756,593 and 11,065,670 shares issued and outstanding, respectively..................................................................... 12 11 Additional paid-in capital........................................................ 44,810 35,164 Senior Note Warrants.............................................................. 1,244 1,244 Series B Preferred Stock Warrants................................................. 5,400 5,400 WorldCom Stock Options............................................................ -- 3,490 WorldCom Phantom Stock............................................................ 606 606 Retained earnings (deficit)....................................................... (21,610) (5,698) Accumulated other comprehensive income............................................ 75 -- -------- -------- Total shareholders' equity....................................................... 30,537 40,217 -------- -------- Total liabilities and shareholders' equity................................... $277,476 $290,760 ======== ========
(1) The balance sheet at October 31, 1998 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to condensed consolidated financial statements. 3 ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE THREE MONTHS FOR THE SIX MONTHS ENDED APRIL 30, ENDED APRIL 30, --------------------------- -------------------------- 1999 1998 1999 1998 Revenue: Construction and maintenance ............................ $ 88,760 $ 34,552 $ 180,537 $ 56,820 Conduit 35,721 -- 35,721 -- --------- -------- --------- -------- Total revenue 124,481 34,552 216,258 56,820 Costs and expenses: Construction and maintenance ........................ 77,584 24,612 153,830 43,607 Costs of conduit .................................... 34,673 -- 34,673 -- General and administrative expense .................. 7,605 6,169 15,440 9,365 Impairment of intangible assets ..................... 1,319 -- 1,319 -- Depreciation and amortization expense ............... 2,764 1,591 5,097 2,832 --------- -------- --------- -------- Total costs and expenses ....................... 123,945 32,372 210,359 55,804 --------- -------- --------- -------- Income from operations .................................... 536 2,180 5,899 1,016 --------- -------- --------- -------- Other income (expense): Interest expense ................................ (2,210) (276) (4,689) (788) Change in value of stock appreciation rights .... 6,409 -- 2,981 -- Other ........................................... (680) (179) (811) 159 --------- -------- --------- -------- Total other income (expense) ................... 3,519 (455) (2,519) (629) Income before income taxes, minority interest and extraordinary item................................... 4,055 1,725 3,380 387 Provision for income taxes ................................ 2,048 673 1,880 151 --------- -------- --------- -------- Income before minority interest and extraordinary item .... 2,007 1,052 1,500 236 Minority interest ......................................... 125 185 199 296 --------- -------- --------- -------- Income (loss) before extraordinary item ................... 1,882 867 1,301 (60) Extraordinary loss on the early extinguishment of debt, net of tax of $1,226 ........................... 1,841 -- 1,841 -- --------- -------- --------- -------- Net income (loss) ......................................... 41 867 (540) (60) Preferred stock dividends ................................. (64) (29) (244) (78) Redemption of 2,785 shares of Series B Preferred Stock .... (9,899) -- (9,899) -- Value assigned to Series B Preferred Stock Warrant modifications ............................. (1,894) -- (1,894) -- Discount attributable to beneficial conversion privilege of preferred stock ............................ (3,335) -- (3,335) (105) --------- -------- --------- -------- Income (loss) applicable to common stock .................. $ (15,151) $ 838 $ (15,912) $ (243) ========= ======== ========= ======== Weighted average shares outstanding: Basic................................................. 11,717,244 9,480,335 11,709,839 9,192,508 Diluted............................................... 11,717,244 9,588,747 11,709,839 9,192,508 Income (loss) per share (see Note 6): Basic: Income (loss) before extraordinary item............. $0.16 $0.09 $0.11 $(0.01) Extraordinary loss on the early extinguishment of debt, net of tax of $1,226..................... (0.16) -- (0.16) -- Net income (loss)................................... 0.00 0.09 (0.05) (0.01) Income (loss) applicable to common stock............ (1.29) 0.09 (1.36) (0.03) Diluted: Income (loss) before extraordinary item............. $0.16 $0.09 $0.11 $(0.01) Extraordinary loss on the early extinguishment of debt, net of tax of $1,226..................... (0.16) -- (0.16) -- Net income (loss)................................... 0.00 0.09 (0.05) (0.01) Income (loss) applicable to common stock............ (1.29) 0.09 (1.36) (0.03)
See notes to condensed consolidated financial statements. 4 ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (IN THOUSANDS)
FOR THE THREE MONTHS FOR THE SIX MONTHS ENDED APRIL 30, ENDED APRIL 30, 1999 1998 1999 1998 ---- ---- ---- ---- Net income (loss).......................................... $41 $867 $(540) $(60) --- ---- ----- ---- Other comprehensive income (loss), net of tax: Foreign currency translation adjustments................. (10) -- 75 -- --- ---- ----- ---- Total other comprehensive income (loss).................. (10) -- 75 -- --- ---- ----- ---- Comprehensive income (loss)................................ $31 $867 $(465) $(60) === ==== ===== ====
See notes to condensed consolidated financial statements. 5 ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
FOR THE SIX MONTHS ENDED APRIL 30, 1999 1998 ---- ---- Cash provided by operating activities........................................... $ 18,366 $ 2,362 Investing Activities: Capital expenditures, net.................................................... (1,646) (7,033) Acquisition of businesses (net of cash acquired of $4,351 in 1998) -- 320 -------- ------- Net cash used in investing activities........................................ (1,646) (6,713) -------- ------- Financing Activities: Repayments of long-term debt and other borrowings............................ (31,232) 26,021 Proceeds from the issuance of long-term debt and other borrowings...................................................... 32,163 30,194 Net proceeds from preferred stock offering................................... (92) -- Proceeds from the exercise of stock options.................................. 330 183 Dividends paid on preferred stock............................................ (244) (183) Distributions to minority interests.......................................... (110) -- Foreign currency translation adjustment...................................... 138 -- Other........................................................................ 6 1 -------- ------- Net cash provided by financing activities................................. 959 4,175 -------- ------- Increase in cash and cash equivalents........................................... 17,679 176 Cash and cash equivalents, beginning of period.................................. 13,544 6,230 -------- ------- Cash and cash equivalents, end of period........................................ $ 31,223 $ 6,054 ======== ======= Supplemental Disclosure: Valuation of detachable warrants................................................ $ -- $ 1,244 Valuation of stock appreciation rights.......................................... $ 2,981 -- Common stock issued in accordance with GEC coinout provisions................... 4,595 -- Common stock issued in exchange for note payable to director.................... 828 -- Discount attributable to beneficial conversion privilege of preferred stock..... 6,430 105 Value assigned to the February 1999 Series B Preferred Stock Warrant modification.................................................... 1,894 -- Compensation recognized on common stock awarded to employee..................... 350 -- Compensation recognized on deferred compensation plans.......................... 710 --
See notes to condensed consolidated financial statements. 6 ABLE TELCOM HOLDING CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. OPERATION AND BASIS OF PRESENTATION Able Telcom Holding Corp. and Subsidiaries ("Able Telcom" or the "Company") develops, builds and maintains communications systems for companies and governmental authorities. The Company is headquartered in West Palm Beach, Florida, and operates its subsidiaries throughout the United States, as well as in South America. The Company is organized in the following groups: ORGANIZATIONAL GROUP SERVICES PROVIDED - -------------------- ----------------- Network Services Design, development, engineering, installation, construction, operation and maintenance services for telecommunications systems Transportation Services 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 Design, installation and maintenance services to (Latin America) 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. In the opinion of management, the unaudited condensed consolidated financial statements furnished herein include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results of operations for the interim periods presented. These interim results of operations are not necessarily indicative of results for the entire year. The condensed consolidated financial statements contained herein should be read in conjunction with the consolidated financial statements and related notes contained in the Company's 1998 Annual Report on Form 10-K/A ("Form 10-K/A"). 7 The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required for complete financial statements. Certain items in the condensed consolidated financial statements as of October 31, 1998 have been reclassified to conform with the current presentation. 2. ACQUISITION On July 2, 1998, the Company acquired the network construction and transportation systems business of ("MFSNT") from WorldCom, Inc. ("WorldCom") pursuant to a merger agreement dated April 26, 1998 ("Plan of Merger"). On September 9, 1998, the Company and WorldCom finalized the terms of the Plan of Merger through the execution of an amended agreement. The acquisition of MFSNT was accounted for using the purchase method of accounting at a total price of approximately $67.5 million. The allocation of purchase price to identifiable assets and liabilities acquired is based upon preliminary estimates. The Company is in the process of obtaining additional information necessary to finalize the allocation of purchase price. The effect of the final allocation on previously reported amounts is not expected to be significant. In addition, the MFSNT acquisition agreements, as amended, provide that on November 30, 2000, the Company shall pay to WorldCom certain amounts, if positive: (i) The difference between $9.0 million related to losses on MFSNT projects in existence on March 31, 1998 and recorded by MFSNT as of June 30, 1998, and the amount actually lost on such contracts through November 30, 2000, (ii) the difference between $3.0 million related to losses on MFSNT projects not recorded by MFSNT as of June 30, 1998 and the amount actually lost on such contracts through November 30, 2000, and (iii) the difference between $5.0 million and the aggregate costs of Able in defending the litigation, and payments made in settlement or in payment of judgements with respect to preacquisition litigation. In conjunction with the acquisition of MFSNT, the Company granted an option to WorldCom (the "WorldCom Option") to purchase up to 2,000,000 shares of the Company's common stock, at an exercise price of $7.00 per share, but subject to a 1,817,941 share maximum limitation, and the right to receive upon satisfaction of certain conditions phantom stock awards (the "Phantom Stock Awards") equivalent to 600,000 shares of common stock, payable in cash, stock, or a combination of both at the Company's option. The WorldCom Phantom Stock Awards are exercisable only on the following three days: July 2, 1999, July 2, 2000, or July 2, 2001. WorldCom will be entitled to receive any appreciation of the Common Stock over a base price of $5 3/32 per share, but in no event shall the maximum payment exceed $25.00 per share. The fair values of the WorldCom Option and Phantom Stock Awards were estimated at the date of grant at $3.5 million and $0.6 million, respectively, and are included as a component of the total consideration paid for the acquisition of MFSNT. On January 8, 1999, the Company and WorldCom agreed to convert the WorldCom Option into stock appreciation rights ("SARs") with similar terms and provisions, except that the SARs provide 8 for the payment of cash to WorldCom based upon the appreciation of the Company's common stock over a base price of $7.00 per share. The SARs may revert back to the WorldCom Option allowing for the exercise of all 2,000,000 shares (no longer subject to the 1,817,941 share limitation) if certain shareholder approvals are received. In connection with the establishment of the stock appreciation rights liability as of January 8, 1999, the fair value was estimated to be approximately $5.9 million as compared to the previously estimated fair value of the WorldCom Option. The difference of $2.4 million represents debt issue costs of $0.5 million and a reduction of paid-in capital of $1.9 million. The exercise period for the SARs granted commences on the earlier of: (i) one (1) business day after the date upon which the potential issuance of common stock is voted on by the shareholders of the Company, and (ii) July 1, 1999, and ending on January 2, 2002. As of April 30, 1999, the fair value of the stock appreciation rights liability has been estimated to be $2.9 million and a credit to income of $6.4 million and $3.0 million has been reflected as a change in value of SARs in the three and six months ended April 30, 1999, respectively, in the accompanying condensed consolidated statements of operations. 3. ASSETS HELD FOR SALE During the three months ended April 30, 1999, the Company finalized the sale of condait invcatory, which had previously been reported as held for sale and runs from Ohio to New York generating gross revenues of $35.7 million and net cash proceeds of $27.0 million. 4. IMPAIRMENT OF INTANGIBLE ASSETS As part of the integration of MSNT into the Company, management has undertaken a consolidation and realignment of all subsidiaries into operational divisions, both to achieve operational synergies and to close unprofitable operations. As a result of significant turnover and the deterioration of underlying contracts, the Company closed Dial during the three months ended April 30, 1999. For the three and six months ended April 30, 1999 Dial had contract margins of $(2.7) million and $(2.9) million, respectively, and losses before income taxes of $5.4 million and $6.4 million, respecitvely, which included a $1.3 million reduction of goodwill. 5. BORROWINGS In February 1999, WorldCom advanced the Company $32.0 million, against amounts otherwise payable pursuant to the WorldCom Master Services Agreement, for purposes of facilitating the purchase of 2,785 shares, or approximately 78% of the Series B Preferred Stock, as defined below, and the purchase of the outstanding $10.0 million principal amount of Senior Notes, defined below (the "WorldCom Advance"). The purchase of the Senior Notes resulted in an extraordinary loss on the early extinguishment of debt of $1.8 million, net of tax of $1.2 million. The original terms of the WorldCom Advance provided for interest at 11.5% and was repayable on the earlier of (i) October 31, 2000 or (ii) the dates of redemption and/or conversion of the Series B Preferred Stock or the Senior Notes. On April 1, 1999, the terms of the WorldCom Advance were amended to clarify the terms of the WorldCom Advance, to subordinate the payment terms to the holders of the Credit Facility, defined below, to eliminate interest, and to amend the repayment date to November 30, 2000. The WorldCom Advance agreement also provided for 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 are non-interest bearing and would be repayable to WorldCom on November 30, 2000. To date, the Company has not received any additional advances against the $15.0 million available. During the three months ended April 30, 1999, the maturity date in the Company's Credit Facility was amended to November 1, 2000 and certain minimum reatios were also amended. The Company was in compliance, or have received waivers for non-compliance, with all provisions of the Credit Facility at April 30, 1999. 9 6. SERIES B PREFERRED STOCK During the three months ended January 31, 1999, the Company was in technical violation of certain provisions of its Series B Preferred Convertible Stock ("Series B Preferred Stock") issued in June 1998. Such default resulted from the Company's failure to have a registration statement covering the resale of shares of common stock underlying the Series B Preferred Stock and warrants associated with the Series B Preferred Stock (the "Registration Statement") declared effective by December 27, 1998. Such default gave the holders of the Series B Preferred Stock the option to require the Company to redeem their securities at premium prices. During the quarter ended January 31, 1999, the holders of the Series B Preferred Stock notified the Company of their intent to exercise such redemption right; however, such notice was subsequently deferred. In February 1999, as described above, approximately 78% of the Series B Preferred Stock was purchased from the original holders and, in connection with such purchase, the Company was given until May 18, 1999 to effect the Registration Statement described above. The Purchaser and the remaining holders of the Series B Preferred Stock agreed to either waive all outstanding defaults under such securities or refrain from exercising any remedies with respect to any such outstanding defaults for a period of 90 days from February 17, 1999. During such period of time, the Company had agreed to use its best efforts to have the Registration Statement declared effective. To date, the Registration Statement has not been declared effective. In May 1999, the holders of the remaining 779 shares agreed to a further extension from May 19, 1999 to August 18, 1999. In connection with the purchase of the 78% of the Series B Preferred Stock, the Company agreed to certain modifications in the conversion price of the related warrants. The terms of the existing Series B Preferred Stock conversion price for the remaining shares were modified from 97% of market value, as defined in the agreements, to a fixed amount of approximately $3.50 per share for 404 of the remaining 779 shares. The conversion price of (i) warrants to purchase a total of 370,000 shares of the Company's common stock was reduced to $13.25 per share and (ii) warrants to purchase a total of 630,000 shares of common stock was reduced to $13.50 per share. On May 7, 1999, the warrants to purchase the 630,000 shares of common stock were purchased by the Company for $3.00 per share. The purchase of 78% of the Series B Preferred Stock, the modification of the conversion price of the remaining Series B Preferred Stock and the modification of the Series B Preferred Stock Warrants resulted in charges to income applicable to common stock during the three months ended April 30, 1999 of $18.2 million. In addition, during the second quarter ended April 30, 1999, the Company was and continues to be in default on the Series B Preferred Stock for the nonpayment of dividends related to the remaining 10 22% (or 779 shares) of shares of Series B Preferred Stock. In connection with the above transactions and as a result of the loan of the WorldCom funds to the Purchaser, the Company recorded a reduction in income applicable to common stock of approximately $10.0 million on (i) the purchase of the Series B Preferred Stock and (ii) a reduction in the price of the warrants. 7. STOCKHOLDERS EQUITY During the three months ended April 30, 1997: /bullet/ The Company issued 628,398 shares of its common stock to the former owners of GEC in settlement of additional purchase price coined and accrued during fiscal 1998. /bullet/ The Company issued 115,286 shares of its common stock to a director of the Company in full settlement of amounts due this director and previously reported as "Notes Payable to Directors." /bullet/ The Company granted 50,000 shares of its common stock to an employee resulting in compensation expense of $350,000. 8. STOCK OPTIONS In 1996, the Company's shareholders adopted a stock option plan for the issuance of up to 550,000 shares which included provisions for both incentive and nonqualified stock options (the "Plan") and which expires on September 19, 2005. On April 24, 1998, the shareholders increased the number of shares issuable under the Plan to 1,300,000 and made certain other amendments to the Plan, which relate primarily to the issuance of restricted stock awards. In an effort to correct certain of the actions taken by the Company's Board of Directors in order to maintain compliance with the Plan, as amended, the Board of Director's rescinded certain of the stock option grants made during the fiscal year ended October 31, 1998, or 530,000 options under the Plan and 310,000 options outside the Plan. These ambiguities and compliance issues included, in certain instances, (i) granting options that had been granted inside the Plan where there were not a sufficient number of shares available, (ii) granting options at below market prices to nonemployee directors with the Plan, contrary to terms of the Plan, (iii) not specifying whether the grants were issued inside or outside the Plan, (iv) not specifying the exercise period for the options granted or (v) issuing options outside the Plan, which could be considered contrary to the terms of certain financing documents. These options were reissued at the fair market value, as defined by the Plan, on December 31, 1998, as well as shortened certain of the expiration dates of the options. In addition, 350,000 options outside the Plan and 150,000 options pursuant to the Plan were granted in November 1998 and rescinded and reissued on December 31, 1998 for the reasons described above. A summary of the Company's stock options activity under the Plan, and related information for the period from October 31, 1998 through April 30, 1999 follows: NUMBER OF OPTION PRICE SHARES PER SHARE --------- ------------ Options Outstanding at October 31, 1998 664,475 $6.00 - $14.00 Grants 1,022,500 $5.75 - $ 7.125 Exercises (22,525) $6.00 - $ 7.25 Cancellations (684,500) $6.00 - $14.00 --------- Option Outstanding at April 30, 1999 979,950 $5.75 - $ 7.813 ========= In addition, stock options have been granted to certain employees of the Company outside of the Plan. 11 A summary of the Company's stock option activity outside the plan, and related information for the period from October 31, 1998 through April 30, 1999 follows: NUMBER OF OPTION PRICE SHARES PER SHARE --------- ------------ Options Outstanding at October 31, 1998 310,000 $6.20 - $14.00 Grants 1,890,000 $5.75 - $ 7.125 Exercises (40,000) $5.75 Cancellations (660,000) $6.20 - $14.00 --------- Option Outstanding at April 30, 1999 1,500,000 $5.75 - $ 6.375 ========= The Financial Accountings Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 123, ACCOUNTING FOR STOCK BASED COMPENSATION, in 1995, which requires expanded disclosures of stock based compensation arrangements with employees and encourages compensation cost to be measured based on the fair value of the equity instrument. Under SFAS No. 123, companies are permitted to apply Accounting Principles Board Opinion ("APB") No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, which recognizes compensation cost based on the intrinsic value of the equity instrument awarded. The Company has elected to continue to apply APB No. 25. Under APB No. 25, to the extent the exercise price of the Company's employee stock options equal the market price of the underlying stock on the date of grant, no compensation expense is recognized. The following is the pro forma effect on net income (loss) and earnings (loss) per share as if the Company had adopted the expense recognition requirement of SFAS No. 123 (in thousands, except per share amounts):
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED APRIL 30, APRIL 30, 1999 1998 1999 1998 ---- ---- ---- ---- Pro forma income (loss) available to common shareholders $(15,151) $ 838 $(15,912) $ (243) Per share: Basic (1.29) 0.09 (1.36) (0.03) Diluted (1.29) 0.09 (1.36) (0.03) Pro forma income (loss) available to common shareholders $(15,350) $ 758 (16,012) $ 295 Per share: Basic (1.31) 0.08 (1.37) (0.03) Diluted (1.31) 0.08 (1.37) (0.03) Pro forma income (loss) Per share: Basic (1.27) 0.08 (0.04) Diluted (1.27) 0.08 (0.04)
12 9. EARNINGS PER SHARE The following is a reconciliation of the numerators and denominators of the basic and diluted per share computation as required by SFAS No. 128, EARNINGS PER SHARE (dollars, in thousands):
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED APRIL 30, APRIL 30, 1999 1998 1999 1998 ---- ---- ---- ---- Basic: Income (loss) available to common stockholders (numerator) $ (15,151) $ 838 $ (15,912) $ (243) Weighted-average number of common shares (denominator) 11,717,244 9,480,335 11,709,839 9,192,508 Income (loss) per common share $ (1.29) $ 0.09 $ (1.35) $ (0.03) Diluted: Income (loss) available to common stockholders (numerator) $ (15,151) $ 838 $ (15,912) $ (243) Weighted-average number of common shares 11,717,244 9,480,335 11,709,839 9,192,508 Common stock equivalents arising from stock options, warrants and convertible preferred stock 1,248,647 108,412 2,138,826 79,156 Total shares (denominator) 12,965,891 9,588,747 13,848,665 9,271,665 Income (loss) per common share(1) $ (1.29) $ 0.09 $ 1.35 $ (0.03) ---------------- (1) The effect of securities that could dilute basic earnings per share are antidilutive for all periods presented, therefore, basic and diluted earnings per share are equivalent. The Company has potentially dilutive securities that could have a dilutive effect in the future. Those securities include warrants related to the Series A Preferred Stock, Series B Preferred Stock warrants, stock options, warrants and phantom stock awards.
10. CONTINGENCIES LITIGATION On May 21, 1998, SIRIT Technologies, Inc. ("SIRIT") filed a lawsuit in the United States District Court for the Southern District of Florida, against the Company and Thomas M. Davidson, who has since become a member of the Company's Board of Directors. SIRIT asserts claims against the Company for tortuous interference, fraudulent inducement, negligent misrepresentation and breach of contract in connection with the Company's agreement to purchase the shares of MFSNT and seeks injunction relief and compensatory damages in excess of $100.0 million. 13 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 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 the lawsuits and claims is not determinable. The Company does not believe that any judgment would 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. ITEM 2. 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 six months ended April 30, 1999 and 1998. This information should be read in conjunction with the Company's condensed consolidated financial statement appearing elsewhere in this document. Except for historical information contained herein, the matters discussed below contain forward looking statements that involve risk and uncertainties, including but not limited to economic, governmental and technological factors affecting the Company's operations, markets and profitability. 14 As a result of acquisitions during the fiscal year ended October 31, 1998, primarily the acquisition of the network construction and transportation systems business of MFS Network Technologies Inc. ("MFSNT"), material changes exist in substantially all balance sheet and statements of operations categories. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, selected elements of the Company's condensed statements of operations as a percentage of its revenues:
For the Three Months For the Six Months Ended April 30, Ended April 30, -------------------- ------------------ 1999 1998 1999 1998 -------------------- ------------------ Revenues: Construction and maintenance 71.3% 100.0% 83.4% 100.0% Conduit sales 28.7% 0.0% 16.6% 0.0% -------------------- ------------------ Total revenues 100.0% 100.0% 100.0% 100.0% Costs and expenses: Construction and maintenance costs 62.3% 71.2% 71.0% 76.7% Costs of conduit 27.9% 0.0% 16.2% 0.0% General and administrative 6.1% 17.9% 7.1% 16.5% Impairment on intangible assets 1.1% 0.0% 0.6% 0.0% Depreciation and amortization 2.2% 4.6% 2.4% 5.0% -------------------- ------------------ Total costs and expenses 99.6% 93.7% 97.3% 98.2% Income from operations 0.4% 6.3% 2.7% 1.8% Other income (expense), including minority interest 2.9% -0.8% -1.1% -0.6% Provision for income taxes 1.6% 1.9% 0.9% 0.3% Extraordinary loss from the extinguishment of debt, net of tax 1.5% 0.0% 0.9% 0.0% Net income (loss) 0.0% 2.5% -0.2% -0.1% Income (loss) applicable to common stock -12.2% 2.4% -7.4% -0.4%
15 REVENUES Construction and Maintenance - Construction and maintenance revenues were $88.8 million and $180.5 million for the three and six months ended April 30, 1999, respectively, compared to $34.6 million and $56.8 for the same respective periods of fiscal 1998 - increases of $54.2 million or 157 percent and $123.7 million or 218 percent, respectively. For the three and six months ended April 30, 1999, MFSNT generated construction and maintenance revenues of $58.6 million and $117.5 million, respectively. Conduit Sales - Sales of conduit during the three months ended April 30, 1999 generated revenues of $35.7 million. The sale of the conduit inventory, which had previously been reported as held for sale and runs from Ohio to New York, generated net cash flow to the Company of $27.0 million. COSTS AND EXPENSES Construction and Maintenance - Construction and maintenance costs were $77.6 million and $153.8 million for the three and six months ended April 30, 1999, respectively, compared to $24.6 million and $43.6 million for the same respective periods of fiscal 1998 - increases of $53.0 million or 215 percent and $110.2 million or 253 percent, respectively. For the three and six months ended April 30, 1999, MFSNT generated construction and maintenance costs of $52.9 million and $102.1 million, respectively. The Company's construction and maintenance margins were 12.6 percent compared to 14.8 percent for the three and six months ended April 30, 1999, respectively, compared to 28.8 percent and 23.3 percent for the same respective periods of fiscal 1998. The Company's construction and maintenance margins for the three and six months ended have been adversely effected by losses from Dial Communications, Inc. (Dial), a wholly-owed subsidiary of the Company, that has generated negative margins of $2.7 million and $2.9 million for the three and six months ended April 30, 1999, respectively. As part of the integration of MSNT into the Company, management has undertaken a consolidation and realignment of all subsidiaries into operational division, both to achieve operational synergies and to close unprofitable operations. As a result of significant turnover and the deterioration of underlying contracts, the Company closed Dial during the three months ended April 30, 1999. For the three and six months ended April 30, 1999 Dial had losses before income taxes of $5.4 million and $6.4 million, respectively, which included a $1.3 million reduction of goodwill that is reflected in the accompanying statement of operations for the three months ended April 30, 1999 as "Impairment of Intangible Assets." General and Administrative - General and administrative expenses were $7.6 million and $15.4 million for the three and six months ended April 30, 1999, respectively, compared to $6.2 million and $9.4 million for the same respective periods of fiscal 1998 - increases of $1.4 million or 23 percent and $6.0 million or 65 percent, respectively. For the three and six months ended April 30, 1999, general and administrative expense attributable to MFNST was $2.0 million and $4.1 million, respectively. General and administrative expenses during the three and six months ended April 30, 1999 were adversely effected by charges of $1.2 million related to deferred compensation, stock compensation and severance agreements with former and existing officers of the Company. Depreciation and Amortization - Depreciation and amortization expense was $2.8 million and $5.1 million for the three and six months ended April 30, 1999, respectively, compared to $1.6 million and $2.8 million for the same respective periods of fiscal 1998 - increases of $1.2 million or 74 percent and $2.3 million or 80 percent, respectively. For the three and six months ended April 30, 1999, depreciation and amortization expense attributable to MFSNT was $0.9 million and $1.4 million, respectively. Depreciation and amortization expense as a percentage of revenues was 2.2 percent and 2.4 percent for the three and six months ended April 30, 1999, respectively, compared to 4.6 percent and 5.0 percent for the same respective periods of fiscal 1998. These decreases as a percentage of revenue, are attributable to the significant increase in revenues from MFSNT which, as a construction management company, does not require the same percentage increase in capital assets as the Company's construction companies. 16 OTHER INCOME (EXPENSE) Other income (expense) was $3.4 million and $2.6 million for the three and six months ended April 30, 1999, respectively, compared to $(0.6) million and $(1.3) million for the same respective period of fiscal 1998 and consist of the following:
For the Three Months Ended April 30, ------------------------------------------------------ 1999 1998 $ Change % Change ------------ ------------- ------------ -------------- Change in the value of stock appreciation rights $6,409 $- $6,409 n/a Interest expense (2,210) (276) (1,934) 701 Minority interest (125) (185) 60 32 Other (680) (179) (501) 280 ------------ ------------- ------------ -------------- $3,394 $(640) $4,034 630% ============ ============= ============ ==============
For the Six Months Ended April 30, ------------------------------------------------------ 1999 1998 $ Change % Change ------------ ------------- ------------ -------------- Change in the value of stock appreciation rights $2,981 $- $2,981 n/a Interest expense (4,689) (788) (3,901) 495 Minority interest (199) (296) 97 33 Other (680) (179) (501) 280 ------------ ------------- ------------ -------------- $(2,587) $(1,263) $(1,324) 105% ============ ============= ============ ==============
Stock Appreciation Rights - The change in the value of the stock appreciation rights is a non-cash item related to the value of amounts potentially owed to WorldCom under the existing WorldCom stock appreciation rights (WorldCom SARs). Management expects the conversion of WorldCom SARs into options for the Company's common stock at the Company's next shareholders' meeting and will not result in a cash charge to the Company. The value of the WorldCom SARs will be increased or decreased based on the fair value of the WorldCom SAR's utilizing the price of the Company's common stock at each reporting date until the WorldCom SARs are converted to options or exercised by WorldCom. Interest Expense - The increase in interest expense during fiscal 1999 compared to fiscal 1998 is primarily attributable to the acquisition of MFSNT. During the three and six months ended April 30, 1999, the Company had $35.0 million outstanding under its Credit Facility with an average interest rate of approximately 7.5 percent, $30.0 million outstanding under the WorldCom Note with an interest rate of 11.5 percent and $15.0 million outstanding under its property taxes payable of that imputes interest at 15 percent. The $32.0 million outstanding under the WorldCom Advance is non-interest bearing. PROVISION FOR INCOME TAXES The provision for income taxes was $2.0 million and $1.9 million for the three and six months ended April 30, 1999, respectively, compared to $0.7 million and $0.2 million for the same respective periods of fiscal 1998 increases of $1.4 million or 204 percent and $1.7 million or 1,145 percent, respectively. During the three and six months ended April 30, 1999, the Company has provided income taxes at a 40 percent rate that approximates the rate used when applying federal and state statutory rates to pre-tax income, after adjusting for the amortization of nondeductible goodwill. EXTRAORDINARY LOSS During the three months ended April 30, 1999, the Company purchased all of its outstanding Senior Subordinated Notes with an outstanding principal balance of $10.0 million resulting in an extraordinary 17 loss from the early extinguishment of debt or $1.8 million, net of tax of $1.2 million. The Senior Subordinated Note were purchased with proceeds from the WorldCom Advance. INCOME (LOSS) APPLICABLE TO COMMON STOCK Income (loss) applicable to common stock was $(15.2) million and $(16.0) million for the three and six months ended April 30, 1999, respectively, compared to $0.8 million and $(0.2) million for the same respective periods of fiscal 1998 - decreases of $18.7 million or 2,230 percent and $19.0 million or 7,821 percent, respectively. During the three months ended April 30, 1999, the Company purchased 2,785 shares, or approximately 78 percent, of the Company outstanding Series B Preferred Stock, modified the conversion price of the remaining Series B Preferred Stock, and modified the terms of the Series B Preferred Stock Warrants resulting in chages to income applicable to common stock of $15.1 million. Additionally, during the three and six months ended April 30, 1999, dividends on the Series B Preferred Stock totaled $0.1 million and $0.2 million, respectively. 18 LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents were $31.2 million at April 30, 1999 compared to $13.5 million at October 31, 1998. The increase in cash and cash equivalents of $17.7 million during the six months ended April 30, 1999 resulted from cash provided by operating and financing activities of $18.4 million and $0.9 million, respectively, offset by cash used in investing activities of $1.6 million. 19 Cash used in operating activities during the six months ended April 30, 1999 of $18.4 million is primarily the result of net unrestricted proceeds from conduit sales of $20.0 million offset, in part, by costs on loss contracts of $2.0 million that were charged against the reserve for contract losses. Cash used in investing activities during the six months ended April 30, 1999 of $1.6 million is due to net capital expenditures required to support increased operations and replacement of existing equipment. Cash used in financing activities during the six months ended April 30, 1999 of $0.9 million is due primarily to redemptions of Series B PreferredStock, net repayments of long term debt and other borrowings, dividends paid on preferred stock and proceeds from the issuance of stock options. In February 1999, WorldCom advanced the Company $32.0 million for the purposes of arranging the purchase of 2,785 shares, or approximately 78 percent of the Series B Preferred Stock and the purchase of the outstanding $10.0 million of Senior Notes. This advance is non-interest bearing and 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 Notes. As of April 30, 1999, the Company had fully utilized its availability under its Credit Facility. WorldCom has agreed to make available additional non-interest bearing 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. As of April 30, 1999 and the date of this filing, no amounts were outstanding under WorldCom's obligation to provide such additional advances. 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 is has available cash from operations, as well as from the additional advance available from WorldCom described above, sufficient to meet the Company's operating and capital requirements for the next twelve months. Nonetheless, pursuant to the terms of the documents relating to the Series B Preferred Stock, under certain circumstances, including without limitation, if the registration statement that includes the shares of common stock underlying the Series B Securities is not declared effective on or before May 18, 1999, the Company is delisted under certain circumstances from any securities exchange, or any representation or warranty by the Company to the holders is not true and correct, then the holders of certain outstanding shares of Series B Preferred Stock, in whole or part, have the option to require the Company to redeem their securities at premium prices. Although the Company intends to use its best efforts to comply with the provisions in the documents relating to the Series B Preferred Stock, the failure of which would provide the holder the right to exercise such redemption option, there can be no assurance that the Company will be able to do so, in part, because certain of such matters are dependent upon the efforts or approval of others (such as the Securities and Exchange Commission with respect to the effectiveness of the aforementioned registration statement). In addition, there can be no assurance that the Company will not experience adverse operating results or other factors which could materially increase its cash requirements or adversely affect its liquidity position. 20 CAUTIONARY STATEMENTS Certain of the information contained herein may contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as the same may be amended from time to time ("the Act") and in releases made by the Securities and Exchange Commission ("SEC") from time to time. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, or achievements expressed or implied by such forward-looking statements. The words "estimate," "believes," "project," "intend," "expect" and similar expressions when used in connection with the Company, are intended to identify forward-looking statements. Any such forward-looking statements are based on various factors and derived utilizing numerous important assumptions and other important factors that could cause actual results to differ materially from those on the forward-looking statements. These cautionary statements are being made pursuant to the Act, with the intention of obtaining benefits of the "Safe Harbor" provisions of the Act. The Company cautions investors that any forward-looking statements made by the Company are not guarantees of future performance and that actual results may differ materially from those in the forward-looking statements as a result of various factors, including but not limited to those set forth below. Important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to: (i) risks associated with leverage, including cost increases due to rising interest rates: (ii) risks associated with the Company's ability to continue its strategy of growth through acquisitions; (iii) risks associated with the Company's ability to successfully integrate all of its recent acquisitions: (iv) the Company's ability to make effective acquisitions in the future and to successfully integrate newly acquired businesses into existing operations and the risks associated with such newly acquired businesses; (v) 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: 21 THE COMPANY'S STATE OF READINESS. The Company has established programs to coordinate its year 2000 "Y2K" compliance efforts across all business functions and geographic areas. The scope of the programs include addressing the risks associated with the Company's (i) information technology "IT" systems (including the Company's products and services), (ii) non-IT systems that include embedded technology (e.g., equipment and other infrastructure), and (iii) significant vendors and their Y2K readiness. The Company is utilizing the following steps in executing its Y2K compliance program: 1) awareness, 2) assessment, 3) renovation, 4) validation and testing, and 5) implementation. The Company has completed the awareness and assessment steps for all areas; renovation is scheduled to be completed no later than July 31, 1999; validation and testing is scheduled to be completed by August 31, 1999; and implementation is scheduled to be completed by October 31, 1999. IT SYSTEMS. The Company's most significant renovation effort involves the conversion of substantially all of MFSNT's IT Systems. The Company believes it will be substantially completed with its testing and implementation for all IT Systems by October 31, 1999. NON-IT SYSTEMS. The Company expects to have all of its mission critical non-IT Systems Y2K compliant by October 31, 1999. The Company is currently formulating its testing and implementation plans for its mission critical non-IT systems. SIGNIFICANT VENDORS. As part of the Company's Y2K compliance program, the Company has contacted its significant vendors to assess their Y2K readiness. For all mission critical third party software embedded in or specified for use in conjunction with the Company's IT systems and products, the Company's communications with the vendors indicates that the vendors believe they will be Y2K compliant by October 31, 1999. Such third party software is being tested in conjunction with the testing of the IT systems and products discussed above. There can be no assurance that i) the Company's significant vendors will succeed in their Y2K compliance efforts, or ii) the failure of vendors to address year 2000 compliance will not have a material adverse effect on the Company's business or results of operations. THE COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES. Since inception of its program through April 30, 1999, the costs related to the Company's Y2K compliance efforts were not material. The total estimated costs to complete the Company's Y2K compliance effort are approximately $2.0 million. The estimated costs to complete, which does not include any costs which may be incurred by the Company if its significant vendors fail to timely address Y2K compliance, is based on currently known circumstances and various assumptions regarding future events. However, there can be no assurance that these estimates will be achieved and actual results could differ materially from those anticipated. THE RISKS OF THE COMPANY'S YEAR 2000 ISSUES. The Company's failure to timely resolve the Y2K risks could result in system failures, the generation of erroneous information, and other significant disruptions of business activities. Although the Company believes it will be successful in its Y2K compliance efforts, there can be no assurance that the Company's systems and products contain all necessary date code changes. In addition, the Company's operations may be at risk if its vendors and 22 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 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. The most likely worst case scenario for Y2K is that the Company's internal operating systems and hardware become inoperable due to internal problems or date sensitive issues which may not have been addressed by the Company's third party hardware and software vendors. This situation could cause downtime for the accounting, purchasing and cost management systems. Proper backup of data and implementation of manual processing during downtime will reduce the problems to a point that there will be little or no impact on operations or revenue. Y2K issues that arise with customers' hardware and software may cause a short-term loss of revenues as a result of unforseen software and/or third party hardware failures. This exposure is expected to be minimal as the result of the Company's Y2K compliance program efforts, which included validation and testing. THE COMPANY'S CONTINGENCY PLAN. The Company has not yet developed a comprehensive contingency plan to address the situation that may result if the Company or its vendors are unable to achieve Y2K compliance for its critical operations. During fiscal 1999, based upon the status of the Company's Y2K compliance efforts at that time and the Company's perceived risks to critical business operations, the Company plans to evaluate what areas the Company believes a contingency plan may be necessary, and execute such contingency plan if warranted. The i) inability to timely implement such a plan, if deemed necessary, and ii) the cost to develop and implement such a plan, may have a material adverse effect on the Company's results of operations. CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS. Except for statements of existing or historical facts, the foregoing discussion of Y2K consists of forward-looking statements and assumptions relating to forward-looking statements, including without limitation the statements relating to future costs, the timetable for completion of Y2K compliance efforts, potential problems relating to Y2K, the Company's state of readiness, third party representations, and the Company's plans and objectives for addressing Y2K problems. Certain factors could cause actual results to differ materially from the Company's expectations, including without limitation (i) the failure of vendors and service providers to timely achieve Y2K compliance, (ii) system incompatibilities with third parties resulting from software conversion, (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 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. 23 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk from changes in interest rates on debt obligations that impact the fair value of these obligations. The Company's policy is to manage interest rates through a combination of fixed and variable rate debt. Currently, the Company does not use derivative financial instruments to manage its interest rate risk. The table below provides information about the Company's risk exposure associated with changing interest rates (amounts in thousands): EXPECTED MATURITY DURING THE FISCAL YEARS ENDED 1999 2000 2001 2002 2003 THEREAFTER ---- ---- ---- ---- ---- ---------- Fixed rate debt $3,278 $2,543 $32,109 $1,895 $1,703 $6,074 Average interest rate 12.6% 13.0% 11.9% 15% 15% 15% Variable rate debt $ -- $ -- $35,000 $ -- $ -- $ -- Average interest rate --% --% 7.5% --% --% --% The Company has no cash flow exposure due to interest rate changes for its fixed debt obligations. All of the Company's debt is non-trading. The fair value of the Company's debt approximates its carrying value. Although the Company conducts business in foreign countries, the international operations were not material to the Company's consolidated financial position, results of operations or cash flows as of April 30, 1999. Additionally, foreign currency transaction gains and losses were not material to the Company's results of operations for the six months ended April 30, 1999. Accordingly, the Company was not subject to material foreign currency exchange rate risk from the effects that exchange rate movements of foreign currencies would have on the Company's future costs or on future cash flows it would receive from its foreign subsidiaries. To date, the Company has not entered into any significant foreign currency forward exchange contracts or other derivative financial instruments to hedge the effects of adverse fluctuations in foreign currency exchange rates. PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On November 12, 1998, the Company granted options to purchase 150,000 shares of the Company's common stock, par value $0.001 per share ("Common Stock") to two employees of the Company. The options were granted pursuant to the Company's 1995 Stock Option Plan, as amended (the "Plan"), are non-qualified, vested over three years, are exercisable at $7.125 per share, and expire on July 8, 2000. In addition, on November 12, 1998, the Company granted 24 options to purchase 350,000 shares of Common Stock to employees of the Company's subsidiaries acquired in connection with the MFSNT acquisition. The options were granted outside the Plan. On December 23, 1998, the Company granted options to purchase 12,500 shares of Common Stock to employees of the Company. The options were granted pursuant to the Plan, are qualified, vested immediately, are exercisable at $5.75 per share, and expire on December 31, 2004. On December 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 stock option grants made during the fiscal year ended October 31, 1998, or 530,000 options under the Plan and 310,000 options outside the Plan. These ambiguities and compliance issues included, in certain instances, (i) granting options that had been granted inside the Plan where there were not a sufficient number of shares available, (ii) granting options at below market prices to nonemployee directors with the Plan, contrary to terms of the Plan, (iii) not specifying whether the grants were issued inside or outside the Plan, (iv) not specifying the exercise period for the options granted or (v) issuing options outside the Plan, which could be considered contrary to the terms of certain financing documents. These options, which vested immediately, were reissued at the fair market value ($5.75 per share), as defined by the Plan, on December 31, 1998, as well as shortened certain of the expiration dates of the options. In addition, the Company rescinded and reissued the 350,000 options outside the Plan and the 150,000 options pursuant to the Plan described above on December 31, 1998 at $5.75 per share for the reasons described above. These options vested immediately and expire on November 12, 2004 (outside the Plan) and December 31, 2004 (pursuant to the Plan). On December 31, 1998, the Company granted options to purchase 1,050,000 shares of Common Stock to employees of the Company's subsidiaries acquired in connection with the MFSNT acquisition. The options were granted outside the Plan, are non-qualified, vest over three years, are exercisable at $5.75 per share, and expire on November 12, 2004. On December 31, 1998, the Company granted options to purchase 40,000 shares of Common Stock to an employee of the Company. The options were granted outside the Plan, are non-qualified, 20,000 of which vested on January 1, 1999, 10,000 vest on December 31, 1999 and 10,000 vest on December 31, 2000, are exercisable at $5.75 per share, and expire on the earlier of September 19, 2005 or two years after the date of termination. On December 31, 1998, the Company granted options to purchase 180,000 shares of Common Stock to three employees of the Company. The options were granted pursuant to the Plan, are non-qualified, vested immediately, are exercisable at $5.75 per share, and expire on December 31, 2001. On February 17, 1999, 2,785 shares of non-voting Series B Convertible Preferred Stock, $0.10 par value ("Series B Preferred Stock") were purchased by the Company for approximately $18.9 million and retired. In connection with the purchase of the 78% of the Series B Preferred Stock, the Company agreed to certain modifications in the conversion price of the related warrants. The terms of the existing Series B Preferred Stock conversion price for the remaining shares were modified from 97% of market value, as defined in the agreements, to a fixed amount of approximately $3.50 per share for 404 of the remaining 779 shares. The conversion price of (i) warrants to purchase a total of 370,000 shares of the Company's common stock was reduced to $13.25 per share and (ii) warrants to purchase a total of 630,000 shares of common stock was reduced to $13.50 per share. On May 7, 1999, the warrants to purchase the 25 630,000 shares of common stock were purchased by the Company for $3.00 per share. On February 19, 1999, 628,398 shares were issued to the former owners, or their assignees, of Georgia Electric Corporation ("GEC") pursuant to the earn-out provision of the acquisition agreement whereby the Company purchased all of the outstanding stock of GEC. Effective April 1, 1999, the Company granted to an employee options to purchase 100,000 shares of Common Stock. The options were granted outside the Plan, are non-qualified, 75,000 of which vested immediately with the remaining 25,000 vesting on June 21, 2000, are exercisable at $6.375 per share, and expire at the earlier of September 19, 2005 or two years from the date of termination. Effective April 1, 1999, the Company granted a consultant options to purchase 40,000 shares of Common Stock. The options were granted outside the Plan, are non-qualified, 20,000 of which vested immediately, 10,000 vest on April 1, 2000, and 10,000 vest on April 1, 2001, are exercisable at $6.375 per share, and expire two years from the date of expiration of the consulting agreement or any extensions or renewals thereof. On April 30, 1999, the Company granted to an employee a restricted stock award of 50,000 shares of Common Stock. On April 30, 1999, the Company converted a payable to a Director of the Company in the amount of $0.8 million into 118,286 shares of Common Stock based upon a conversion rate equal to the fair market value of the Company's common stock on the date of conversion, or $7.00 per share. ITEM 3. DEFAULTS UPON SENIOR SECURITIES For the period from November 1, 1998 through February17, 1999, the Company was in violation of the payment terms of its $10.0 million principal amount 12% Senior Subordinated Notes (the "Senior Notes"). These Senior Notes were purchased from the holders effective February 17, 1999, as described above, and subsequently canceled. The Company was not in compliance with certain provisions (i.e., certain minimum ratios, total debt limitations) of the Company's $35.0 million three-year senior secured revolving credit facility ("Credit Facility") during the six months ended April 30, 1999. The Company has obtained a waiver for its noncompliance during the six months ended April 30, 1999. During the three months ended April 30, 1999, the Credit Facility was amended to change certain minimum ratios. In February 1999, as was reported on the Company's Form 10-K/A, approximately 78% of the Series B Preferred Stock was purchased from the original holders and, in connection with such purchase, the Company was given until May 18, 1999 to effect a registration statement covering the resale of shares of common stock underlying the Series B Preferred Stock and warrants associated with the Series B Preferred Stock (the "Registration Statement"). The purchaser and the remaining holders 26 of the Series B Preferred Stock agreed to either waive all outstanding defaults under such securities or refrain from exercising any remedies with respect to any such outstanding defaults for a period of 90 days from February 17, 1999. During such period of time, the Company had agreed to use its best efforts to have the Registration Statement declared effective. To date, the Registration Statement has not been declared effective. In May 1999, the holders of the remaining 22% agreed to a further extension from May 19, 1999 until August 18, 1999. In addition, during the second quarter ended April 30, 1999, the Company was and continues to be in default on the Series B Preferred Stock for the nonpayment of dividends related to the remaining 22% (or 779 shares) of shares of Series B Preferred Stock. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits EXHIBIT NO. DESCRIPTION 2.1 Asset Purchase Agreement, dated November 26, 1997, among Able Telcom Holding Corp., Georgia Electric Company, Transportation Safety Contractors, Inc., COMSAT RSI Acquisitions, Inc. and COMSAT Corporation (1) 2.2 Indemnification Agreement, dated February 25, 1998, among Able Telcom Holding Corp., Georgia Electric Company, Transportation Safety Contractors, Inc., COMSAT RSI Acquisitions, Inc. and COMSAT Corporation (1) 2.3 Stock Purchase Agreement, dated as of April 1, 1998, among Able Telcom Holding Corp., James P Patton, Rick Boyle and Claiborne K. McLemore III (2) 2.4 Closing Memorandum and Schedule, dated April 1, 1998, among Able Telcom Holding Corp., James P.Patton, Rick Boyle and Claiborne K. McLemore III (2) 2.5 Agreement and Plan of Merger by an among MFS Acquisition Corp., Able Telcom Holding Corp., MFS Network Technologies, Inc. and MFS Communications Company, Inc. dated as of April 22, 1998 (9) 2.5.1 Amendment to Agreement and Plan of Merger among MFS Acquisition Corp., Able Telcom Holding Corp., MFS Network Technologies, Inc. and MFS Communications Company, Inc. dated as of July 2, 1998(10) 2.5.1.1 Amendment No. 2 dated as of July 21, 1998 to Agreement and Plan of Merger among MFS Acquisition Corp., Able Telcom Holding Corp., MFS Network Technologies, Inc. and MFS Communications Company, Inc. (11) 27 2.5.1.2 Agreement between WorldCom Network Services, Inc. and Able Telcom Holding Corp. dated as of September 9, 1998 (13) 2.5.1.3 Agreement between WorldCom Network Services, Inc. and Able Telcom Holding Corp. dated January 26, 1999 (12) 2.5.2 Promissory Note of Able Telcom Holding Corp. dated July 2, 1998 to MFS Communications Company, Inc. (10) 2.5.2.1 11.5% Promissory Note between Able Telcom Holding Corp., and WorldCom Network Services, Inc. dated as of September 1, 1998(12) 2.5.3 Stock Pledge Agreement dated as of July 2, 1998 by Able Telcom Holding Corp. in favor of WorldCom, Inc. (10) 2.5.4 Master Services Agreement between WorldCom Network Services, Inc. and MFS Network Technologies, Inc. dated as of July 2,1998 (exhibits omitted) (11) 2.5.5 Assumption and Indemnity Agreement dated as of July 2, 1998 among Able Telcom Holding Corp., WorldCom Inc., MFS Communications Company, Inc., MFS Intelenet, Inc., MFS Datanet, Inc., MFS Telcom, Inc. and MFS Communcations, Ltd. (schedule omitted) (10) 2.5.6 License Agreement between MFS Communications Company, Inc. and Able Telcom Holding Corp. dated as of July 2, 1998 (10) 2.5.7 Modification to Stock Option Agreement between the Company and WorldCom, Inc. dated January 8, 1999 (12) 2.5.8 Agreement to Enter Into Stock Appreciation Rights Agreement between the Company and WorldCom, Inc. dated January 8, 1999(12) 2.5.9 Financing Agreement between WorldCom Network Services, Inc.and Able Telcom Holding Corp. dated February 16, 1999 (12) 2.5.9.1 Amendment and Restatement of Financing Agreement by and between WorldCom Network Services, Inc. and Able Telcom Holding Corp. dated April 1, 1999 2.5.10 Agreement dated March 15, 1999 by and between Able Telcom Holding Corp. and WorldCom Network Services, Inc. 3.1 Articles of Incorporation of Able Telcom Holding Corp., as amended (3) (4) 3.1.1 Articles of Amendment to the Articles of Incorporation of Able Telcom Holding Corp. (13) 28 3.2 Bylaws of Able Telcom Holding Corp., as amended (3) 4.2 Specimen Common Stock Certificate (3) 4.3 Specimen Series A Preferred Stock Certificate (6) 4.4 Form of Warrant issued to Credit Suisse, First Boston and Silverton International Fund Limited (4) 4.6 Able Telcom Holding Corp. 1995 Stock Option Plan (13) 4.7 Amendment to Able Telcom Holding Corp. 1995 Stock Option Plan, dated April 24, 1998 (13) 4.8 Series B Convertible Preferred Stock Purchase Agreement (13) 4.9 Registration Rights Agreement for Series B Convertible Preferred Stock Purchase Agreement and 350,000 Warrants (13) 4.10 Registration Rights Agreement for 650,000 Warrants associated with Series B Convertible Preferred Stock Purchase Agreement (13) 4.11 Form of Common Stock Purchase Warrants for 350,000 Shares in connection with Series B Convertible Preferred Stock Purchase Agreement (13) 4.12 Form of Common Stock Purchase Warrants for 650,000 Shares in connection with Series B Convertible Preferred Stock Purchase Agreement (13) 4.13 Preferred Stock Purchase Agreement by and among Able Telcom Holding Corp., RGC International Investors, LDC, and Cotton Communications, Inc. dated February 17, 1999 (12) 4.14 Warrant Amendment between Able Telcom Holding Corp., and Purchasers (as defined) dated February 17, 1999 (12) 4.15 Securities Purchase Agreement by and between the Sellers (as defined) and Cotton Communications, Inc. dated February 17, 1999 (12) 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) 29 10.16 Stock Purchase Agreement between Able Telcom Holding Corp., Telecommunications Services Group, Inc., Dial Communications, Inc., William E. Newton and Sybil C. Newton (8) 10.17 Promissory Note of Able Telcom Holding Corp. Payable to William E. Newton and Sybil C. Newton (8) 10.23 Form of Stock Purchase Agreement among Able Telcom Holding Corp., Traffic Management Group, Inc., Georgia Electric Company, Gerry W. Hall and J. Barry Hall (5) 10.25 Securities Purchase Agreements, dated as of January 6, 1998, between Able Telcom Holding Corp. and each of the Purchasers named therein (6) 10.25.1 Letter Agreement dated July 2, 1998 related to Securities Purchase Agreements dated as of January 6, 1998 (13) 10.26 Senior Secured Revolving Credit Agreement dated as of April 6, 1998, between Able Telcom Holding Corp. and Suntrust Bank, South Florida, N.A. and Bank of America, FSB (9) 10.27 Credit Agreement among Able Telcom Holding Corp., NationsBank, N.A. and The Several Lenders from Time to Time Parties Hereto dated as of June 11, 1998 (exhibits and schedules omitted) (13) 10.30 Employment Agreement with Stacy Jenkins, dated July 16, 1998 (13) 10.32 Amendment to June 11, 1998 Credit Agreement among Able Telcom Holding Corp. NationsBank N.A., and the Several Lenders from Time to Time Parties thereto, dated as of June 30, 1998 (13) 10.32.1 Amendment and Amended and Restated Limited Waiver to June 11, 1998 Credit Agreement among Able Telcom Holding Corp., NationsBank N.A., and the Several Lenders from Time to Time Parties thereto, dates as of June 30, 1998 (15) 10.33 Employment Agreement with Billy V Ray, Jr., dated December 1, 1998 (12) 10.35 Financial Advisor and Placement Engagement Letter, dated April 3, 1998, between Washington Equity Partners and Able Telcom Holding Corp. (14) 10.36 Employment Agreement with G. Vance Cartee, dated January 4, 1999 (12) 10.37 Employment Agreement with Edward Pollock, dated January 1, 1999 (12) 30 10.38 Employment Agreement with Frazier L. Gaines, dated November 12, 1998 (12) 10.40 Employment Agreement with Rick Boyle, dated April 1, 1998 (12) 10.41 Financing Agreement between Able Telcom Holding Corp. and Cotton Communications, Inc. dated February 17, 1999 (without exhibits) (12) 10.41.1 Termination Agreement between Able Telcom Holding Corp. and Cotton Communications, Inc. dated March 22, 1999 (15) 10.42 11.5% Non-Recourse Promissory Note between Cotton Communications, Inc. and Able Telcom Holding Corp. dated February 17, 1999 (12) 10.43 Stock Pledge Agreement between Able Telcom Holding Corp. and Cotton Communications, Inc. dated February 17, 1999 (12) 10.44 Employment Agreement with Michael Arp, dated January 1, 1999 (15) 10.45 Consulting Agreement and Employment Agreement with James E. Brands, dated March 15, 1999 (15) 10.46 Employment Agreement with Michael Summers, dated May___, 1999 11 Computation of Per Share Earnings (7) 21 Subsidiaries of Able Telcom Holding Corp. (13) 27 Financial Data Schedule - ---------------------- (1) Incorporated by reference from an exhibit to the Company's Current Report on Form 8-K (File No. 0-21986), dated February 25, 1998, as filed with the Commission on March 12, 1998, as amended by Form 8-K/A-1, dated May 11, 1998, as filed with the Commission on April 14, 1998. (2) Incorporated by reference from an exhibit to the Company's Current Report on Form 8-K (File No. 0-21986), dated April 1, 1998, as filed with the Commission on April 14, 1998. (3) Incorporated by reference from an exhibit to the Company's Registration Statement on Form S-1 (File No. 33-65854), as declared effective by the Commission on February 26, 1994. (4) Incorporated by reference from an exhibit to the Company's Current Report on Form 8-K (File No. 0-21986), dated December 20, 1996, as filed with the Commission on December 31, 1996. 31 (5) Incorporated by reference from an exhibit to the Company's Current Report on Form 8-K (File No. 0-21986), dated October 12, 1996, as filed with the Commission on October 25, 1996. (6) Incorporated by reference from an exhibit to the Company's Annual Report on Form 10-K (File No. 0-21986) for the fiscal year ended October 31, 1997, as filed with the Commission on February 13, 1998, as amended by 10-K/A, as filed with the commission on March 20, 1998. (7) Incorporated by reference from Note 6 to the Condensed Consolidated Financial Statements (Unaudited) filed herewith. (8) Incorporated by reference from an exhibit to the Company's Current Report on Form 8-K (File No. 0-21986), dated December 2, 1996, as filed with the Commission on December 13, 1996, as amended by Form 8-K/A-1, dated February 11, 1997, as filed with the Commission on February 11, 1997. (9) Incorporated by reference from an exhibit to the Company's Quarterly Report on Form 10-Q (File No. 0-21986), for the quarter ended April 30, 1998, as filed with the Commission on June 14, 1998. (10) Incorporated by reference from an exhibit to the Company's Current Report on Form 8-K (File No. 0-21986), dated July 2, 1998, as filed with the Commission on July 16, 1998. (11) Incorporated by reference from an exhibit to the Company's Current Report on Form 8-K/A (File No. 0-21986), dated July 2, 1998, as filed with the Commission on August 3, 1998. (12) Incorporated by reference from an exhibit to the Company's Annual Report on Form 10-K/A (File No. 0-21986), for the fiscal year ended October 31, 1998, as filed with the Commission on March 1, 1999. (13) Incorporated by reference to an exhibit to the Company's Quarterly Report on Form 10-Q (File No. 0-21986), for the quarter ended July 31, 1998, as filed with the Commission on September 21, 1998, as amended by Form 10-Q/A, as filed with the Commission on October 13, 1998. (14) Incorporated by reference to an exhibit to the Company's Form S-1 (File No.333-65991), as filed with the Commission on October 22, 1998. (15) Incorporated by reference to an exhibit to the Company's Amendment No. 1 to Form S-1 (File No. 333-65991), as filed with the Commission on April 8, 1999. 32 (b) Reports on Form 8-K On February 16, 1999, the Company filed a Current Report on Form 8-K (File No. 0-21986), dated February 16, 1999, announcing earnings for the fiscal year ended October 31, 1998 and the timing of filing the Annual Report on Form 10-K. On March 16, 1999, the Company filed a Current Report on Form 8-K (File No. 0-21986), dated March 12, 1999, announcing the resignation of Gideon D. Taylor from the Company's Board of Directors. 33 SIGNATURES Pursuant to the requirements of the Securities and 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. (REGISTRANT) June 14, 1999 By: /S/ MICHAEL F. ARP ------------------ Michael F. Arp Financial Vice President (Principal Accounting Officer) 34 EXHIBIT INDEX EXHIBIT NUMBER - ------- 2.5.9.1 Amendment and Restatement of Financing Agreement by and between WorldCom Network Services, Inc. and Able Telcom Holding Corp. dated April 1, 1999 2.5.10 Agreement dated March 15, 1999 by and between Able Telcom Holding Corp. and WorldCom Network Services, Inc. 10.46 Employment Agreement with Michael Summers, dated May___, 1999 27 Financial Data Schedule EX-2.5.9.1 2 EXHIBIT 2.5.9.1 AMENDMENT AND RESTATEMENT OF FINANCING AGREEMENT THIS AMENDMENT AND RESTATEMENT OF FINANCING AGREEMENT, dated as of April 1, 1999, is entered into by and between WorldCom Network Services, Inc. ("WorldCom") and Able Telcom Holding Corp. ("Able"), (the "Amendment"). A. WorldCom and Able entered into that certain Financing Agreement, dated February 16, 1999, (the "February Agreement"); and B. WorldCom and Able desire to amend the February Agreement to clarify the terms thereof and to subordinate payment terms thereof as herein provided, and gain the consent of NationsBank and CIBC. NOW THEREFORE, in consideration of the premises, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto enter into this Amendment as follows: I. AMENDMENT The Financing Agreement is hereby amended and restated to read in its entirety as follows: "1. DEFINITIONS. (1) "Able" means Able Telcom Holding Corp. (2) "Additional Advances" means the aggregate of up to $15,000,000 in advances made by WorldCom to Able pursuant to paragraph 3, or so much thereof as may be outstanding from time to time. (3) "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. (4) "Borrower" shall be as defined in that certain Credit Agreement dated as of June 11, 1998, among NationsBank, Able and the several lenders as the same may be or may have been amended, restated, modified or replaced (the "Credit Agreement"). (5) "Master Services Agreement" means the Master Services Agreement between Able and WorldCom dated July 2, 1998. (6) "Senior Notes" means those 12% Senior Subordinated Notes of Able due January 6, 2005, in the aggregate amount of $10,000,000. (7) "Series B Preferred Stock" means up to 4,000 shares of Series B Convertible Preferred Stock of Able issued as of June 30, 1998 having an aggregate liquidation preference of $20,000,000. (8) "Subordinated Debt" shall mean at any time, all principal of and interest on and premiums (if any) related to the Advances and the Additional Advances. (9) "Superior Debt" shall mean the Obligations of the Borrower under the Credit Agreement (including any notes issued thereunder). (10) "WorldCom" means WorldCom Network Services, Inc. 2. ADVANCE. WorldCom has paid to or for the account of Able $32,000,000 as an advance against amounts otherwise payable by WorldCom to Able pursuant to the Master Services Agreement. The Advance was made by WorldCom by means of wire transfer of $32,000,000 to an account designated by Able. The Advance will not be prepayable in whole or in part. Repayment of the Advance shall be due on November 30, 2000. 3. ADDITIONAL ADVANCES. During the period from the date hereof through November 30, 2000, WorldCom will make available to Able an additional $15,000,000 in advances against amounts otherwise payable by WorldCom to Able pursuant to the Master Services Agreement. WorldCom agrees to make such advances to Able in amounts of $5,000,000 each by wire transfer to an account designated by Able within five (5) business days after the request for an such an advance is made by Able. All Additional Advances are repayable to WorldCom on November 30, 2000. 4. SUBORDINATION. Notwithstanding anything to the contrary herein, at all times the Subordinated Debt shall be subordinated to the Superior Debt. Until the indefeasible payment in full of the Superior Debt: (a) the payment of the principal amount or and fees and premiums, if any (including payment of interest), on all Subordinated Debt shall be subordinated to the payment in full of all Superior Debt; (b) Able will not make and WorldCom will not take or receive from Able, in any manner, payment of the whole or any part of the principal of and interest on and fees and premiums, if any, of the Subordinated Debt; and (c) the Subordinated Lender will not take any action towards the enforcement of any liens in respect of any or all of the Subordinated Debt or exercise any rights granted under such liens in respect of the collateral subject thereto. Upon any distribution of assets of Able to its creditors upon any dissolution, winding-up, total or partial liquidation, readjustment of debt, reorganization or similar proceeding of Able or its property, or in any bankruptcy, insolvency, receivership, assignment for the benefit of creditors, marshaling of assets and liabilities of Able, or other proceeding, whether any of the foregoing is voluntary or involuntary, partial or complete, all amounts due on the Superior Debt including all interest, fees and costs of collections, including attorney's fees and expenses shall first be paid in full before WorldCom shall be entitled to receive or retain any payment or distribution from Able in respect of the Subordinated Debt. Notwithstanding the foregoing paragraphs and without any derogation thereof, if upon any such dissolution, winding-up, liquidation, readjustment, reorganization or other proceeding, any payment or distribution of assets or securities of Able of any kind or character, whether in cash, property or securities, shall be received by WorldCom in respect of the Subordinated Debt before all the Superior Debt is indefeasibly paid in full, such payment or distribution will be held in trust for the benefit of, and shall promptly be paid over in trust for the benefit of, and in the form received (duly endorsed, if necessary, to the holders of the Superior Debt) to the holders of the Superior Debt (or their appointed trustee or agent) for application to the payment of the Superior Debt until all the Superior Debt shall have been paid in full. 5. 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 decrease on a dollar for dollar basis as WorldCom is repaid for such Advances in whole or in part, as provided herein. 6. USE OF PROCEEDS. The proceeds of the Advance have been used to make a loan to an entity unaffiliated with Able to purchase 78% of the outstanding shares of Series B Preferred Stock and all of the outstanding Senior Notes. 7. 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. 8. LEGAL INTENT. The parties intend to be legally bound by this Agreement and agree that this Agreement contains the necessary items to be considered a contract." II. MISCELLANEOUS 1. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF FLORIDA, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES. 2. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed and original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. 3. FINAL AGREEMENT. THIS AMENDMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. WORLDCOM NETWORK SERVICES INC. ABLE TELCOM HOLDING CORP. By: [ILLEGIBLE] By: [ILLEGIBLE] --------------------------- --------------------- Name: [ILLEGIBLE] Name: ------------------------- ------------------- Title: VP & Controller Title: ------------------------ ------------------ In reliance upon the subordination terms in this Amendment, and intending to be third party beneficiaries of the same, NationsBank and CIBC hereby consent to Able's incurrence of the Subordinated Debt as provided herein, to the extent that the Credit Agreement referred to below would prohibit such incurrence. This consent is not intended to act as a waiver of any rights CIBC or NationsBank might have or gain under that certain Credit Agreement dated as of June 11, 1998, as amended, restated, modified, renewed or replaced from time to time, among Able Telcom Holdings Corp., NationsBank, N.A., as a Lender and as Administrative Agent for the Lenders from time to time partly thereto (the "Administrative Agent"), and CIBC, Inc., as a Lender and as Documentation Agent for the Lenders from time to time partly thereto (the "Documentation Agent"). NATIONSBANK, N.A., CIBC INC., as Administrative Agent and as a Lender as Documentation Agent and as a Lender By: By: ------------------------------------ ---------------------------- Roselyn Drake Ihor Zaluckyj Vice President Executive Director, CIBC Oppenheimer Corp., An Agent for CIBC, Inc. EX-2.5.10 3 EXHIBIT 2.5.10 AGREEMENT THIS AGREEMENT (the "Agreement") is dated as of the 15th day of March, 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. On or about April 26, 1998, Able entered into an Agreement and Plan of Merger (the "MFSNT Document") which parties also included MFS Acquisition Corp., MFS Network Technologies, Inc. and MFS Communications Company, Inc., which MFSNT Document has been amended from time which, among other things, provides in Section 17.d. thereof that in the event that the holder of the "Option", as described below, exercises the Option in whole or in part and whether for cash or on a "cashless" basis, the holder shall be entitled to designate a represent to serve of the Company's Board of Directors. B. On or about January 8, 1999, the Parties entered into (i) an agreement whereby the an option to purchase 2,000,000 shares of common stock of the Company ("Option") was modified which provided, in part, that unless and until such time as shareholder approval is obtained by the Company (if ever) pursuant to Nasdaq Marketplace Rule 4460(i)(1)(C) to approve the issuance of 20% or more of the common stock of the Company, the Option was modified to a stock appreciation rights award ("SAR") (the "Option Modification") and (ii) an agreement (the "Intent Agreement") to enter into an "SAR Agreement", as that term is defined in the Intent Agreement, upon the happening of certain conditions. C. The Parties now wish to modify certain terms of the Option Modification and the Intent 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. INCORPORATION BY REFERENCE. The above recitals are true, correct and are incorporated herein by reference. 2. MODIFICATION TO THE MFSNT DOCUMENT. Section 17.d. (Board Representation) shall be deleted in its entirety from the MFSNT Document and all amendments thereto, and as a result, the Company shall have no obligation to appoint a person designated by WorldCom or any of its affiliates to the Company's Board of Directors. 3. MODIFICATION TO OPTION MODIFICATION. Section 2.b. of the Option Modification shall be modified in its entirety to read as follows: 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) July 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. 4. MODIFICATION TO INTENT AGREEMENT. Section 2.a. of the Intent Agreement shall be modified in its entirety to read as follows: 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 July 1, 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. 5. 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. 6. 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. 7. 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. 8. 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. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. THE COMPANY: WORLDCOM: ABLE TELCOM HOLDING CORP. WORLDCOM NETWORK SERVICES, INC. By:/s/ Billy V. Ray, Jr. By: /s/ David F. Meirs ------------------------------ --------------------------- Name: Billy V. Ray, Jr. Name: David F. Meirs ------------------------------ --------------------------- Its: President Its: VP & Controller ------------------------------ --------------------------- EX-10.46 4 EXHIBIT 10.46 EMPLOYMENT AGREEMENT Agreement dated this day of May, 1999, by and between Able Telcom Holding Corp., with its address at 1601 Forum Place, Suite 1110, West Palm Beach, Florida, 33401, ("Employer"), and Michael Summers of 610 Mikelluke Circle, Papillion, NE 68046 WITNESSETH: WHEREAS, Employer is engaged in the telecommunication and fiber-optic, installation, construction and service business and the manufacture, sale and installation of highway signs and traffic control products, and WHEREAS, Employer desires to employ Employee as its Chief Accounting Officer; and WHEREAS, Employer desires to avail itself of the services of the Employee in order that his knowledge and ability may be utilized in the conduct and development of the business and affairs of Employer; and WHEREAS, Employee has evidenced his willingness to enter into an employment agreement with respect to his employment by Employer, pursuant to the terms and conditions hereinafter set forth. NOW THEREFORE, is consideration of the foregoing and mutual promises and covenants herein contained, it is agree as follows: 1. EMPLOYMENT: DUTIES Employee shall devote his full time to the performance of services as Chief Accounting Officer or to such other services as may from time to time be designated by the Company's President or Board of Directors. Employee agrees to perform Employee's services well and faithfully and to the best of Employee's ability to carry out the policies and directives of the Company. 2. FULL TIME EMPLOYMENT Employee hereby accepts employment by Employer upon the terms and conditions contained herein and agrees that during the term of this Agreement, Employee shall devote all of his business time, attention and energies to the business of Employer. 3. TERM Employee's employment hereunder shall be for a term of two (2) years to commence on June 1, 1999. 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 Employee violates a major provision of this Agreement, Employer may terminate this Agreement under the provisions of paragraph 5 of this agreement titled "Termination without Cause 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 OR CFO. In the event of the termination without cause, the Employee will be paid severance pay equal to the term remaining in this agrement or 180, days which ever is less, 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 3 months. 6. COMPENSATION As full compensation for the performance of his duties on behalf of Employer, Employee shall be conpensated bi-weekly at the annualized rate of $130,000. 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. Employee will be eligible for participation in any Employer bonus plan that may be established. Additionally Employee will be paid $10,000 on June 1, 1999. 7. OPTIONS Employee will receive as at June 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 June 1, 1999. Said option will vest as follows: June 1, 1999 15,000 June 1, 2000 15,000 June 1, 2001 10,000 In the event of a change in control/ownership these options will vest immediately. Provided, however, neither the conversion of debt to equity nor any Transcore transaction shall effectuate said change of control/ownership. 8. FRINGE BENEFITS During the term of this Agreement, Employer shall provide, at its sole expense, to the Employee hospitalization, major medical, life insuance 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 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. 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 June 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 ____ day of May, 1999. Witness: Employer: ABLE TELCOM HOLDING CORP. By: __________________________________ By: ___________________________________ Billy V. Ray Chief Executive Officer Witness: Employee: By: __________________________________ By: ___________________________________ Michael Summers EX-27 5
5 6-MOS OCT-31-1999 FEB-01-1999 APR-30-1999 31,223 0 79,669 0 0 199,735 29,629 0 277,476 126,694 0 0 0 12 32,980 277,476 124,481 124,481 123,945 123,945 0 0 2,210 4,055 2,048 2,007 0 1,841 0 41 1.29 1.29
-----END PRIVACY-ENHANCED MESSAGE-----