08/26/96
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 28, 1996
REGISTRATION NO. 333-______
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MASTEC, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 1623 59-1259279
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
3155 N.W. 77TH AVENUE
MIAMI, FLORIDA 33122-1205
(305) 599-1800
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
JOSE M. SARIEGO, ESQ.
SENIOR VICE PRESIDENT - GENERAL COUNSEL
MASTEC, INC.
3155 N.W. 77TH AVENUE
MIAMI, FLORIDA 33122-1205
(305) 599-2314
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
STEPHEN I. GLOVER, ESQ. ROGER H. KIMMEL, ESQ.
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON LATHAM & WATKINS
1001 PENNSYLVANIA AVENUE, N.W. 885 THIRD AVENUE
WASHINGTON, D.C. 20004 NEW YORK, NEW YORK 10022
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED/1/ PRICE OFFERING FEE/2/
REGISTERED PER PRICE/2/
SHARE/2/
- --------------------------------------------------------------------------------
Common Stock ($.10 par
value) 2,600,000
shares $29.125 $75,725,000 $26,115
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(1) Includes 340,000 shares which are subject to the Underwriters' over-
allotment option.
(2) Estimated solely for the purpose of calculating the registration fee,
pursuant to Rule 457(c), on the basis of the average of the high and low
prices of the Common Stock, $.10 par value, of the Registrant on the
Nasdaq National Market on August 26, 1996.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES
AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED AUGUST , 1996
[ ] SHARES
MASTEC, INC.
COMMON STOCK
Of the _________ shares (the "Shares") of common stock, $.10 par value (the
"Common Stock"), of MasTec, Inc. (the "Company") offered hereby (the
"Offering"), _________ Shares are being offered by the Company and _______
Shares are being offered by certain stockholders of the Company (the "Selling
Stockholders"). See "Principal and Selling Stockholders." The Company will not
receive any proceeds from the sale of Shares by the Selling Stockholders.
On ____________, 1996, the closing price for the Common Stock as quoted on
the Nasdaq National Market, under the symbol "MASX," was $______ per share. See
"Price Range of Common Stock."
SEE "RISK FACTORS" ON PAGE 12 FOR A DISCUSSION OF CERTAIN RISKS ASSOCIATED
WITH AN INVESTMENT IN THE COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
Price to Underwriting Proceeds Proceeds to
the Discount(1) to the the Selling
Public Company(2) Stockholders
- --------------------------------------------------------------------------------
Per Share $ $ $ $
- --------------------------------------------------------------------------------
Total(3) $ $ $ $
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(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters (as defined herein) against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting offering expenses payable by the Company estimated at
$___________ .
(3) The Company has granted the Underwriters an option exercisable within 30
days to purchase up to an aggregate of ________ additional shares of Common
Stock at the public offering price per share, less the Underwriting
Discount, solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to the Public, Underwriting Discount and
Proceeds to the Company will be $ ________, $ __________, and $ _________,
respectively. See "Underwriting."
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The Shares are being offered by the Underwriters, subject to prior sale,
when, as and if delivered to and accepted by them, subject to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Shares will be made against payment therefor in New York, New
York on or about ________________, 1996.
BEAR, STEARNS & CO. INC. JEFFERIES & COMPANY, INC.
The date of this Prospectus is August __, 1996.
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IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED. SEE "UNDERWRITING."
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
following regional offices of the Commission: Seven World Trade Center, Suite
1300, New York, New York 10048; and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can be
obtained at prescribed rates by writing to the Commission, Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549. The Common Stock is
listed on the Nasdaq National Market under the symbol "MASX." Reports, proxy and
information statements and other information concerning the Company can also be
inspected at the Nasdaq National Market at 1735 17th Street, N.W., Washington,
D.C. 20006.
This Prospectus constitutes part of a Registration Statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") and does not contain all of the information set forth in the
Registration Statement, certain parts of which have been omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to the Company and the securities offered hereby, reference is made to
the Registration Statement and to the exhibits and schedules thereto. Statements
made in this Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved, and such statement is qualified in its entirety by such
reference.
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INFORMATION INCORPORATED BY REFERENCE
The following documents, previously filed by the Company with the Commission
pursuant to the Exchange Act, are incorporated herein by reference:
The Company's Annual Report on Form 10-K for the year ended December 31,
1995;
The Company's Quarterly Reports on Form 10-Q for the quarters ended March
31 and June 30, 1996;
The Company's Current Reports on Form 8-K filed April 1, May 15, and July
15, 1996; and
The Company's Proxy Statement for its 1996 Annual Meeting of Stockholders
filed April 29, 1996.
Each document filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act, subsequent to the date of this Prospectus but prior
to the termination of the offering to which this Prospectus relates, shall be
deemed to be incorporated by reference into this Prospectus and made a part of
this Prospectus from the date any such document is filed. Any statements
contained in a document incorporated or deemed to be incorporated by reference
in this Prospectus shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained in this Prospectus (or
in any other subsequently filed document which also is incorporated or deemed to
be incorporated by reference herein) specifically modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed to
constitute a part of this Prospectus except as so modified or superseded.
THE COMPANY HEREBY UNDERTAKES TO PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM
A COPY OF THIS PROSPECTUS HAS BEEN DELIVERED, UPON WRITTEN OR ORAL REQUEST OF
SUCH PERSON TO MASTEC, INC., 3155 N.W. 77TH AVENUE, SUITE 135, MIAMI, FLORIDA
33122-1205, TELEPHONE (305) 599-1800, ATTENTION: NANCY J. DAMON, CORPORATE
SECRETARY, A COPY OF ANY OR ALL OF THE DOCUMENTS DESCRIBED ABOVE (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS) THAT HAVE BEEN INCORPORATED BY REFERENCE IN THIS
PROSPECTUS.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus and incorporated by reference into this Prospectus.
Unless otherwise indicated, the information in this Prospectus assumes the
Underwriters' over-allotment option will not be exercised. Unless the context
otherwise requires, the Company includes Sistemas e Instalaciones de
Telecomunicacion, S.A. ("Sintel").
THE COMPANY
MasTec, Inc. (together with its subsidiaries and affiliates, "MasTec" or
the "Company") is one of the world's leading contractors specializing in the
build-out of telecommunications infrastructure. The Company's principal business
consists of the design, installation and maintenance of the outside physical
plant for telephone and cable television communications systems ("outside plant
services"), including the installation of aerial, underground and buried copper,
coaxial and fiber optic cable networks and the construction of wireless antenna
networks for telecommunications service companies such as local exchange
carriers, long-distance carriers, competitive access providers, cable television
operators and wireless phone companies. The Company also installs central office
switching equipment ("switching"), and provides design, installation and
maintenance of integrated voice, data and video local area networks and wide
area networks inside buildings ("inside wiring"). The Company believes it is the
largest independent contractor providing telecommunications infrastructure
construction services in the United States and Spain and one of the largest in
Argentina, Chile and Peru.
The Company is able to provide a full range of infrastructure services to
its telecommunications company customers. Domestically, the Company provides
outside plant services to local exchange carriers such as BellSouth
Telecommunications, Inc. ("BellSouth"), U.S. West Communications, Inc. ("U.S.
West"), SBC Communications, Inc., United Telephone of Florida, Inc. (a
subsidiary of Sprint Corporation) and GTE Corp. MasTec currently has 18
exclusive, multi-year service contracts ("master contracts") with regional bell
operating companies ("RBOCs") and other local exchange carriers to provide for
all of their outside plant requirements up to a specific dollar amount per job
and within certain geographic areas. Internationally, the Company provides
outside plant services, turn-key switching system installation and inside wiring
services to Telefonica de Espana, S.A. ("Telefonica"), the sole provider of
local and long distance telephony in Spain, under multi-year contracts similar
to those in the U.S., Telefonica has committed to award Sintel, a recently
acquired subsidiary of the Company, a minimum of 75 billion Spanish pesetas
("Peseta") of work in Spain over a three-year period commencing January 1, 1996
at market prices (anticipated to be approximately $200 million per annum based
on current exchange rates).
The Company also provides outside plant services to long distance carriers
such as MCI Communications Corporation and Sprint Corporation, competitive
access providers such as MFS Communications Company, Inc., Sprint Metro and MCI
Metro (the local telephone subsidiaries of Sprint and MCI), cable television
operators such as Time Warner, Inc., Continental Cablevision, Inc. and Media
One, and wireless communications providers such as PCS Primeco and Sprint
Spectrum, L.P. Inside wiring services are being provided by the Company to large
corporate customers such as First Union National Bank ("First Union"), IBM,
Medaphis Corp., Smith Barney, Inc. and Dean Witter Reynolds, Inc. and to
universities and government agencies.
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The telecommunications industry is undergoing fundamental changes in most
markets throughout the world. The Telecommunications Act of 1996 in the United
States, agreements among participating countries in the European Union and
privatization and regulatory initiatives in Latin America are removing barriers
to competition. In addition, growing customer demand for enhanced voice, video
and data telecommunications has increased bandwidth requirements and highlighted
network bandwidth limitations in many markets.
The Company believes that these industry trends will create increased demand
for telecommunications infrastructure services in four ways:
. Increased customer demand for bandwidth will compel telecommunications
service providers to continue upgrading existing networks to broadband
technologies such as fiber optic cable.
. Competitive pressures will force existing service providers to attempt to
reduce their cost structures, leading to increased outsourcing of outside
plant services to lower cost independent contractors.
. New service providers entering previously monopolistic markets will
ultimately require their own infrastructure.
. Deployment of more powerful multimedia computers in business will increase
the demand for inside wiring services to install communications networks
with greater bandwidth capacity.
The Company believes that it is well positioned to capitalize on these
trends and is pursuing a strategy of growth in its core business through
internal expansion and strategic acquisitions. The Company believes that the
volume of business generated under existing contracts will increase as a result
of the expected increase in demand for its services. In addition, the Company
believes that its reputation for quality and reliability, operating efficiency,
financial strength, technical expertise, presence in key geographic areas and
ability to achieve economies of scale provide competitive advantages in bidding
for and winning new contracts for telecommunications infrastructure projects.
The Company also plans to continue to make strategic acquisitions. In April
1996, MasTec acquired Sintel, the largest telecommunications infrastructure
contractor in Spain, from Telefonica (the "Sintel Acquisition"). This
acquisition has positioned the Company to take advantage of increased
competition anticipated in Europe and the rapid upgrading of telecommunications
services expected in Latin America. In the United States, the Company is
continuing to pursue opportunities to acquire selected operators that will
enable the Company to expand its geographic coverage and customer base without
the risks and expense of start-up operations and to acquire additional
management talent for future growth.
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THE OFFERING
Common Stock Offered by:
The Company.......................[ ] Shares
Selling Stockholders..............[ ] Shares
Total..........................[ ] Shares
Use of Proceeds.......................The net proceeds of the Offering to the
Company will be used to fund the Company's
growth strategy, including making
acquisitions, funding working capital,
capital expenditures and other general
corporate purposes. The Company may also
reduce certain indebtedness, subject to
reborrowing. The Company will not receive
any proceeds from the sale of Shares by
the Selling Stockholders.
Nasdaq National Market Symbol.........MASX
SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables present selected historical and pro forma financial
information of the Company as of the dates and for the periods indicated. This
information is derived from the audited Consolidated Financial Statements for
the three years ended December 31, 1995, and from the unaudited Condensed
Consolidated Financial Statements for the six months ended June 30, 1996 and
1995, both of which appear elsewhere in this Prospectus (collectively, the
"Financial Statements"). These financial statements, the related notes, and the
discussion in this Prospectus under the captions "Business" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" are
important and should be read in conjunction with the selected financial
information presented below.
Selected unaudited pro forma financial information is provided for the year
ended December 31, 1995 and the six month periods ended June 30, 1996 and 1995
to reflect the acquisition of Sintel and the Related Transactions as if these
transactions had taken place on January 1, 1995. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations-Overview" for a
discussion of the Sintel Acquisition and Related Transactions. The pro forma
financial information is presented solely for illustrative purposes and does not
purport to represent what the Company's results of operations would have been if
such transactions had been effected on the date indicated or to represent the
financial position or results of operations that may be expected in the future.
The unaudited information set forth below includes, in the opinion of
management, all material adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation.
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HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
(In thousands, except per share amounts)
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
JUNE 30,
1993 1994 1995 1995 1996
(1) (2) (3)
Income statement data:
Revenue $44,683 $111,294 $174,583 $ 73,797 $171,181
======= ======== ======== ======== ========
Operating income 5,474 9,881 17,827 10,533 17,861
Interest expense, net of
interest and dividend
income (4) (182) 2,118 1,605 1,199 3,036
Special charges (5) 0 0 23,086 0 0
Other (expense) income, net (81) 1,009 2,028 1,659 415
Equity (losses) in earnings of
unconsolidated companies
and minority interest 1,177 247 (139) 25 979
Provision (benefit) for
income taxes (6) 2,539 3,211 (1,835) 4,119 6,151
------- -------- -------- -------- --------
Income (loss) from
continuing operations 4,213 5,808 (3,140) 6,899 10,068
======= ======== ======== ======== ========
Net income (loss) $ 4,213 $ 6,633 $ (609) $ 8,813 $ 10,081
======= ======== ======== ======== ========
Average shares outstanding (7) 10,250 16,077 16,046 16,168 16,312
======= ======== ======== ======== ========
Earnings (loss) per share
from continuing operations $ 0.41 $ 0.36 $ (0.20) $ 0.43 $ 0.62
======= ======== ======== ======== ========
Balance sheet data:
Property and equipment, net $ 40,102 $ 44,571 $ 48,384 $ 55,485
Total assets 142,452 170,163 153,700 418,616
Total long-term debt 35,956 44,226 31,435 79,729
Stockholders' equity 50,874 50,504 59,762 72,251
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PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(In thousands, except per share amounts.)
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30,
1995 1996
Income statement data:
Revenue $430,085 $186,258 $254,876
Special charges-operations (8) 30,157 20,712 2,176
Operating income 7,205 (5,309) 25,303
Interest expense, net of interest and
dividend income (4) 14,921 7,659 6,682
Special charges-other (5) 23,086 0 0
Other income, net 3,690 1,739 632
Equity in earnings of
unconsolidated companies
and minority interest 1,717 1,329 1,884
Provision (benefit) for income taxes (7,896) (3,204) 7,873
Income (loss) from continuing
operations $(17,499) $(6,696) $13,264
Average shares outstanding 16,046 16,168 16,312
Earnings (loss) per share from
continuing operations $(1.09) $(0.42) $0.81
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(1) Includes the results and financial condition of Church & Tower, Inc. and
Church & Tower of Florida, Inc. (collectively, "Church & Tower") only.
(2) Includes the results of Church & Tower for the full year 1994, the results
of Burnup & Sims, Inc. ("Burnup & Sims") from March 11, 1994 through the
end of 1994, and the results of Designed Traffic Installation Company,
Inc. ("DTI") from June 22, 1994 through the end of 1994.
(3) Includes the results of operations of Sintel for the two months ended June
30, 1996.
(4) Included is interest due to stockholders from outstanding notes amounting
to $223,000 for the year ended December 31, 1994, $135,000 for the year
ended December 31, 1995 and $135,000 and $0 for the six months ended June
30, 1995 and 1996, respectively, net of interest accrued from notes from
stockholders amounting to $304,000 for the year ended December 31, 1994,
$289,000 for the year ended December 31, 1995 and $193,000 and $91,000 for
the six months ended June 30, 1995 and 1996, respectively.
(5) Consists of writedowns of certain real estate and other investments.
(6) Church & Tower was not subject to income taxes because it was an S
corporation and, consequently, income from continuing operations for 1993
and the results of operations prior to the Burnup Acquisition have been
adjusted to reflect a pro forma provision for income taxes. See "Manage-
ment's Discussion and Analysis of Financial Condition and Results of
Operations" for discussion of the Burnup Acquisition.
(7) The 1993 average shares outstanding reflect the shares of Common Stock of
the Company received by the former shareholders of Church & Tower pursuant
to the Burnup Acquisition.
(8) Consists of severance costs relating to workforce reductions at Sintel.
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RISK FACTORS
AN INVESTMENT IN THE SHARES INVOLVES A HIGH DEGREE OF RISK. IN ADDITION
TO THE OTHER INFORMATION CONTAINED OR INCORPORATED BY REFERENCE HEREIN, THE
FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND
ITS BUSINESS PROSPECTS BEFORE PURCHASING ANY SHARES.
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 PROVIDES A "SAFE
HARBOR" FOR FORWARD-LOOKING STATEMENTS. CERTAIN STATEMENTS INCLUDED IN THIS
PROSPECTUS ARE FORWARD-LOOKING, SUCH AS STATEMENTS REGARDING THE COMPANY'S
GROWTH STRATEGY. SUCH FORWARD-LOOKING STATEMENTS ARE BASED ON THE COMPANY'S
CURRENT EXPECTATIONS AND ARE SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES
THAT COULD CAUSE ACTUAL RESULTS IN THE FUTURE TO DIFFER SIGNIFICANTLY FROM
RESULTS EXPRESSED OR IMPLIED IN ANY FORWARD-LOOKING STATEMENTS MADE BY, OR ON
BEHALF OF, THE COMPANY. THESE RISKS AND UNCERTAINTIES INCLUDE, BUT ARE NOT
LIMITED TO, UNCERTAINTIES RELATING TO THE COMPANY'S RELATIONSHIPS WITH KEY
CUSTOMERS AND IMPLEMENTATION OF THE COMPANY'S GROWTH STRATEGY. THESE AND OTHER
RISKS ARE DETAILED BELOW AS WELL AS IN OTHER DOCUMENTS FILED BY THE COMPANY
WITH THE COMMISSION.
DEPENDENCE ON KEY CUSTOMERS
For the year ended December 31, 1995, Sintel and the Company derived a
substantial portion of their revenue from the provision of telecommunications
infrastructure services to certain key customers. Approximately 88% of
Sintel's revenue was derived from services performed for Telefonica and its
affiliates; and approximately 42% of the Company's revenue from continuing
operations was derived from services performed for BellSouth. On a pro forma
basis, after giving effect to the Sintel Acquisition, 52% of the Company's
revenue from continuing operations for the year ended December 31, 1995 would
have been derived from services performed for Telefonica, and 17% of its
revenue would have been derived from services performed for BellSouth.
Although the Company's strategic plan envisions diversification of its
customer base, the Company anticipates that it will continue to be dependent
on Telefonica and its affiliates and BellSouth for a significant portion of
its revenue. There are a number of factors that could adversely affect
Telefonica or BellSouth and their ability or willingness to fund capital
expenditures in the future, which in turn could negatively affect the Company,
including the potential adverse nature of, or the uncertainty caused by,
changes in governmental regulation, technological changes, increased
competition, adverse financing conditions for the industry and economic
conditions generally.
RISK INHERENT IN GROWTH STRATEGY
The Company has grown rapidly through the acquisition of other companies,
including Sintel. The Company anticipates that it will make additional
acquisitions and is actively seeking and evaluating new acquisition
candidates. There can be no assurance, however, that the Company will be able
to continue to identify and acquire appropriate businesses or obtain financing
for such acquisitions on satisfactory terms. The Company's growth strategy
presents the risks inherent in assessing the value, strengths and weaknesses
of growth opportunities, in evaluating the costs and uncertain returns of
expanding the operations of the Company, and in integrating existing
operations with new acquisitions. The Company's growth strategy also assumes
there will continue to be significant increases in demand for
telecommunications infrastructure services. There can be no assurance,
however, that such demand will materialize. The Company's anticipated growth
may
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place significant demands on the Company's management and its operational,
financial and marketing resources. The Company's operating results could be
adversely affected if it is unable to successfully integrate new companies
into its operations. Future acquisitions by the Company could result in
potentially dilutive issuances of securities, the incurrence of additional
debt and contingent liabilities, and amortization expenses related to goodwill
and other intangible assets, which could materially adversely affect the
Company's profitability.
CERTAIN RISKS ASSOCIATED WITH SINTEL
Historical Operating Losses.
During 1993, 1994 and 1995, Sintel experienced net losses of $22.5
million, $5.6 million, and $15.6 million, respectively (based on the average
exchange rate for each period). In 1991, 1992 and 1993 Telefonica
significantly reduced its capital expenditure for telecommunications
infrastructure construction services. During these years, Sintel was unable to
adjust its cost structure to keep pace with the resultant decline in revenue
primarily due to the high cost of service and restrictive Spanish labor laws.
However, Sintel was able to negotiate reductions in its workforce in 1993,
1994 and 1995 at a cost of $24 million, $4.3 million and $30.1 million,
respectively. The Company intends to continue to reduce Sintel's cost
structure to maintain and improve profitability. There can be no assurance
that the Company's efforts will be successful or that other factors such as
greater than anticipated reductions in demand or prices for Sintel's services
or greater than anticipated labor costs will not have a material adverse
effect on Sintel's financial condition or business prospects.
Labor Relations
Substantially all of Sintel's work force in Spain is unionized. The labor
agreement with Sintel's employee representatives has expired and negotiations
are on-going for a new labor agreement. There can be no assurance that a new
labor agreement with Sintel's employee representatives can be negotiated
successfully or on favorable terms. Sintel has suffered strikes and work
stoppages in the past, none of which has had a material adverse effect on
Sintel. Future strikes or work stoppages, or the failure to negotiate a labor
agreement on competitive terms, could have a material adverse effect on
Sintel.
Non-Majority Control of Latin American Affiliates
Sintel owns 50% or less of the affiliates through which it does business
in Argentina, Chile and Peru. As a result, the Company may not be able to
cause these companies to pay dividends and other distributions and its lack of
majority control may inhibit the Company's ability to implement strategies
that it favors.
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RISK OF INVESTMENT IN FOREIGN OPERATIONS
The Company's current and future operations and investments in certain
foreign countries are generally subject to the risks of political, economic or
social instability, including the possibility of expropriation, currency
devaluation, hyper-inflation, confiscatory taxation or other adverse
regulatory or legislative developments, or limitations on the repatriation of
investment income, capital and other assets. The Company cannot predict
whether any of such factors will occur in the future or the extent to which
such factors would have a material adverse effect on the Company's
international operations.
CURRENCY EXCHANGE RISKS
The Company conducts business in several foreign currencies that are
subject to fluctuations in the exchange rate relative to the U.S. dollar. The
Company attempts to balance its foreign currency denominated assets and
liabilities as a means of hedging its balance sheet currency risk, but there
can be no assurance that this balance can be maintained. In addition, the
Company's results of operations from foreign activities are translated into
U.S. dollars at the average prevailing rates of exchange during the period
reported, which average rates may differ from the actual rates of exchange in
effect at the time of actual conversion into U.S. dollars.
DEPENDENCE ON SENIOR MANAGEMENT
The Company's businesses are managed by a small number of key executive
officers, including Jorge Mas, the Company's President and Chief Executive
Officer, and Jorge L. Mas, the Company's Chairman. The loss of services of
certain of these executives could have a material adverse effect on the
business, financial condition and results of operations of the Company. The
Company's success may also be dependent on its ability to hire and retain
additional qualified management personnel. There can be no assurance that the
Company will be able to hire and retain such personnel.
COMPETITION
The Company competes with other independent contractors in most of the
markets in which it operates. While the Company believes that it has greater
expertise, experience and resources than its competitors in many of the
markets in which it operates, there are relatively few barriers to entry into
such markets and, as a result, any business that has access to adequate
financing and persons who possess technical expertise may become a competitor
of the Company. Because of the highly competitive bidding environment in the
United States for the services provided by the Company, the price of a
contractor's bid has often been the deciding factor in determining whether
such contractor was awarded a master contract or contract for a particular
project. There can be no assurance that the Company's competitors will not
develop the expertise, experience and resources to provide services that
achieve greater market acceptance or that are superior in both price and
quality to the Company's services, or that the Company will be able to
maintain and enhance its competitive position.
The Company also faces competition from the in-house service
organizations of RBOCs, which employ personnel who perform some of the same
types of services as those provided by the
14
Company. Although a significant portion of these services is currently
outsourced, there can be no assurance that existing or prospective customers
of the Company will continue to outsource telecommunications infrastructure
services in the future.
TECHNOLOGICAL CHANGES
The telecommunications industry is subject to rapid changes in
technology. Wireline systems used for the transmission of video, voice and
data face potential displacement by various technologies, including wireless
technologies such as direct broadcast satellite television and cellular
telephony. An increase in the use of such technologies could, over the long
term, have an adverse effect on the Company's wireline operations.
CONTROLLING SHAREHOLDERS
After giving effect to the Offering, Jorge Mas, the Company's President
and Chief Executive Officer, and his father, Jorge L. Mas, the Company's
Chairman, together with other family members, will beneficially own
approximately __% of the outstanding shares of common stock of the Company.
Accordingly, they will have the effective power to control the election of the
Company's directors and to effect certain fundamental corporate transactions.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of shares by existing stockholders under Rule 144 of the
Securities Act or the issuance of shares of Common Stock upon the exercise of
options could materially adversely affect the market price of shares of Common
Stock and could materially impair the Company's future ability to raise
capital through an offering of equity securities. The Company has registered
800,000 shares of Common Stock for issuance upon exercise of options granted
to its employees under the Company's 1994 Stock Incentive Plan and an
additional 400,000 shares of Common Stock for issuance upon the exercise of
options granted to its non-employee directors under the Company's 1994 Stock
Option Plan for Non-Employee Directors. Options to purchase approximately
132,000 shares are currently exercisable. The Company has also filed a shelf
registration statement on Form S-4 covering 500,000 shares of Common Stock to
be used solely for future acquisitions. No prediction can be made as to the
effect, if any, that market sales of such shares or the availability of such
shares for future sales will have on the market price of shares of Common
Stock prevailing from time to time.
ANTI-TAKEOVER PROVISIONS
The Company's certificate of incorporation and bylaws and certain
provisions of the Delaware General Corporation Law (the "DGCL") may make it
difficult in some respects to effect a change in control of the Company and
replace incumbent management. The existence of these provisions may have a
negative impact on the price of the Common Stock, may discourage third party
bidders from making a bid for the Company, or may reduce any premiums paid to
stockholders for their Common Stock. In addition, the Board of Directors of
the Company has the authority to fix the rights and preferences of, and to
issue shares of, the Company's preferred stock, and to take other actions that
may have the effect of delaying or preventing a change of control of the
Company without the action of its stockholders.
15
USE OF PROCEEDS
The net proceeds to the Company of the Offering (assuming a public offering
price of $____________ per share of Common Stock) are estimated to be
$_______________ ($______________ if the Underwriters' over-allotment option is
exercised in full). The Company will not receive any of the net proceeds of the
sale of Common Stock by the Selling Stockholders. See "Certain Relationships
and Related Transactions."
The Company intends to use the net proceeds of the Offering to fund its
growth strategy, including making acquisitions, funding working capital needs,
capital expenditures and other general corporate purposes. The Company also may
repay, subject to reborrowing, a portion of its credit facility with Shawmut
Capital Corporation n/k/a Fleet Capital Corporation and its revolving credit
facility with a wholly-owned finance subsidiary of Telefonica. At June 30, 1996,
the Company's indebtedness under these facilities totaled $70.4 million, with
interest rates ranging from LIBOR (London Interbank Offered Rate) plus 2.00%
(7.49% at June 30, 1996) to MIBOR (Madrid Interbank Offered Rate) plus 0.30%
(9.12% at June 30, 1996). These facilities have been used for working capital
purposes, capital expenditures and to make acquisitions. See Note 4 to the
Condensed Consolidated Financial Statements for a further description of the
Company's indebtedness, including these facilities.
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the Nasdaq National Market under the symbol
MASX. The following table sets forth, for the periods indicated, the high and
low closing sale prices of the Common Stock as reported on the Nasdaq National
Market.
High Low
---- ---
1994:
- -----
First Quarter.......................... $ 9 1/8 $5 15/16
Second Quarter......................... 9 6 3/4
Third Quarter.......................... 8 1/2 7
Fourth Quarter......................... 10 1/4 7
1995:
- -----
First Quarter.......................... 13 1/2 10 1/8
Second Quarter......................... 13 1/8 9 3/4
Third Quarter.......................... 13 1/8 10
Fourth Quarter......................... 13 1/4 9 1/8
1996:
- -----
First Quarter.......................... 12 5/8 9 1/2
Second Quarter......................... 35 3/4 11 3/8
Third Quarter (through August 26)...... 29 7/8 18 3/4
On August 26, 1996, the closing sale price of the Common Stock as reported
on the Nasdaq National Market was $29 11/16 per share.
16
DIVIDEND POLICY
The Company has not paid any cash dividends on its capital stock since the
Burnup Acquisition. The Company currently intends to retain any earnings to
finance the development and expansion of the Company's business and does not
anticipate paying any cash dividends in the foreseeable future. Furthermore, the
Company's credit facilities currently limit the Company's ability to pay
dividends.
CAPITALIZATION
The following table sets forth the capitalization of the Company at June
30, 1996 and the capitalization of the Company as of such date as adjusted to
reflect the sale of Common Stock offered by the Company in this Offering
(assuming a public offering price of $_____________ per share of Common Stock)
and the anticipated use of proceeds therefrom. See "Use of Proceeds." The
information set forth in the table below should be read in conjunction with the
Financial Statements of the Company and the notes thereto included elsewhere in
this Prospectus.
JUNE 30, 1996
ACTUAL AS ADJUSTED
(In thousands)
Total indebtedness........................... $141,138
-------
Stockholders' equity:
Common Stock................................ 2,643
Capital surplus............................. 139,653
Retained earnings........................... 15,744
Treasury shares............................. (85,749)
Accumulated translation adjustments..... (40)
-------
Total stockholders' equity.............. 72,251
-------
Total capitalization.................... $213,389
=======
17
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables present selected historical and pro forma financial
information of the Company as of the dates and for the periods indicated. This
information is derived from the audited Consolidated Financial Statements for
the three years ended December 31, 1995 and from the unaudited Consolidated
Financial Statements for the six months ended June 30, 1996 and 1995, both of
which appear elsewhere in this Prospectus (collectively, the "Financial
Statements"). These financial statements, the related notes, and the discussion
in this Prospectus under the captions "Business" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" are important and
should be read in conjunction with the selected financial information presented
below.
Selected unaudited pro forma financial information is provided for the year
ended December 31, 1995 and the six month periods ended June 30, 1996 and 1995
to reflect the acquisition of Sintel and the Related Transactions as if these
transactions had taken place on January 1, 1995. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" for a discussion
of the Sintel Acquisition and the Related Transactions. The pro forma financial
information is presented solely for illustrative purposes and does not purport
to represent what the Company's results of operations would have been if such
transactions had been consummated on the date indicated or to represent the
financial position or results of operations that may be expected in the future.
The unaudited information set forth below includes, in the opinion of
management, all material adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation.
18
HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
JUNE 30,
1993 1994 1995 1995 1996
(1) (2) (3)
Income statement data:
Revenue $44,683 $111,294 $174,583 $ 73,797 $171,181
Costs of revenue and expenses:
Costs of revenue 28,729 83,952 130,762 52,914 128,925
Depreciation and
amortization 609 4,439 6,913 2,888 5,295
General and administrative
expenses 9,871 13,022 19,081 7,462 19,100
------- -------- -------- -------- --------
Operating income 5,474 9,881 17,827 10,533 17,861
Interest expense (4) 133 3,587 4,954 2,228 5,107
Interest and dividend
income (5) 315 1,469 3,349 1,029 2,071
Special charges (6) 0 0 23,086 0 0
Other (expense) income, net (81) 1,009 2,028 1,659 415
Equity (losses) in earnings of
unconsolidated companies
and minority interest 1,177 247 (139) 25 979
Provision (benefit) for
income taxes (7) 2,539 3,211 (1,835) 4,119 6,151
------- -------- -------- -------- --------
Income (loss) from
continuing operations $ 4,213 $ 5,808 $ (3,140) $ 6,899 $ 10,068
======= ======== ======== ======== ========
Net income (loss) $ 4,213 $ 6,633 $ (609) $ 8,813 $ 10,081
======= ======== ======== ======== ========
Average shares outstanding (8) 10,250 16,077 16,046 16,168 16,312
======= ======== ======== ======== ========
Earnings (loss) per share
from continuing operations $ 0.41 $ 0.36 $ (0.20) $ 0.43 $ 0.62
======= ======== ======== ======== ========
Balance sheet data:
Property and equipment, net $ 40,102 $ 44,571 $ 48,384 $ 55,485
Total assets 142,452 170,163 153,700 418,616
Total long-term debt 35,956 44,226 31,435 79,729
Stockholders' equity 50,874 50,504 59,762 72,251
19
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Year ended Six months ended
December 31, 1995 June 30,
1995 1996
Income statement data:
Revenue $430,085 $186,258 $254,876
Costs of revenue and expenses:
Costs of revenue 323,895 137,206 187,495
Depreciation and amortization 10,106 4,575 6,624
Special charges-operations (9) 30,157 20,712 2,176
General and administrative expenses 58,722 29,074 33,278
------- ------- -------
Operating income (loss) 7,205 (5,309) 25,303
Interest expense (4) 19,263 9,282 9,502
Interest and dividend income (5) 4,342 1,623 2,820
Special charges (6) 23,086 0 0
Other income, net 3,690 1,739 632
Equity in earnings of unconsolidated
companies and minority interest 1,717 1,329 1,884
(Benefit) provision for income taxes (7,896) (3,204) 7,873
------- ------- -------
(Loss) income from continuing operations $(17,499) $ (6,696) $ 13,264
======= ======= =======
Average shares outstanding 16,046 16,168 16,312
======= ======= =======
(Loss) earnings per share from continuing
operations $ (1.09) $ (0.42) $ 0.81
======= ======= =======
20
(1) Includes the results and financial condition of Church & Tower only.
(2) Includes the results of Church & Tower for the full year 1994, the
results of Burnup & Sims from March 11, 1994 through the end of 1994,
and the results of DTI from June 22, 1994 through the end of 1994.
(3) Includes the results of operation of Sintel for the two months ended
June 30, 1996.
(4) Included is interest due to stockholders from outstanding notes
amounting to $223,000 for the year ended December 31, 1994, $135,000 for
the year ended December 31, 1995 and $135,000 and $0 for the six months
ended June 30, 1995 and 1996, respectively.
(5) Included is interest accrued from notes from stockholders amounting to
$304,000 for the year ended December 31, 1994, $289,000 for the year
ended December 31, 1995 and $193,000 and $91,000 for the six months
ended June 30, 1995 and 1996, respectively.
(6) Consists of writedowns of certain real estate and other investments.
(7) Church & Tower was not subject to income taxes because it was an S
corporation and, consequently, income from continuing operations for
1993 and the results of operations prior to the Burnup Acquisition have
been adjusted to reflect a pro forma provision for income taxes.
(8) The 1993 average shares outstanding reflect the shares of Common Stock
of the Company received by the former shareholders of Church & Tower
pursuant to the Burnup Acquisition.
(9) Consists of severance costs relating to workforce reductions at Sintel.
21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
MasTec is one of the world's leading contractors specializing in the
build-out of telecommunications and related infrastructure. The Company's
principal business consists of the design, installation and maintenance of
the outside physical plant for telephone and cable television communications
systems and of integrated voice, data and video local and wide area networks
inside buildings, and the installation of central office equipment. The
Company also provides infrastructure services to public utilities and the
traffic control and highway safety industry, and general construction
services consisting of design-and-build projects which the Company undertakes
with private businesses and state and local governmental authorities.
The Company was formed through the combination of Church & Tower and
Burnup & Sims, two established names in the U.S. telecommunications
construction services industry. On March 11, 1994, the shareholders of Church
& Tower acquired 65% of the outstanding common stock of Burnup & Sims in a
reverse acquisition (the "Burnup Acquisition"). Following the change in
control, the senior management of Burnup & Sims was replaced by Church &
Tower management and the name of Burnup & Sims was changed to "MasTec, Inc."
During the three fiscal years prior to the acquisition, Burnup & Sims
incurred increasing net losses culminating in a net loss of $9.3 million for
fiscal 1993. Following the Burnup Acquisition, the Company implemented a
number of strategic initiatives to improve operating efficiencies, including
the elimination of duplicative facilities, consolidation of subsidiaries and
the implementation of tighter control over bidding procedures and purchasing.
As a result of these initiatives, Burnup & Sims' operations made a positive
contribution to MasTec's operating profit in 1994.
Since the Burnup Acquisition, the Company has followed a two-pronged
strategy of growth through internal growth and expansion and through
acquisitions. As a result, the Company's revenue has increased from $27.3
million in the second quarter of 1994, the first full quarter after the
Burnup Acquisition, to $108.6 million in the second quarter of 1996.
In April 1996, the Company purchased Sintel, a company engaged in
telecommunications infrastructure construction services in Spain, Argentina,
Chile and Peru, from Telefonica for approximately $39.5 million (at then
current exchange rates), of which $5.2 million in cash was paid at closing
and the balance will be financed by Telefonica over the next two years. In
conjunction with the acquisition, Telefonica made a capital contribution,
purchased buildings no longer in use by Sintel and reimbursed certain tax
credits it had used, collectively referred to as the "Related Transactions."
The proceeds from these transactions totaled approximately $41 million, which
was used to repay Sintel indebtedness. In addition, Telefonica committed to
certain minimum levels of work over the next three years. See "Business -
General."
The Sintel Acquisition gives the Company a significant international
presence and more than doubles the size of the Company in terms of revenue
and number of employees. In Argentina, Chile and Peru, the Company operates
through joint ventures in which it holds interests ranging from 38%
22
to 50%. See Notes 2 and 7 to the Condensed Consolidated Financial Statements
for pro forma financial information and geographic information, respectively.
Included in the Company's results for the quarter ended June 30, 1996 are the
results of operations of Sintel from May 1, 1996 through June 30, 1996.
Following two years of losses in 1993 and 1994, Sintel's current
management implemented a cost reduction program to restore Sintel to
profitability. Under the program, Sintel (a) reorganized its corporate
structure from five to two divisions, (b) consolidated its offices and
reduced management personnel, (c) consolidated its field operations and
reduced the number of its occupied buildings, (d) instituted procedures to
improve billing and collections as well as to lengthen the aging of its
accounts payable, and (e) reduced general expenses. In addition, Sintel
restructured its workforce by laying off approximately 500 full time workers
and reassigning other workers to more profitable operations.
Sintel is continuing its cost reduction program under the Company's
ownership. As a result of this program, Sintel's cost of revenue has
decreased from 75.0% of revenue in the six months ended June 30, 1995 to
71.2% of revenue for the six months ended June 30, 1996, and its general and
administrative expense has declined from 19.2% to 16.3% of revenue during the
same respective six month periods. Operating margin has improved as a result
from 4.2% to 10.9% of revenue (excluding special charges) for the same
periods. See "- Pro Forma Six Months Ended June 30, 1996 Compared To Pro
Forma Six Months Ended June 30, 1995."
Results of Operations
Revenue is generated primarily from telecommunications and related
infrastructure services. Infrastructure services are provided to telephone
companies, public utilities, CATV operators and other telecommunications
providers, governmental agencies and private businesses. The Company also
provides general construction services consisting of design-and-build
projects and project management services for state and local governmental
authorities.
Costs of revenue includes direct labor costs, subcontractor costs and
expenses, materials not supplied by the customer, fuel, equipment rental and
insurance.
General and administrative expenses include management salaries, bonuses
and benefits, rent, travel, telephone and utilities, professional fees and
clerical and administrative overhead.
The following discussion of the Company's financial condition and
results of operations should be read in conjunction with the Financial
Statements and notes thereto included elsewhere herein.
23
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30,
1995.
The following table sets forth certain historical consolidated financial
data as a percentage of revenue for the three months ended June 30, 1996 and
1995.
1996 1995
---- ----
Revenue 100.0% 100.0%
Costs of revenue, excluding depreciation 75.1% 71.3%
Depreciation and amortization 2.8% 4.0%
General and administrative expenses 11.6% 9.3%
Interest expense 3.2% 2.7%
Interest and dividend income, other income, net,
equity in earnings of unconsolidated companies
and minority interest 2.1% 5.5%
Income from continuing operations 5.9% 11.4%
Revenue. Revenue increased by approximately $69.4 million or 177% from
$39.2 million in 1995 to $108.6 million in 1996, primarily due to
international ($37.5 million) and domestic ($6.5 million) acquisitions, new
master contracts, increased volume under existing contracts and other new
business ($17.8 million), and an increase of $7.6 million in general
construction services revenue.
Costs of revenue, excluding depreciation. Costs of revenue as a
percentage of revenue increased from 71.3% in 1995 to 75.1% in 1996 primarily
due to operations in new geographic areas. Domestic and international margins
for the three months ended June 30, 1996 were 24.2% and 26.2%, respectively.
The domestic margin decreased as compared with the domestic margin for the
period ended June 30, 1995, primarily because of costs incurred at the
commencement of new contracts resulting from mobilization and startup costs,
as well as costs incurred in recruiting and training new personnel. The
Company has experienced similar declines in the past upon the commencement of
new contracts. Domestic gross margin has increased since the quarters ended
September 30, 1995 (22.2%) and December 31, 1995 (23.3%) when the Company
began to significantly expand and grow, and has remained near the gross
margin for the three months ended March 31, 1996 (24.3%).
Depreciation and amortization. Depreciation and amortization as a
percentage of revenue decreased from 4.0% in 1995 to 2.8% in 1996 due to
revenue growth and Sintel's lesser dependence on its own equipment, as it
typically uses subcontractors to supply heavy equipment when needed.
General and administrative expenses. General and administrative expenses
as a percentage of revenue increased from 9.3% in 1995 to 11.6% in 1996
primarily due to the acquisition of Sintel, which has a more costly overhead
structure than the Company's domestic operations. Domestic and international
general and administrative expenses as a percentage of domestic and
international revenue for the three months ended June 30, 1996 were 9.8% and
15.3%, respectively. Sintel initiated a cost reduction program that has
reduced general and administrative expenses from 19.2% of international
revenue for the six months ended June 30, 1995 to 16.3% for the same period
in 1996. This cost reduction program is continuing under the Company's
ownership. Domestically,
24
general and administrative expenses as a percentage of domestic revenue are
approximately the same for the three months ended June 30, 1996 as for the
comparable period in 1995.
Interest expense. Interest expense increased from $1.1 million in 1995 to
$3.4 million in 1996. Included in interest expense for the three months ended
June 30, 1996 is $1.4 million of interest expense incurred by the international
operations to fund working capital needs. Interest expense also increased due to
new borrowings used for acquisitions, for equipment purchases, to fund notes
receivable and to make investments in unconsolidated companies.
Interest and dividend income to other income, net, equity in earnings
of unconsolidated companies and minority interest. Interest and dividend income
for the second quarter of 1995 includes $300,000 of dividend income on an
investment in preferred stock. The preferred stock was disposed of in the first
quarter of 1996. Interest and dividend income reported for the second quarter of
1996 consists primarily of interest accrued on a note receivable entered into in
the third quarter of 1995. Other income for 1995 included the favorable
settlement of litigation in the amount of $1,350,000. Equity in earnings of
unconsolidated companies, which was insignificant prior to the acquisition of
Sintel, consists primarily of the Company's share of earnings in Sintel's joint
ventures in Argentina, Chile and Peru for the two months since the Sintel
Acquisition.
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995.
The following table sets forth certain historical consolidated financial
data as a percentage of revenue for the six months ended June 30, 1996 and 1995.
1996 1995
---- ----
Revenue 100.0% 100.0%
Costs of revenue, excluding depreciation 75.3% 71.7%
Depreciation and amortization 3.1% 3.9%
General and administrative expenses 11.2% 10.1%
Interest expense 3.0% 3.0%
Interest and dividend income, other income, net,
equity in earnings of unconsolidated companies
and minority interest 2.0% 3.7%
Income from continuing operations 5.9% 9.3%
Revenue. Revenue increased by approximately $97.4 million or 132% from
$73.8 million in 1995 to $171.2 million in 1996, primarily due to international
($37.5 million) and domestic ($13.5 million) acquisitions, new master contracts,
increased volume under existing contracts and other new business ($35.4
million), and an increase of $11.0 million in general construction services.
Costs of revenue, excluding depreciation. Costs of revenue as a percentage
of revenue increased from 71.7% in 1995 to 75.3% in 1996 primarily due to
operations in new geographic areas. Domestic and international margins for the
six months ended June 30, 1996 were 24.3% and 26.2%, respectively. The same
trends discussed in the quarter to quarter discussion above impacted the six
months' comparison.
25
Depreciation and amortization. Depreciation and amortization as a
percentage of revenue decreased from 3.9% in 1995 to 3.1% in 1996 due to revenue
growth and Sintel's lesser dependence on its own equipment, as it typically uses
subcontractors to supply heavy equipment when needed.
General and administrative expenses. General and administrative expenses as
a percentage of revenue increased from 10.1% in 1995 to 11.2% in 1996. The
increase in general and administrative expenses as a percentage of revenue is
primarily due to higher general and administrative expenses of the international
operations, which approximated 15.3% of international revenue. The same trends
discussed in the quarter to quarter discussion above impacted the six months'
comparison.
Interest expense. Interest expense increased from $2.2 million in 1995 to
$5.1 million in 1996. Included in interest expense for the six months ended June
30, 1996 is $1.4 million of interest expense incurred by the international
operations to fund its working capital needs. Interest expense also increased
due to new borrowings used for acquisitions, for equipment purchases, to fund
notes receivable and to make investments in unconsolidated companies.
Interest and dividend income, other income, net, equity in earnings
of unconsolidated companies and minority interest. Interest and dividend income
and other income, net, increased from $2.7 million in 1995 to $3.5 million in
1996 as a result of interest accrued on notes receivable and equity in earnings
of unconsolidated companies. The increase from 1995 to 1996 was partially offset
by the sale of a preferred stock investment.
Discontinued operations. In March 1995, the Company sold the indoor theater
assets of Floyd Theatres, resulting in a net gain of $1.5 million. (See Note 5
to the Condensed Consolidated Financial Statements.)
Pro Forma Six Months Ended June 30, 1996 Compared to Pro Forma Six Months Ended
June 30, 1995.
The following information and discussion is based on the unaudited pro
forma results of operations for the Company assuming the Sintel Acquisition and
the Related Transactions took place on January 1, 1995 and are based on the
results from continuing operations of the Company and Sintel for the periods
indicated. This discussion is presented for illustrative purposes only and is
not necessarily indicative of the results of operations of the Company that
actually would have occurred had the Sintel Acquisition been consummated on
January 1, 1995. The discussion should be read in conjunction with the Financial
Statements of the Company and the notes thereto included elsewhere herein.
The operating results for Sintel included in the pro forma information for
the respective six month periods reflect certain trends that may be significant
to understanding the pro forma results. The six months ended June 30, 1996
reflect substantial improvements in Sintel's cost structure, which were a direct
result of Sintel's cost reduction program as previously discussed. Revenue
increased at Sintel by 7.6% as compared to the six months ended June 30, 1995
while cost of revenue decreased as a percentage of revenue from 75% to 71.2% and
general and administrative
26
expense decreased as a percentage of revenue from 19.2% to 16.3% in the two six
month periods. Sintel's revenue represents approximately 60.0% of the Company's
pro forma revenue for the six months ended June 30, 1995 and approximately 47.5%
of pro forma revenue for the comparative 1996 period.
The following table sets forth certain pro forma consolidated financial
data as a percentage of pro forma revenue for the six months ended June 30, 1996
and 1995.
1996 1995
------ ------
Revenue 100.0% 100.0%
Costs of revenue, excluding depreciation 73.6% 73.7%
Special charge, operations 0.9% 11.1%
Depreciation and amortization 2.6% 2.5%
General and administrative expenses 13.1% 15.6%
Interest expense 3.7% 5.0%
Interest and dividend income, other income, net,
equity in earnings of unconsolidated companies
and minority interest 2.1% 2.5%
Income (loss) from continuing operations 5.2% (3.6)%
Revenue. Revenue increased by approximately $68.6 million or 37% from
$186.2 million in 1995 to $254.8 million in 1996, primarily due to new master
contracts, increased volume under existing contracts and other new business
($35.4 million), domestic acquisitions of $13.5 million, international growth of
$8.7 million, and an increase of $11.0 million in general construction services
revenue.
Costs of revenue, excluding depreciation. Costs of revenue as a percentage
of revenue decreased from 73.7% in 1995 to 73.6% in 1996. International
operations reduced costs of revenue as a percentage of revenue from 75.0% in
1995 to 71.2% in 1996. The improvement is a direct result of changes implemented
by Sintel's management, primarily reductions in personnel (see "- Special
charges-operations"). Domestically, costs of revenue increased from 71.7% to
75.7% primarily due to start-up costs associated with operations in new
geographic areas.
Special charges-operations. Special charges-operations consists of
severance costs incurred and paid by Sintel from workforce reductions under a
cost reduction program. In 1994, new management was installed at Sintel with a
focus on improving profitability. As a result, Sintel's management began a
program to reduce costs and approximately 375 employees were terminated during
the six months ended June 30, 1995, resulting in a charge of $20.7 million for
the period. The plan continued
27
through 1995 and Sintel recorded approximately $30.2 million in severance costs
for the year. In 1996, Sintel continued to accept voluntary terminations to
further reduce its workforce, incurring an additional $2.2 million in the six
months ended June 30, 1996. As a result of its evaluation of the Sintel
Acquisition, the Company adopted a plan designed to further reduce the Sintel
workforce and recorded a reserve for anticipated severance costs. Approximately
$1.5 million was charged against this reserve in the two months ended June 30,
1996.
Depreciation and amortization. Depreciation and amortization as a
percentage of revenue increased from 2.5% in 1995 to 2.6% in 1996, or from $4.6
million in 1995 to $6.6 million in 1996. The increase in dollar amount is due to
domestic fleet added in the second part of 1995 to support internal growth.
General and administrative expenses. General and administrative expenses as
a percentage of revenue decreased from 15.6% in 1995 to 13.1% in 1996. The
decrease in general and administrative expenses as a percentage of revenue is
primarily due to a significant reduction in general and administrative expenses
of the international operations in connection with the cost reduction program
discussed above. The general and administrative expenses of the international
operations approximated 16.3% and 19.2% of international revenue in 1996 and
1995, respectively. This cost reduction program is continuing under the
Company's ownership. Domestically, general and administrative expenses as a
percentage of revenue are approximately the same for the first half of 1996 as
for the comparable period in 1995.
Interest expense. Interest expense was $9.5 million and $9.3 million for
1996 and 1995, respectively, but decreased as a percentage of revenue from 5.0%
in 1995 to 3.7% in 1996. Interest expense for domestic operations was
approximately 3.0% of revenue for both 1996 and 1995. Average debt levels for
Sintel were greater during 1995 due to its use of revolving credit facilities to
fund the severance costs discussed above. At the end of 1995, Telefonica (which
then owned Sintel) contributed approximately $16.0 million in new capital to
Sintel, which was used to lower debt levels, resulting in lower interest expense
in 1996.
Interest and dividend income, other income, net, equity in earnings of
unconsolidated companies and minority interest. Interest and dividend income and
other income, net, increased from $4.7 million in 1995 to $5.3 million in 1996
as a result of interest accrued on notes receivable and equity in earnings of
unconsolidated companies. The increase from 1995 to 1996 was partially offset by
the sale of a preferred stock investment. On a pro forma basis, the equity in
earnings of unconsolidated subsidiaries operating in Argentina, Chile and Peru
increased by $520,000 when compared to the same period in 1995.
28
Year End Comparisons
The following table sets forth certain historical consolidated financial
data as a percentage of revenue for the years ended December 31, 1995, 1994 and
1993.
Year ended December 31,
1995 1994(1) 1993(1)
Revenue 100.0% 100.0% 100.0%
Costs of revenue, excluding depreciation 74.9% 75.4% 64.3%
Depreciation and amortization 4.0% 4.0% 1.4%
General and administrative expenses 10.9% 11.7% 22.1%
Interest expense 2.8% 3.2% 0.3%
Interest and dividend income and other
income, net, equity in earnings (losses) of
unconsolidated companies
and minority interest 3.1% 2.2% 0.5%
Special charge--real estate and investments
write-downs 13.2% 0.0% 0.0%
(Loss) income from continuing operations (1) (1.8)% 5.2% 9.4%
(1) Income from continuing operations as a percentage of revenue has been
adjusted to reflect a tax provision as though the Company had been subject
to taxation as a C corporation.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenue. Revenue increased by approximately $63.3 million or 57% from
$111.3 million in 1994 to $174.6 million in 1995, primarily due to expansion
into new contract areas and the full year's effect in 1995 of acquisitions in
1994, including the Burnup Acquisition. See Note 2 to the Consolidated Financial
Statements. Revenue generated under the Company's master contracts was $113.6
million and $76.2 million or 65% and 68% for 1995 and 1994, respectively.
Costs of revenue, excluding depreciation. Costs of revenue as a percentage
of revenue decreased from 75.4% in 1994 to 74.9% in 1995, primarily due to
improved margins resulting from improved operating efficiencies, improved
productivity due to the use of more modern equipment, and the Company's
renegotiation of an unprofitable master contract assumed as part of the Burnup
Acquisition.
Depreciation and amortization. Depreciation and amortization as a
percentage of revenue was 4.0% in both 1995 and 1994. Depreciation expense
increased from $4.4 million in 1994 to $6.9 million in 1995 primarily due to a
fleet replacement program related to the Burnup & Sims fleet acquired in the
Burnup Acquisition and an increase in capital expenditures resulting from
expansion into new contract areas.
General and administrative expenses. General and administrative expenses as
a percentage of revenue declined from 11.7% in 1994 to 10.9% in 1995. General
and administrative expenses
29
increased by approximately $6.1 million from 1994 to 1995 due primarily to the
impact of the Burnup Acquisition as the 1994 results exclude the results of
operations (including general and administrative expenses) for Burnup & Sims
from January 1 to March 11, 1994. Additionally, the Company expended
approximately $1.6 million in 1995 related to pursuing and monitoring investment
opportunities abroad.
Interest expense. Interest expense increased from $3.6 million in 1994 to
$5.0 million in 1995 primarily due to new borrowings used for equipment
purchases, to fund notes receivable and to make investments in unconsolidated
companies. See Note 2 to the Consolidated Financial Statements.
Interest and dividend income and other income, net, equity in earnings
(losses) of unconsolidated companies and minority interest. Interest and
dividend income increased from $1.5 million in 1994 to $3.3 million in 1995 as a
result of dividends earned on the preferred stock investment acquired in the
Burnup Acquisition and the interest accrued on notes receivable. See "Business--
Telecommunications Investments." Other income increased by $1.0 million from
1994 to 1995 as a result of a $1,350,000 favorable settlement of a lawsuit. See
Note 14 to the Consolidated Financial Statements.
Special charge-real estate and investments write-downs. In 1995, the
Company incurred special charges totaling $18.6 million to adjust the carrying
values of its non-core real estate investments to estimated net realizable value
based on preliminary offers received by the Company. In addition, the Company
wrote down its preferred stock investment to the amount realized by its disposal
in early 1996. See Note 5 to the Consolidated Financial Statements.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Revenue. Revenue increased by approximately $66.6 million or 149% from
$44.7 million in 1993 to $111.3 million in 1994. Revenue in telecommunications
and related construction services increased $71.6 million as a result of the
Burnup Acquisition and other acquisitions in 1994 and increased $4.2 million due
to additional volume in 1994 under master contracts in effect at December 31,
1993. These increases in revenue were offset by a decrease of $9.2 million in
revenue from the Company's general construction services segment due to the
completion of a significant project in the latter part of 1993.
Costs of revenue, excluding depreciation. Costs of revenue increased as a
percentage of revenue from 64.3% in 1993 to 75.4% in 1994, primarily due to less
profitable operations acquired in connection with the Burnup Acquisition.
Depreciation and amortization. Depreciation and amortization expenses
increased to $4.4 million in 1994, or 4.0% of revenue, from $609,000 or 1.4% of
revenue in 1993. The increase is primarily a result of (a) amortization of
certain costs associated with the acquisitions made in 1994 and (b) an increase
in depreciation due to the purchase of new equipment as part of a fleet
replacement program for Church & Tower implemented in the latter part of 1993.
General and administrative expenses. General and administrative expenses
increased by approximately $3.2 million from 1993 to 1994 but decreased to 11.7%
of revenue in 1994 compared
30
to 22.1% of revenue in 1993. In the fourth quarter of 1993, in anticipation of
the change in tax status resulting from the Burnup Acquisition, bonuses were
paid to certain employee/stockholders of Church & Tower, which significantly
increased the general and administrative expenses of the Company for 1993.
Additionally, non-recurring expenses associated with provisions for litigation
and environmental expenditures were made in 1993. Excluding the bonuses and
nonrecurring expenses, general and administrative expenses as a percentage of
revenue would have been 11.3% in 1993.
Interest expense. Interest expense increased from $133,000 in 1993 to $3.6
million in 1994 due to (a) notes issued to pay for acquisitions made in 1994
other than the Burnup Acquisition, (b) debt incurred by Church & Tower
shareholders in connection with the Burnup Acquisition and (c) debt assumed
from Burnup & Sims following the acquisition.
Interest and dividend income and other income, net, equity in earnings
(losses) of unconsolidated companies and minority interest. Interest and
dividend income increased from $315,000 in 1993 to $1.5 million in 1994 due to
dividend income earned on the preferred stock acquired in the Burnup Acquisition
and interest earned on notes issued to stockholders prior to the Burnup
Acquisition. Other income increased $1.1 million from a net expense of $81,000
in 1993 to $1.0 million of income in 1994, primarily due to gains recognized on
the sale of machinery and equipment of $609,000 and the rental of certain
equipment. The equity in earnings of unconsolidated companies decreased in 1994
by $940,000 from 1993. During 1993, the Company recorded income of approximately
$1,187,000 related to its joint venture for the removal of debris related to
Hurricane Andrew. The project undertaken by this joint venture was substantially
completed in 1993.
Upon consummation of the Burnup Acquisition, Church & Tower's election to
be treated as an S corporation was terminated and, accordingly, the Company
recognized a net deferred tax asset of approximately $435,000 related to
deductible temporary differences. This benefit was included in the provision for
income taxes for 1994. The Company was not subject to taxation in 1993 and prior
years as the result of its S corporation election under the Internal Revenue
Code.
See Note 1 to the Consolidated Financial Statements as to the impact of the
new accounting standards to be implemented during 1996, the effect of which the
Company does not believe will be material.
Financial Condition, Liquidity and Capital Resources
The Company's balance sheet as of June 30, 1996 reflects the impact of the
Sintel Acquisition and the conversion of the Company's 12% Subordinated
Convertible Debentures to Common Stock (the "Debentures"). (See Notes 2 and 4 to
the Condensed Consolidated Financial Statements.)
The Company's primary source of liquidity has been cash flow from operating
activities, external sources of financing, and the proceeds from the sale of
non-core assets. During the six months ended June 30, 1996, $42.7 million was
generated from operations compared to $10.5 million in the comparable period of
1995. Operating cash flows for the 1996 period includes the collection of a
significant amount of international receivables. The Company's major
international customer's payment terms are 180 days and require all unbilled
work near the end of the year (work in
31
progress) to be billed prior to the close of the year. Accordingly, the second
quarter has higher collections for the international operations than other
quarters as the additional work in process billed in December is collected.
Also, during the six months ended June 30, 1996, the Company invested $7.6
million in acquisitions and received $8.6 million from the sale of non-core
assets. Cash paid for capital expenditures was $2.8 million and an additional
$6.0 million of capital expenditures were financed. The Company used its excess
cash to repay debt, principally under its revolving credit facility with a
wholly owned finance subsidiary of Telefonica and debentures Sintel had
outstanding as of April 30, 1996. (See Note 4 to the Condensed Consolidated
Financial Statements.)
As of June 30, 1996, working capital was approximately $95.9 million
compared to working capital of approximately $44.6 million at December 31, 1995.
The significant increase in working capital is primarily attributable to the
Sintel Acquisition. Included in working capital at June 30, 1996 are the net
assets of discontinued operations, notes receivable (see Note 9 to the Condensed
Consolidated Financial Statements) and real estate held for sale. Proceeds from
the sale or repayment of these assets will be used for general corporate
purposes including furthering the Company's growth strategy.
As a result of expansion into new contract areas and continuing a fleet
replacement program, the Company estimates spending approximately $14.0 million
in capital expenditures in 1996, primarily on existing domestic operations.
The Company has completed two acquisitions and increased its investment in
an unconsolidated company during the six months ended June 30, 1996, as detailed
in Note 2 to the Condensed Consolidated Financial Statements. The combined
consideration for these three transactions amounted to approximately $48.3
million plus certain ownership interests in other unconsolidated companies. The
$48.3 million monetary consideration consists of approximately $6.2 million in
cash payments and $42.1 million in seller financing, $9.3 million of which is
due within the next twelve months.
In March 1996, the Company sold its investment in preferred stock and was
repaid certain receivables due the Company from the buyer for a total
consideration of $6.3 million. (See Note 5 to the Condensed Consolidated
Financial Statements.)
The Company continues to pursue a strategy of growth through internal
growth and expansion and through acquisitions. The Company anticipates that this
growth as well as operating cash requirements, capital expenditures and debt
service will be funded from cash flow generated by operations, and external
sources of financing. The success of the Company's growth strategy will be
dependent in part on the Company obtaining additional capital. Although the
Company believes that additional capital will be obtained, there can be no
assurance that the Company will be able to obtain capital at satisfactory terms
for this purpose. The Company also anticipates that certain of its
telecommunications investments and non-core assets will be converted into cash
within the next twelve months.
Impact of Inflation
The primary inflationary factor affecting the Company's operations is
increased labor costs. A substantial portion of the Company's domestic revenue
is derived from services performed under
32
master contracts, which typically include provisions to increase contract prices
on an annual basis based on increases in the Construction Price Index.
Accordingly, the Company believes that increases in labor costs will not have a
significant impact on its domestic results of operations. In Spain, the
Company's labor costs are governed by a labor agreement with the Company's
employee representatives that establishes wages and other compensation. The
Company currently is negotiating a new labor agreement with its employee
representatives, which the Company anticipates will not result in significant
increases in labor costs.
Environmental Matters
The Company is in the process of removing, restoring and upgrading
underground fuel storage tanks. As explained more fully in the notes to the
Financial Statements, the Company does not expect the costs of completing this
process to be material.
33
BUSINESS
GENERAL
The Company is one of the world's leading contractors specializing in the
build-out of telecommunications infrastructure. The Company's principal business
consists of the design, installation and maintenance of the outside physical
plant for telephone and cable television communications systems ("outside plant
services"), including the installation of aerial, underground and buried copper,
coaxial and fiber optic cable networks and the construction of wireless antenna
networks for telecommunications service companies such as local exchange
carriers, long-distance carriers, competitive access providers, cable television
operators and wireless phone companies. The Company also installs central office
switching equipment ("switching"), and provides design, installation and
maintenance of integrated voice, data and video local area networks and wide
area networks inside buildings ("inside wiring"). The Company believes it is the
largest independent contractor providing telecommunications infrastructure
construction services in the United States and Spain and one of the largest in
Argentina, Chile and Peru.
The Company is able to provide a full range of infrastructure services to
its telecommunications company customers. Domestically, the Company provides
outside plant services to local exchange carriers such as BellSouth, U.S. West,
SBC Communications, Inc., United Telephone of Florida, Inc. (a subsidiary of
Sprint Corporation) and GTE Corp. MasTec currently has 18 exclusive, multi-year
service contracts ("master contracts") with RBOCs and other local exchange
carriers to provide all of their outside plant requirements up to a specific
dollar amount per job and within certain geographic areas. These contracts
typically generate revenues ranging between $3,000,000 and $30,000,000 over
their respective terms. Internationally, the Company provides outside plant
services, turn-key switching system installation and inside wiring services to
Telefonica under multi-year contracts similar to those in the U.S. Telefonica
has committed to award Sintel a minimum of 75 billion Pesetas of work in Spain
over a three year period commencing January 1, 1996 at market prices
(anticipated to be $200 million per annum based on current exchange rates).
The Company also provides outside plant services to long distance carriers
such as MCI Communications Corporation and Sprint Corporation, competitive
access providers such as MFS Communications Company, Inc., Sprint Metro and MCI
Metro (the local telephone subsidiaries of Sprint and MCI), cable television
operators such as Time Warner, Inc., Continental Cablevision, Inc. and Media
One, and wireless communications providers such as PCS Primeco and Sprint
Spectrum, L.P. Inside wiring services are being provided by the Company to large
corporate customers such as First Union, IBM, Medaphis Corp., Smith Barney, Inc.
and Dean Witter Reynolds, Inc. and to universities and government agencies.
The Company also provides design, installation and maintenance services
(similar to those provided to telecommunications companies) to public utilities
and the traffic control and highway safety industry. From time to time, the
Company provides general construction and project management services to state
and local governments.
The Company's executive offices are located at 3155 N.W. 77th Avenue,
Miami, Florida, 33122-1205, telephone number (305) 599-1800.
34
COMPANY HISTORY AND SINTEL ACQUISITION
The Company was formed in March 1994 through the combination of Church &
Tower and Burnup & Sims, two established names in the telecommunications
infrastructure construction industry that have been servicing the
infrastructure needs of the telecommunications and public utility industries
since 1969 and 1929, respectively. In March 1994, the current principal
stockholders of the Company acquired approximately 65% of the outstanding
common stock of Burnup & Sims, a public company, in the Burnup Acquisition.
The name of Burnup & Sims was changed to MasTec, Inc. and current management
assumed control of the combined operations. The current management team
successfully integrated the operations of Church & Tower with Burnup & Sims,
a company whose revenue for the fiscal year immediately preceding the
combination was approximately three times as large as that of Church & Tower.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" for a discussion of strategic initiatives implemented
following the Burnup Acquisition and the resulting financial impact.
To position itself to take advantage of expected increased demand for
telecommunications infrastructure services arising from the deregulation and
privatization of telecommunications systems in Europe and Latin America, the
Company acquired Sintel from Telefonica on April 30, 1996. Sintel is the
principal provider of telecommunications construction services to Telefonica
and its affiliates in Spain, providing more than twice the volume of these
services as Sintel's next largest competitor, and is one of the principal
providers of these services to Telefonica's affiliates in Argentina, Chile
and Peru. Telefonica has agreed to use its best efforts to afford Sintel the
opportunity to provide infrastructure services on telecommunications projects
in which Telefonica participates as a leader or co-leader worldwide and not
to compete with Sintel at least until April 2001. Two members of Telefonica's
management, including the vice president of telecommunications infrastructure
services purchasing, serve on Sintel's board of directors.
Like the Burnup Acquisition, the Sintel Acquisition significantly
increased the size of the Company; Sintel's revenue for the fiscal year ended
December 31, 1995 was one and a half times greater than the Company's revenue
for the same period. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Overview" for a description of the terms
of the Sintel Acquisition.
RECENT TRENDS AND COMPANY STRATEGY
Recent Trends in the Telecommunications Industry
The telecommunications industry is undergoing fundamental changes in
most markets throughout the world. The Telecommunications Act of 1996 in the
United States, agreements among participating countries in the European Union
and privatization and regulatory initiatives in Latin America are removing
barriers to competition. In addition, growing customer demand for enhanced
voice, video and data telecommunications have increased bandwidth
requirements and highlighted network bandwidth limitations in many markets.
Increased Capital Expenditures on Network Construction and Upgrades. The
Telecommunications Act of 1996, which was signed into law in February 1996,
removes barriers to
35
competition and enables local and long distance carriers and cable television
operators to enter each other's markets. The Company believes that
deregulation will lead to increased construction of competing
telecommunications networks as communications service providers expand into
new markets. The Company also believes that increased competition among these
providers to furnish enhanced voice, video and data services requiring
greater bandwidth will lead to further upgrades of existing networks from
copper to broadband fiber optic cable.
The Company also believes that continuing deregulation and privatization
of telecommunications providers in Europe and Latin America will spur
competition and increase demand for the Company's services. In Spain, the
expected opening of the Spanish telecommunications market to competition in
1998 and the passage in 1995 of legislation authorizing and regulating the
provision of cable television services are expected to increase the demand
for infrastructure construction as new competitors enter the market and build
their own networks. In Latin America, the ongoing deregulation and
privatization of telecommunications services and the improving economies in
the region have stimulated renewed capital investment in telecommunications
systems.
In addition, the deployment of more powerful multi-media computers in
business and the convergence of voice communications systems with data and
video networks have resulted in increased demands for additional bandwidth
within the internal communications networks of many domestic and
international companies. Many businesses are upgrading their internal
communications networks to personal computer-based servers interconnected
with fiber optic cables, increasing the demand for inside wiring services.
Increased Outsourcing of Infrastructure Services to Fewer Qualified
Contractors. To meet increased price competition in the local exchange market
resulting from deregulation, the Company believes that telecommunications
service providers, particularly the RBOCs, will attempt to reduce costs by
outsourcing services such as infrastructure construction that are outside
their core competencies. Independent contractors such as the Company
typically have lower cost structures, primarily as a result of lower overhead
costs, than the in-house construction departments of the RBOCs. In addition
to expanding the scope of outsourced services, telecommunications companies
and business customers increasingly are seeking comprehensive solutions to
their infrastructure needs by turning to fewer qualified contractors to
provide a full range of infrastructure services.
Company Strategy
The Company believes that it is well positioned to capitalize on these
trends and is pursuing a strategy of growth in its core business through
internal expansion and strategic acquisitions. The Company believes that the
volume of business generated under existing contracts will increase as a
result of the increase in demand for its services. The Company intends to
continue providing services to its existing customers under its present long-
term contracts and, if possible, to extend these agreements beyond their
current terms. In addition, the Company believes that its reputation for
quality and reliability, operating efficiency, financial strength, technical
expertise, presence in key geographic areas and ability to achieve economies
of scale provide competitive advantages in bidding for and winning new
contracts for telecommunications infrastructure projects. The Company intends
to pursue aggressively the larger, more technically complex infrastructure
projects where its competitive advantages will have the greatest impact.
36
The Company also plans to continue to make strategic acquisitions. The
Sintel Acquisition has positioned the Company to take advantage of increased
competition anticipated in Europe and the rapid upgrading of
telecommunications services expected in Latin America. In the United States,
the Company is continuing to pursue opportunities to acquire selected
operators that will enable the Company to expand its geographic coverage and
customer base without the risks and expense of start-up operations and to
acquire additional management talent for future growth. For example, the
acquisition of two master contractors since the Burnup Acquisition has
enabled the Company to expand its existing operations in Tennessee and enter
the Alabama market. The Company believes there are attractive consolidation
opportunities in the fragmented telecommunications infrastructure
construction industry. The Company believes that it can apply its resources
and expertise to acquisitions in new markets to expand the business of the
acquired company. In certain cases, these "add-on" acquisitions also should
improve operating margins through economies of scale, such as the elimination
of duplicative administrative overhead and more efficient utilization of
personnel and equipment. Corporate-wide economies of scale, particularly with
respect to equipment purchases, are also made possible by the Company's
greater buying power.
SERVICES, MARKETS AND CUSTOMERS
Telecommunications Construction - United States Operations
Outside Plant Construction. The Company's principal domestic business
consists of outside plant services for telecommunications providers,
including local exchange carriers, competitive access providers, and cable
television operators. Outside plant services consist of all of the services
necessary to design, install and maintain the physical facilities used to
provide telecommunications services from the provider's central office,
switching center or cable head-end to the ultimate consumer's home or
business. These services include the placing and splicing of cable, the
excavation of trenches in which to place the cable, the placing of related
structures such as poles, anchors, conduits, manholes, cabinets and closures,
the placing of drop lines from the main transmission lines to the customer's
home or business, and the maintenance and removal of these facilities. With
the exception of drop line placement, the Company also provides these
services to long distance carriers. The Company has developed expertise in
directional boring, a highly specialized and increasingly necessary method of
placing buried cable networks in congested urban markets without digging a
trench.
The Company is capable of providing a full range of outside plant
services to its telecommunications company customers. RBOCs, however, have
in-house departments that typically handle placing of aerial and underground
cable, cable splicing, and aerial drop line placement. The Company's
customers generally supply materials such as cable, conduit and telephone
equipment, and the Company provides the expertise, personnel, tools and
equipment necessary to perform the required services.
The Company currently provides telecommunications construction services
to customers in Alabama, Arizona, California, Colorado, Florida, Georgia,
Michigan, North Carolina, South Carolina, Tennessee and Texas. Principal
customers for telecommunications outside plant services include BellSouth,
U.S. West, SBC Communications, Inc., the long distance and local exchange
37
subsidiaries of both MCI Communications Corporation and Sprint Corporation,
GTE Corp., MFS Communications Company, Inc., Time Warner, Inc., Continental
Cablevision, Inc. and Media One.
Services rendered to the Company's local exchange customers are
performed primarily under master contracts, which are exclusive service
contracts to provide all of the carrier's outside plant requirements up to a
specified dollar amount per job and within certain geographic areas. These
contracts typically generate revenue ranging between $3,000,000 and
$30,000,000 over their respective terms, typically two to three years. Each
master contract contemplates hundreds of individual construction and
maintenance projects valued generally at less than $100,000 each. These
contracts typically are awarded on a competitive bid basis, although
customers are sometimes willing to extend these contracts beyond their
original terms. The Company currently has 18 master contracts with
telecommunications customers, covering defined regions within the
southeastern and southwestern United States, including 13 with different
divisions of two RBOCs and five with two non-Bell local exchange carriers.
In addition to services rendered pursuant to master contracts, the
Company provides outside plant services on individual projects awarded on a
competitive bid basis. While such projects are generally substantially larger
than the individual projects covered by master contracts, they typically
require the provision of services identical to those rendered under master
contracts.
The Company also provides turn-key design, installation and maintenance
services to the wireless communications industry, including site preparation,
design and construction of communications towers, placement of antennas and
associated wiring, and construction of equipment huts. In May 1996, the
Company was awarded a contract by Sprint Spectrum, L.P. to build 100 personal
communications service ("PCS") transmission towers in southeast Florida.
Inside Plant Construction ("Inside Wiring"). The Company provides
design, installation and maintenance of integrated voice, data and video
networks inside buildings for large companies with multiple locations such as
First Union, IBM, Dean Witter Reynolds, Inc., and Smith Barney, Inc., for
college campuses such as the University of Miami and for medical facilities
such as Carolina Medical Center.
Inside wiring services consist of designing, installing and maintaining
local area networks and wide area networks linking the customers' voice
communications networks at multiple locations with their data and video
services. This type of work is similar to outside plant construction; both
involve the placing and splicing of copper, coaxial and fiber optic cables.
Inside wiring is less capital intensive than outside plant construction but
requires a more technically proficient work force.
The Company's contracts to service First Union and IBM are similar to
master contracts in the outside plant business because they grant the Company
the exclusive right to provide inside wiring to these customers within
certain geographic regions. The Company also provides inside wiring services
on individual projects that are awarded on a competitive bid basis. The
Company intends to take advantage of the fragmentation of the inside wiring
industry by marketing a full range of inside wiring services to large
corporations with multiple locations across the country. Increasingly, these
types of customers are seeking a single vendor to provide all of their inside
38
wiring; First Union, for example, used more than 50 different vendors to provide
the services that the Company now provides.
Telecommunications Construction - International Operations (Sintel)
Sintel is a Spanish company which has provided telecommunications
construction services to Telefonica and Telefonica's affiliates since 1950.
Through Sintel, the Company is the principal provider of telecommunications
infrastructure services to Telefonica and its affiliates in Spain, and one of
the principal providers of these services to Telefonica's affiliates in
Argentina, Chile and Peru. Telefonica is the sole provider of local and long
distance telephony in Spain. Through its affiliate, Telefonica Internacional,
S.A. ("Telefonica Internacional"), Telefonica owns interests ranging from 19% to
44% in the local telephone companies of Argentina, Chile and Peru.
Spanish Operations. In Spain, Sintel's principal business is providing
outside plant, inside wiring services and equipment installation to Telefonica
and its affiliates. These services are substantially similar to those provided
by the Company in the United States. Sintel also installs Telefonica telephone
equipment in residences and businesses. Sintel subcontracts certain outside
plant services to reduce personnel expenses and to minimize investment in
equipment. Sintel's Spanish operations are concentrated in Spain's three largest
commercial centers -- Madrid, Barcelona and Valencia -- and surrounding areas,
although Sintel maintains a presence throughout Spain.
Sintel provides for the largest percentage of Telefonica's outside plant
services requirements. Sintel provides the bulk of these services under three
separate service contracts, which are similar to master contracts, for distinct
types of outside plant services: (a) placement and splicing of communications
lines; (b) trenching and placing of conduits; and (c) placing of drop lines to
residences and businesses. These agreements set the unit prices at which Sintel
will render services to Telefonica and establish the percentage of Telefonica's
requirements in these categories that will be satisfied by Sintel in particular
geographic areas of Spain. Each of the agreements is for a three-year term.
Telefonica enters into similar agreements with Sintel's principal competitors in
Spain. The Company believes that Telefonica considers various factors in
awarding these contracts and setting their terms, including price, quality,
technical proficiency and the contractor's relationship with Telefonica.
Telefonica also awards individual projects through a competitive bidding
process.
In recent years, Telefonica has reduced the number of contractors with
which it will enter into comprehensive services agreements. Because of Sintel's
historical relationship with Telefonica and Telefonica's commitment to award
Sintel a specified minimum amount of work in Spain during the next three years,
the Company expects that Sintel will continue to be the principal provider of
these services to Telefonica in Spain.
In addition to outside plant services, Sintel provides inside wiring
services to Telefonica that are substantially similar to those provided by the
Company in the United States. Sintel also installs transmission equipment,
central office switching equipment, power generating equipment and cellular
equipment for telecommunications systems for Telefonica. The equipment installed
includes multiplexers, carrier systems and microwave systems, and central office
equipment such as frames, protectors, connector blocks, batteries and power
systems, and cellular antennas and cell sites. The contracts for this work are
awarded on a competitive bid basis.
39
Telefonica currently has a monopoly on the provision of local and long
distance telephony in Spain, and Sintel derives approximately 88% of its revenue
from the provision of services to Telefonica and its Spanish affiliates. As a
result of European Union initiatives, Spain must liberalize its
telecommunications industry between 1998 and 2003 to permit competitors to
Telefonica. Although the Spanish government has not yet established a timetable
for deregulation, it is expected that a second provider of public switched
telephony will be allowed to begin operating in Spain by January 1, 1998, and
that the industry will be completely open to competition by the year 2000. The
Company believes that the demise of Telefonica's monopoly will increase demand
for outside plant services in Spain as new service providers build competing
networks. The Company intends to use Sintel's position as Spain's principal
independent telecommunications infrastructure contractor to obtain a significant
percentage of the work created by the increased demand for outside plant
services.
Sintel also installs and maintains cable television networks for Telefonica
and its affiliates. The Spanish cable television market has been underdeveloped
due to the lack of legislation authorizing and regulating the provision of cable
television services in Spain. In December 1995, the Spanish legislature passed
such legislation. The telecommunications law is being modified in certain
respects by the Spanish government, and regulations implementing the law are not
expected to be adopted until later this year. Once the legal structure for the
provision of cable television services has been completed, the Company
anticipates that the demand for these services will increase significantly. The
Company further believes that this increased demand will require the
construction of additional cable television networks, including connections to
individual homes and businesses. Sintel has entered into a joint venture with
Abengoa, S.A., one of Spain's largest construction companies and the second
largest provider of telecommunications services to Telefonica, to build
broadband cable television networks in Spain.
Sintel also provides outside plant, inside wiring and equipment
installation of computer networks for government agencies and private
businesses; designs, installs and maintains radio communications and other
wireless networks; provides infrastructure services to the radio and television
broadcasting industry; and installs and maintains traffic control and highway
safety devices and equipment.
Latin American Operations. Sintel has operations in Argentina, Chile and
Peru conducted through companies in which Sintel holds a nonmajority interest.
Sintel holds a 50% interest in its affiliate in Argentina and a 38% interest in
its affiliate in Peru. Telefonica Internacional holds a 25% interest in both the
Argentina and Peru affiliates. Although Sintel does not hold a majority interest
in these companies, it effectively controls their operational management. Sintel
and a subsidiary of Sociedad Macri, one of the largest commercial groups in
Argentina, each hold a 50% interest in Sintel's affiliate in Chile and share
operational management.
Sintel's Latin American affiliates primarily provide outside plant
services, cable television installation and similar services to Telefonica's
local telephone company affiliate in each of the countries in which the Sintel
affiliate is located: Telefonica de Argentina (TASA) in Argentina; Compania de
Telefonos de Chile (CTC) in Chile; and Telefonica del Peru in Peru. In the past,
Telefonica has invited its suppliers in Spain, including Sintel, to follow
Telefonica's expansion into Latin America and provide the same services to
Telefonica's local affiliates. As part of the sale of
40
Sintel to the Company, Telefonica has agreed to use its best efforts to give
Sintel the opportunity to provide infrastructure services on telecommunications
projects in which Telefonica participates as a leader or co-leader worldwide.
Related Infrastructure Construction Businesses
Infrastructure Construction for Public Utilities. The Company provides
infrastructure construction services to public utilities, including the Miami
Dade Water and Sewer Authority, the City of Austin, the City of San Antonio
Utilities Department, Jacksonville Electric Authority and Memphis Light, Gas and
Water Division. These services, which are substantially similar to the outside
plant services provided to telecommunications companies, include directional
boring of conduit and pipes, trenching, placing of electric cables, and
restoring asphalt and concrete surfaces. Services to all of these customers
except the City of San Antonio are provided under exclusive master contracts
with two to three year terms.
The Company also provides right-of-way clearance services to public
utilities, primarily rural electric cooperatives in Alabama, Florida and
Georgia, and to non-utility companies such as railroads.
Traffic Control and Highway Safety Infrastructure Construction. The Company
provides infrastructure construction services to the traffic control and highway
safety industry. These services consist of installing and maintaining traffic
signals and their associated supporting mechanisms (such as mast-arm poles,
conduit, electrical wiring and sensors), installing and maintaining traffic
controllers, connecting signals and controllers with fiber optic cables, and
erecting signs on highways and expressways. The Company also provides turn-key
installation and maintenance services for airport runway lighting systems.
Technology convergence has led to the development of "smart highways," which
employ video cameras, remote controlled traffic signals, "talking" message
signs, road sensors and other similar devices interconnected by fiber optic
cable to a central computer that monitors and controls traffic flow remotely.
The Company has constructed a portion of Georgia's first smart highway system in
Atlanta. The labor, equipment and expertise required for traffic control and
highway safety systems construction are similar to those required for
telecommunications construction, such as the installation of fiber optic or
coaxial cable and conduit for electronically controlled signage and other
traffic control systems.
These services primarily are rendered on specific projects awarded on a
competitive bid basis. Customers include state transportation departments,
cities and counties, highway contractors and private developers, principally in
Florida and Georgia. The Company conducts this business both as a prime
contractor and as a subcontractor.
General Construction Services
From time to time, the Company provides general construction and project
management services to municipalities and state and local governments. The
Company's project management services consist of the overall coordination of
construction projects from the design to build phases, including pre-
construction management, bonding requirements, coordination of subcontractors,
inspections and assurances of on-time delivery. All such projects are awarded
through a competitive bid process. Currently, the Company is the project manager
for improvements to a
41
system of water pumping stations operated by the Miami-Dade Water and Sewer
Authority, construction of a detention facility for the Broward County Sheriff's
Office, and construction of several primary learning centers for the Dade County
School system.
TELECOMMUNICATIONS INVESTMENTS
The Company has invested in certain telecommunications businesses located
in or servicing Latin America and the Caribbean. These include a minority
interest in Supercanal, S.A. and related entities, which operate a cable
television system in Argentina. In addition, the Company has made a loan to the
holding company for Consorcio Ecuatoriano de Telecomunicaciones, S.A., an
Ecuadorian cellular company. This loan is convertible into equity under certain
circumstances. See Notes 2 and 9 to the Condensed Consolidated Financial
Statements and Note 2 to the Consolidated Financial Statements for a further
discussion of these investments. The Company is evaluating these investments to
enhance their value to the Company's stockholders.
SUPPLIERS
The Company's customers supply the majority of the raw materials and
supplies necessary to carry out the Company's contracted work. The Company is
not dependent on any one supplier for any raw materials or supplies that the
Company obtains for its own account.
SEASONALITY
The Company's telecommunications construction business is subject to some
seasonality, and in some years the Company has experienced a reduction in
revenue during the months of December and January relative to other months. This
reduction is due, in large part, to reduced expenditures and work order requests
of the Company's telecommunications customers, particularly Telefonica and the
RBOCs, at the end of their budgetary years, which typically end in December.
Severe winter weather conditions may also affect demand for the Company's
services.
COMPETITION
The Company competes with other independent contractors in most of the
markets in which it operates. Most companies engaged in the same or similar
business tend to operate in a specific, limited geographic area, although larger
competitors may bid on a particular project without regard to location. Although
the Company believes it is the largest provider of telecommunications
infrastructure services to the telecommunications industry in the United States
and Spain, neither the Company nor any of its competitors can be considered
dominant in the industry on a national or international basis. The Company also
faces competition from the in-house construction and maintenance departments of
RBOCs, which employ personnel who perform some of the same types of services as
those provided by the Company.
EMPLOYEES
The Company has approximately 5,100 employees, 2,600 of whom are employed
in domestic operations and 2,500 of whom are employed by Sintel. Substantially
all of the Sintel
42
employees are unionized. See "Risk Factors - Certain Risks Associated with
Sintel -- Labor Relations" for a description of the current state of labor
relations at Sintel.
PROPERTIES
The Company's corporate headquarters are located in a 60,000 square foot
building in Miami, Florida owned by the Company. The Company also has regional
offices located in Miami, Tampa, Atlanta, Austin and Charlotte. Sintel's
principal executive offices are located in leased premises in Madrid, Spain. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Overview" for a description of the sale of Sintel's owned property in
Spain to Telefonica and the consolidation of Sintel's operations.
The Company's principal operations are conducted from field offices,
equipment yards and temporary storage locations, none of which the Company
believes is material to its operations because most of the Company's services
are performed on the customers' premises or on public rights of way. In
addition, the Company believes that equally suitable alternative locations are
available in all areas where it currently does business.
The Company owns several assets in the United States that are unrelated to
its core construction business and that it intends to sell. Among these assets
are (a) a printing and labeling business, including a 60,000 square foot
printing plant in Stuart, Florida; (b) approximately 1,500 acres of unimproved
land in Florida; and (c) four non-operating drive-in theaters located in
central and southwest Florida. All of these properties were assets of Burnup &
Sims acquired as part of the Burnup Acquisition. The Company is actively
attempting to dispose of all of these assets to concentrate its resources on its
core telecommunications construction and related businesses.
LEGAL PROCEEDINGS
The following is a summary of material legal proceedings involving the
Company.
In December 1990, Albert H. Kahn, a stockholder of the Company, filed a
purported class action and derivative suit against Burnup & Sims, the members of
its Board of Directors, and National Beverage Corporation ("NBC"). The complaint
alleges, among other things, that Burnup & Sims' Board of Directors and NBC, as
Burnup & Sims' then largest stockholder, breached their respective fiduciary
duties in approving certain transactions, including the distribution in 1989 to
Burnup & Sims' stockholders of all of the common stock of NBC owned by Burnup &
Sims and the exchange by NBC of shares of common stock of Burnup & Sims for
certain indebtedness of NBC held by Burnup & Sims. The lawsuit seeks to rescind
these transactions and to recover damages in an unspecified amount.
In November 1993, Mr. Kahn filed a class action and derivative complaint
against Burnup & Sims, the members of its Board of Directors, Church & Tower,
and Jorge L. Mas, Jorge Mas and Juan Carlos Mas, the principal stockholders of
Church & Tower. The 1993 lawsuit alleges, among other things, that the Burnup &
Sims Board of Directors and NBC breached their respective fiduciary duties by
approving the terms of the Burnup Acquisition, and that Church & Tower and its
principal stockholders had knowledge of the fiduciary duties owed by NBC and the
Burnup & Sims Board of Directors and knowingly and substantially participated in
the breach thereof. The lawsuit
43
also claims derivatively that each member of the Burnup & Sims Board of
Directors engaged in mismanagement, waste and breach of fiduciary duties in
managing Burnup & Sims' affairs. On March 7, 1994, the Delaware court in which
these suits were filed denied plaintiff's motion to enjoin the Burnup
Acquisition. Each of the foregoing lawsuits is in discovery and no trial date
has been set. The Company believes that the allegations in each of the lawsuits
are without merit and intends to defend these lawsuits vigorously.
The Company is involved in a lawsuit filed by BellSouth arising from
certain work performed by a subcontractor of the Company from 1991 to 1993 and a
second lawsuit filed by the County of Gilpin, Colorado, against the Company in
connection with work performed for U.S. West during 1992. The amounts claimed
against the Company in these two lawsuits in the aggregate total approximately
$1.5 million. Both lawsuits were filed in November 1995 and are in the process
of discovery. The Company believes that the allegations asserted by BellSouth
and Gilpin County in these lawsuits are without merit and intends to defend
these lawsuits vigorously.
All of the claims asserted in the lawsuits described above, with the
exception of the second lawsuit filed by Albert Kahn in 1993, arise from
activities undertaken prior to March 11, 1994, the date of the consummation of
the Burnup Acquisition.
The Company is a party to other pending legal proceedings arising in the
normal course of business, none of which the Company believes is material to the
Company's financial condition or results of operations.
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEE
The table below sets forth the names and ages of the directors, executive
officers and significant employees of the Company as well as the positions and
offices held by such persons. A summary of the background and experience of each
of these individuals is set forth after the table. Each director holds office
for a three year term and until his successor has been elected and qualified.
Officers serve at the discretion of the Company's Board of Directors. Jorge Mas
is the son of Jorge L. Mas. There are no other family relationships among the
directors or officers of the Company.
NAME AGE POSITION
- ---- --- --------
Jorge L. Mas 57 Chairman of the Board of Directors
Eliot C. Abbott 47 Director
Arthur B. Laffer 56 Director
Samuel C. Hathorn, Jr. 53 Director
Jose S. Sorzano 55 Director
Jorge Mas 33 President amd Chief Executive Officer,
Director
Ismael Perera 47 Senior Vice President-Operations
Edwin D. Johnson 40 Senior Vice President-Chief Financial
Officer
Ubiratan Simoes Rezende 48 Senior Vice President-International
Operations
Carlos A. Valdes 33 Senior Vice President-Business Development
Jose M. Sariego 42 Senior Vice President-General Counsel
44
Carmen M. Sabater 32 Corporate Controller
Nancy J. Damon 46 Corporate Secretary
Jose Luis Ucieda 53 President of Sintel
Jorge L. Mas was elected Chairman of the Board of Directors of the Company
on March 11, 1994, the effective date of the Burnup Acquisition. Mr. Mas has
been the President and Chief Executive Officer of Church & Tower of Florida,
Inc., one of the Company's largest subsidiaries, since 1969. Mr. Mas serves on
the Board of Directors of First Union National Bank of Florida, N.A.
Eliot C. Abbott was elected to the Board of Directors on March 11, 1994 in
connection with the Burnup Acquisition. From 1976 until September 30, 1995, Mr.
Abbott was a stockholder in the Miami law firm of Carlos & Abbott. Since October
1, 1995, Mr. Abbott has been a member of the international law firm of Kelley
Drye & Warren.
Arthur B. Laffer was elected to the Board of Directors on March 11, 1994 in
connection with the Burnup Acquisition. Mr. Laffer has been Chairman of the
Board of Directors of A.B. Laffer, V.A. Canto & Associates, an economic research
and financial consulting firm, since 1979; Chief Executive Officer, Laffer
Advisors Inc., an investment advisor and broker-dealer, since 1981; and Chief
Executive Officer, Calport Asset Management, a money management firm, since
1992. Mr. Laffer is a director of U.S. Filter Corporation.
Samuel C. Hathorn, Jr. has been a member of the Board of Directors since
1981. He has been president and a director of Trendmaker Homes since 1981 and
president of Centennial Homes, Inc. since December 1, 1990, each of which is a
subsidiary of Weyerhaeuser Co.
Jose S. Sorzano was elected to the Board of Directors on November 6, 1994.
Mr. Sorzano has been Chairman of the Board of Directors of The Austin Group,
Inc., an international corporate consulting firm, since 1989. Mr. Sorzano was
also Special Assistant to the President for National Security Affairs from 1987
to 1988; Associate Professor of Government, Georgetown University, from 1969 to
1987; President, Cuban American National Foundation, from 1985 to 1987; and
Ambassador and U.S. Deputy to the United Nations from 1983 to 1985.
Jorge Mas has served as President, Chief Executive Officer and a director
of the Company since March 11, 1994, the date of the Burnup Acquisition. Prior
to that time and during the past five years, Mr. Mas served as the President and
Chief Executive Officer of Church & Tower, Inc. (and its predecessor company,
Communications Contractors, Inc.). In addition, Mr. Mas is the Chairman of the
Board of Directors of Neff Corp., Atlantic Real Estate Holding Corp. and U.S.
Development Corp. (all private companies controlled by Mr. Mas) and, during all
or a portion of the past five years, has served as the President and Chief
Executive Officer of these corporations.
Ismael Perera has served as Senior Vice President-Operations of the Company
since March 11, 1994, the date of the Burnup Acquisition. From August 1993 until
March 1994, he served as the Vice President-Operations of Church & Tower, Inc.
From 1970 until July 1993, Mr. Perera served in various capacities in network
operations for BellSouth, including most recently as a Senior Director of
Network Operations from 1985 to 1993.
45
Edwin D. Johnson was elected Senior Vice President-Chief Financial
Officer of the Company in March 1996. During the last 10 years, Mr. Johnson
served in various capacities with Attwoods plc., a British waste services
company, including chief financial officer and member of the board of directors
during the final three years.
Ubiratan Simoes Rezende was elected Senior Vice President-International
Operations of the Company in March 1996. From August 1995 to March 1996, Mr.
Rezende was Dean of Graduate Studies and International Programs at La Roche
College. From 1991 to 1993, Mr. Rezende was visiting professor of the Paul Nitze
School of Advanced International Studies at Johns Hopkins University, and from
1979 to 1992 he was a professor at the Center of Social and Economic affairs at
the University of Santa Catarina in Brazil. Mr. Rezende also has served as Chief
of Staff of the Organization of American States and as Executive Vice President
of the holding company for the Perdigao Group, the second largest food
processing company in Brazil.
Carlos A. Valdes has served as Senior Vice President-Business Development
since March 11, 1994, the date of the Burnup Acquisition. Prior to that time,
Mr. Valdes served as the Chief Financial Officer of Church & Tower, Inc. from
1991 to 1994 and as a Vice President of First Union National Bank of Florida
N.A. from 1986 to 1991.
Jose M. Sariego has served as Senior Vice President-General Counsel since
September 1995. Prior to joining the Company, Mr. Sariego was Senior Corporate
Counsel and Secretary of Telemundo Group, Inc., a Spanish language television
network, from August 1994 to August 1995. From January 1990 to August 1994, Mr.
Sariego was a partner in the Miami office of Kelley Drye & Warren, an
international law firm.
Carmen M. Sabater has served as the Corporate Controller of the Company
since April 1994. Prior to joining the Company, Ms. Sabater was a Senior Manager
(1993-1994) and Manager (1989-1993) with Deloitte & Touche L.L.P.
Nancy J. Damon has served as the Corporate Secretary of the Company since
March 11, 1994. Prior to that time, Ms. Damon served as a paralegal at the
Company from February 1990 until March 1994.
KEY EMPLOYEE
Jose Luis Ucieda, is the president of Sintel, a position he has held since
July 1994. Prior to joining Sintel, Mr. Ucieda was the Chief Financial Officer
of Grupo Anaya, S.A., a textbook, magazine and software publishing company, from
February 1987 to 1994. Among other positions, Mr. Ucieda was also Chief
Executive Officer of Schweppes S.A., a beverage manufacturer and Distributor,
from 1978 to 1984, and was Chief Financial Officer of Tabacalera, S.A., the
Spanish tobacco manufacturing monopoly, from 1974 to 1978.
46
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth, as of August __, 1996, and adjusted at that
date to reflect the sale of the Company's Common Stock offered hereby,
information with respect to the beneficial ownership of the Company's Common
Stock by (a) each Selling Stockholder, (b) each person known to the Company to
beneficially own more than 5% of the outstanding shares of the Company's Common
Stock, (c) each director of the Company and each executive officer, and (d)
all executive officers and directors of the Company as a group. Unless otherwise
indicated, (a) each such stockholder has sole voting and investment power with
respect to the shares beneficially owned by such stockholder and (b) has the
same address as the Company.
SHARES BENEFICIALLY OWNED PRIOR SHARES BENEFICIALLY OWNED
TO THE OFFERING AFTER THE OFFERING
SHARES TO BE
NUMBER OF SHARES PERCENT OF SOLD IN THE NUMBER OF PERCENT OF
CLASS OFFERING SHARES CLASS
Eliot C. Abbott 15,000 (1) * - 15,000 (1) *
Nancy J. Damon 400 (1) * - 400 (1) *
Samuel C. Hathorn, Jr. 5,200 (2) * - 5,200 (2) *
Edwin D. Johnson 4,500 * - 4,500 *
Arthur B. Laffer 40,000 (1) * - 40,000 (1) *
Jorge L. Mas 5,318,965 (3) 31%
Jorge Mas 3,921,970 (1)(4) 23%
Ismael Perera 18,492 (1) * - 18,492 (1) *
Ubiratan Simoes
Rezende - - - - -
Carmen M. Sabater 3,000 (1) * - 3,000 (1) *
Jose M. Sariego 2,500 (1) * - 2,500 (1) *
Jose S. Sorzano 5,000 (1) * - 5,000 (1) *
Carlos A. Valdes 16,438 (1) * - 16,438 (1) *
All executive officers and
directors as a group (13
persons) 9,351,465 (1)(5) 56%
FMR Corp.,
82 Devonshire Street,
Boston, MA 02109 1,693,500 10% - 1,693,500 10%
(1) The amounts shown include shares covered by options exercisable within 60
days of August __, 1996 as follows: Jorge Mas 12,000 shares; Eliot C. Abbott
15,000 shares; Arthur B. Laffer 40,000 shares; Ismael Perera and Carlos A.
Valdes 16,000 shares each; Carmen M. Sabater 3,000 shares; Jose M. Sariego 2,000
shares; Jose S. Sorzano 5,000 shares and Nancy J. Damon 400 shares.
(2) Includes 200 shares held by the children of Mr. Hathorn, as to which Mr.
Hathorn disclaims beneficial ownership.
(3) Includes 5,250,000 shares owned of record by Jorge L. Mas Canosa Holding I
Limited Partnership, a Texas limited partnership ("Jorge L. Mas Holdings"), and
68,965 shares owned of record by the Mas Family Foundation, Inc., a Florida not-
for-profit corporation (the "Family Foundation"). The sole general partner of
Jorge L. Mas Holdings is Jorge L. Mas Holdings Corporation, a Texas corporation
that is wholly-owned by Mr. Mas. Jorge L. Mas, Jorge Mas and other members of
the Jorge L. Mas family are the sole members and directors of the Family
Foundation. Mr. Mas disclaims beneficial ownership of the shares owned by the
Family Foundation.
47
(4) Includes 3,844,000 shares owned of record by Jorge Mas Holding I Limited
Partnership, a Texas limited partnership ("Jorge Mas Holdings"), 68,965
shares owned of record by the Family Foundation, 12,000 shares covered by
options exercisable within 60 days of August __, 1996, and five shares owned
of record individually. The sole general partner of Jorge Mas Holdings is
Jorge Mas Holdings Corporation, a Texas corporation that is wholly-owned by
Mr. Mas. Mr. Mas disclaims beneficial ownership of the shares owned by the
Family Foundation.
(5) The 68,985 shares owned by Mas Family Foundation, Inc. are counted once
for ownership percentage purposes.
* Less than 1%
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company purchases and leases construction equipment from a company
controlled by Mr. Jorge Mas. During 1995, the Company paid approximately
$544,000 for equipment rentals and approximately $322,000 for equipment
purchases from this affiliate. The Company also makes available certain
office space and the part-time services of certain employees to affiliates.
The Company believes the value of the space and services is not material.
In 1994, Church & Tower, Inc. and Church & Tower of Florida, Inc.
provided Messrs. Jorge L. Mas, Chairman of the Board and President of Church
& Tower of Florida, Inc., Jorge Mas, President and Chief Executive Officer of
Church & Tower, Inc., and Juan Carlos Mas and Jose Ramon Mas, each a
shareholder of Church & Tower, Inc. and a son of Jorge L. Mas, with a loan of
$2,000,000, $1,280,000, $158,000 and $132,000, respectively, bearing interest
at prime plus 2% (10.5% at December 31, 1995) with interest due annually and
principal due on December 31, 1996. The loans were made to assist these
individuals in meeting their estimated federal income tax obligations related
to the 1993 S corporation earnings of Church & Tower, Inc. and Church & Tower
of Florida, Inc. As of June 30, 1996, Jorge L. Mas, Jorge Mas, Juan Carlos
Mas and Jose Ramon Mas remained indebted to the Company for $1,000,000,
$480,000, $158,000 and $132,000, respectively, plus accrued interest.
For the year ended December 31, 1995, the Company paid approximately
$114,000 in legal fees to Carlos & Abbott, P.A. a law firm of which Eliot C.
Abbott was a stockholder.
SELECTION OF AUDITORS
On May 8, 1995, the Board of Directors dismissed Price Waterhouse L.L.P.
as the Company's independent auditors. The Audit Committee of the Board of
Directors unanimously recommended to the Board of Directors that Coopers &
Lybrand L.L.P. be retained as the new independent auditors effective June 29,
1995, and the Board of Directors approved this recommendation.
None of the reports of Price Waterhouse L.L.P. on the financial
statements of the Company filed for the 1994 fiscal year contained an adverse
opinion or a disclaimer of opinion, or were qualified or modified as to
uncertainty, audit scope or accounting principles. During the 1994 fiscal
year and the subsequent interim period preceding the dismissal of Price
Waterhouse L.L.P., there was no disagreement between the Company and Price
Waterhouse L.L.P. on any manner of accounting principle or practice,
financial statement disclosure, or auditing scope or procedure that would
have
48
caused Price Waterhouse L.L.P. to have made reference to the subject matter
of the disagreement in connection with its reports, and during such period no
reportable event occurred.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000
shares of Common Stock, $.10 par value, and 5,000,000 shares of preferred
stock, $1.00 par value (the "Preferred Stock"). Upon completion of the
Offering, there will be __________ shares of Common Stock issued and
outstanding. No shares of Preferred Stock are outstanding.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of the stockholders. Holders of Common Stock do
not have cumulative rights, so that holders of more than 50% of the shares of
Common Stock are able to elect all of the Company's directors eligible for
election in a given year. For a description of the classification of the
Board of Directors, see "--Delaware Law and Certain Provisions of Certificate
of Incorporation and By-laws." The holders of Common Stock are entitled to
dividends and other distributions if and when declared by the Board of
Directors out of assets legally available therefor, subject to the rights of
any holder of Preferred Stock that may from time to time be outstanding. See
"Dividend Policy." Upon the liquidation, dissolution or winding up of the
Company, the holders of shares of Common Stock are entitled to share pro rata
in the distribution of all of the Company's assets remaining available for
distribution after satisfaction of all the Company's liabilities and the
payment of the liquidation preference of any Preferred Stock that may be
outstanding. The holders of Common Stock have no preemptive or other
subscription rights to purchase shares of stock of the Company, and there are
no redemption or sinking fund provisions applicable to the Common Stock.
Immediately upon consummation of this Offering, all of the then outstanding
shares of Common Stock will be validly issued, fully paid and nonassessable.
The transfer agent and registrar for the Common Stock is First Union
National Bank of North Carolina.
PREFERRED STOCK
The Company's Restated Certificate of Incorporation (the "Certificate")
authorizes the Company's Board of Directors to issue Preferred Stock in
series and to establish the number of shares to be included in each such
series and to fix the designations, powers, preferences and rights of the
shares of each such series and any qualifications, limitations or
restrictions thereof. Because the Board of Directors has the power to
establish the preferences and rights of the shares of any such series of
Preferred Stock, it may afford the holders of any Preferred Stock that may be
outstanding, preferences, powers and rights (including voting rights) senior
to the rights of the holders of Common Stock. The issuance of Preferred Stock
may have the effect of delaying, deferring or preventing a change in control
of the Company.
49
DELAWARE LAW AND CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION AND BY-
LAWS
The Certificate, the Company's By-laws (the "By-laws") and Section 203
of the DGCL contain certain provisions that may make the acquisition of
control of the Company by means of a tender offer, open market purchase,
proxy fight or otherwise, more difficult.
Business Combinations. The Company is a Delaware corporation and is
subject to Section 203 of the DGCL. In general, subject to certain
exceptions, Section 203 of the DGCL prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless: upon consummation
of such transaction, the interested stockholder owned 85% of the voting stock
of the corporation outstanding at the time the transaction commenced
(excluding for purposes of determining the number of shares outstanding those
shares owned by (x) persons who are directors and also officers and (y)
employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer); the business combination is, or the
transaction in which such person became an interested stockholder was,
approved by the board of directors of the corporation before the stockholder
became an interested stockholder; or the business combination is approved by
the board of directors of the corporation and authorized at an annual or
special meeting of the corporation's stockholders by the affirmative vote of
at least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder. For purposes of Section 203, a "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder; an "interested stockholder" is a
person who, together with affiliates and associates, owns (or, in the case of
affiliates and associates of the issuer, did own within the last three years)
15% or more of the corporation's voting stock other than a person who owned
such shares on December 23, 1987.
In addition to the requirements in Section 203 described above, the
Certificate requires the affirmative vote of the holders of at least 80% of
the voting power of all outstanding shares of the Company entitled to vote at
an election of directors, voting together as a single class, to approve
certain business combinations proposed by an individual or entity that is the
beneficial owner, directly or indirectly, of more than 10% of the outstanding
voting stock of the Company. This voting requirement is not applicable to
"business combinations" if either (a) the Company's Board of Directors has
approved a memorandum of understanding with such other corporation with
respect to and substantially consistent with such transaction prior to the
time that such other corporation became a holder of more than 10% of the
outstanding voting stock of the Company; or (b) the transaction is proposed
by a corporation of which a majority of the outstanding voting stock is owned
of record or beneficially by the Company and/or any one or more of its
subsidiaries. For purposes of this discussion, a "business combination"
includes any merger or consolidation of the Company with or into another
corporation, any sale or lease of all or any substantial part of the property
and assets of the Company, or issuances of securities of the Company in
exchange for sale or lease to the Company of property and assets having an
aggregate fair market value of $1 million or more.
Classified Board of Directors and Related Provisions. The Certificate
provides that the number of directors of the Company shall be fixed from time
to time by, or in the manner provided in, the By-laws. The By-laws provide
that the number of directors will be six, the Board of Directors will be
divided into three classes of directors, with each class having a number as
nearly equal as
50
possible, and that directors will serve for staggered three-year terms. As a
result, one-third of the Company's Board of Directors will be elected each
year. The classified board provision could prevent a party who acquires
control of a majority of the outstanding voting stock of the Company from
obtaining control of the Board of Directors until the second annual
stockholders meeting following the date the acquirer obtains the controlling
interest.
Directors may be removed with or without cause by the affirmative vote
of the holders of 80% of all outstanding voting stock entitled to vote. A
majority of the entire Board of Directors may also remove any director for
cause. Vacancies on the Board of Directors may be filled by a majority of the
remaining directors, or by the stockholders.
Authorized and Unissued Preferred Stock. Upon consummation of the
Offering, there will be 5,000,000 authorized and unissued shares of Preferred
Stock. The existence of authorized and unissued Preferred Stock may enable
the Board of Directors to render more difficult or to discourage an attempt
to obtain control of the Company by means of a merger, tender offer, proxy
contest or otherwise. For example, if in the due exercise of its fiduciary
obligations, the Board of Directors were to determine that a takeover
proposal is not in the Company's best interests, the Board of Directors could
cause shares of Preferred Stock to be issued without stockholder approval in
one or more private offerings or other transactions that might dilute the
voting or other rights of the proposed acquiror or insurgent stockholder or
stockholder group or create a substantial voting block in institutional or
other hands that might undertake to support the position of the incumbent
Board of Directors. In this regard, the Certificate grants the Board of
Directors broad power to establish the designations, powers, preferences and
rights of each series of Preferred Stock. See "--Preferred Stock."
Stockholder Action by Written Consent. The By-laws provide that
stockholder action can be taken only at an annual meeting or special meeting
of stockholders and can only be taken by written consent in lieu of a meeting
with the unanimous written consent of the stockholders.
Indemnification. The Certificate provides that the Company shall
indemnify each director and officer of the Company to the fullest extent
permitted by law and limits the liability of directors to the Company and its
stockholders for monetary damages in certain circumstances. The Certificate
also provides that the Company may purchase insurance on behalf of the
directors, officers, employees and agents of the Company against certain
liabilities they may incur in such capacity, whether or not the Company would
have the power to indemnify against such liabilities.
DIVIDEND RESTRICTIONS
The Company's credit facilities currently limit the Company's ability to
pay dividends on the Common Stock. The payment of dividends on the Common
Stock is also subject to the preference that may be applicable to any then
outstanding Preferred Stock.
51
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting
agreement (the "Underwriting Agreement") among the Company, the Selling
Stockholders and the underwriters listed below (the "Underwriters"), the
Company and the Selling Stockholders have agreed to sell to each of the
Underwriters, and each of the Underwriters has severally agreed to purchase
the respective number of shares of Common Stock set forth opposite its name
below.
Underwriters Number of Shares
------------ ----------------
Bear, Stearns & Co., Inc.
Jefferies & Company, Inc.
------
TOTAL $
======
The Underwriting Agreement provides that the obligations of the
Underwriters thereunder are subject to certain conditions precedent and that
the Underwriters are severally committed to take and pay for all of the
Shares if any are taken. If any of the Shares are purchased by the
Underwriters pursuant to the Underwriting Agreement, all such Shares (other
than the shares of Common Stock covered by the over-allotment option
described below) must be so purchased. The Underwriting Agreement also
provides that the Company and the Selling Stockholders will indemnify the
Underwriters against certain liabilities in connection with the offer and
sale of the Shares, including liabilities under the Securities Act of 1933,
as amended, and contribute to payments that the Underwriters may be required
to make in respect thereof.
The Company and the Selling Stockholders have been advised by the
Underwriters that they propose initially to offer the Common Stock to the
public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in
excess of _______. The Underwriters may allow and such dealers may reallow a
concession not in excess of _______ on sales to certain other dealers. After
the initial public offering of the Shares, the public offering price and
other selling terms may be changed by the Underwriters.
The Company has granted to the Underwriters an option to purchase up to
an aggregate of _________ additional shares of Common Stock, at the initial
public offering price less underwriting discounts and commissions, solely to
cover over-allotments. Such option may be exercised at any time until 30 days
after the date of this Prospectus. To the extent that the Underwriters
exercise such option, each of the Underwriters will be committed, subject to
certain conditions, to purchase a number of option shares proportionate to
such Underwriter's initial commitment as indicated in the preceding table.
The Company and the Selling Stockholders have agreed not to issue, sell
or otherwise dispose of any Common Stock or any security convertible into or
exchangeable or exercisable for Common Stock of the Company for a period of
120 days from the date of execution of the Underwriting Agreement, subject to
certain exceptions specified in the Underwriting Agreement.
In connection with this Offering, certain Underwriters and Selling
Stockholders (and any of their affiliated purchasers) who are qualified
registered market makers on the Nasdaq National
52
Market, may engage in passive market transactions in the Common Stock on the
Nasdaq National Market in accordance with Rule 10b-6A under the Exchange Act
during the two business day period before commencement of offers or sales of
the Common Stock in this Offering. The passive market making transactions
must comply with the applicable volume and price limits and be identified as
such. In general, a passive market maker may display its bid at a price not
in excess of the highest independent bid for the security, and, if all
independent bids are lowered below the passive market maker's bid, then such
bid must be lowered when certain purchase limits are exceeded.
LEGAL MATTERS
The validity of the shares of the Common Stock offered hereby will be
passed upon for the Company by Fried, Frank, Harris, Shriver & Jacobson, 1001
Pennsylvania Avenue, N.W., Washington, D.C. 20004. Certain legal matters in
connection with the Common Stock offered hereby will be passed upon for the
Underwriters by Latham & Watkins, 885 Third Avenue, New York, New York 10022.
EXPERTS
The audited financial statements of the Company as of December 31, 1995
and 1994 and for each of the three years in the period ended December 31,
1995 included in this Prospectus have been audited by Coopers & Lybrand
L.L.P., independent public accountants, as stated in its report with respect
thereto.
The audited financial statements of Sintel as of December 31, 1995, 1994
and 1993 and for each of the three years in the period ended December 31,
1995 incorporated by reference in this Prospectus have been audited by Arthur
Andersen, independent public accountants, as stated in its report with
respect thereto.
53
INDEX TO FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Financial Statements for the six months
ended June 30, 1996 and 1995.
Condensed Consolidated Statements of Income for the three and
six months ended June 30, 1996 and 1995 F-2
Condensed Consolidated Balance Sheet as of June 30, 1996 F-4
Condensed Consolidated Statement of Stockholders' Equity for
the six months ended June 30, 1996 and 1995 F-6
Condensed Consolidated Statements of Cash Flows for the six
months ended June 30, 1996 and 1995 F-7
Notes to Condensed Consolidated Financial Statements - Unaudited F-12
Consolidated Financial Statements for the three years ended
December 31, 1995
Report of Independent Accountants F-19
Consolidated Statements of Income for the three years ended December
31, 1995 F-20
Consolidated Balance Sheets as of December 31, 1995 and 1994 F-22
Consolidated Statement of Stockholders' Equity for the three years
ended December 31, 1995 F-24
Consolidated Statements of Cash Flows for the three years ended
December 31, 1995 F-25
Notes to Consolidated Financial Statements F-30
F-1
MASTEC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
(UNAUDITED) (UNAUDITED)
------------------ ------------------
1996 1995 1996 1995
-------- ------- -------- -------
Revenue $108,634 $39,174 $171,181 $73,797
Costs of revenue and expenses:
Costs of revenue, excluding depreciation 81,595 27,925 128,925 52,914
Depreciation and amortization 3,033 1,583 5,295 2,888
General and administrative expenses 12,622 3,630 19,100 7,462
-------- ------- -------- -------
Operating income 11,384 6,036 17,861 10,533
Interest expense-
Borrowings (3,430) (995) (5,107) (2,093)
Notes to stockholders 0 (66) 0 (135)
Interest and dividend income 1,156 441 1,980 836
Interest on notes from stockholders 76 95 91 193
Other income, net 407 1,593 415 1,659
-------- ------- -------- -------
Income from continuing operations before
equity in earnings of
unconsolidated companies, income taxes
and minority interest 9,593 7,104 15,240 10,993
Equity in earnings (losses) of
unconsolidated companies 837 0 1,203 (11)
Provision for income taxes 3,828 2,679 6,151 4,119
Minority interest 229 (22) 224 (36)
-------- ------- -------- -------
Income from continuing operations 6,373 4,447 10,068 6,899
Discontinued operations (Note 5):
(Loss) income from discontinued
operations (net of applicable income taxes) (39) 205 (53) 462
Gain on disposal of discontinued
operations (net of applicable income taxes) 66 0 66 1,452
-------- ------- -------- -------
Net income $ 6,400 $ 4,652 $ 10,081 $ 8,813
======== ======= ======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
MASTEC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
(Unaudited) (Unaudited)
----------------- ----------------
1996 1995 1996 1995
---- ---- ---- ----
Net income $ 6,400 $ 4,652 $10,081 $ 8,813
======= ======= ======= =======
Weighted average shares outstanding 16,468 16,166 16,312 16,168
======= ======= ======= =======
Earnings per share:
Continuing operations $ 0.39 $ 0.28 $ 0.62 $ 0.43
Discontinued operations 0.00 0.01 0.00 0.12
------- ------- ------- -------
$ 0.39 $ 0.29 $ 0.62 $ 0.55
======= ======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
MASTEC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
June 30, 1996 December 31, 1995
------------- -----------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,219 $ 1,076
Accounts receivable-net and
unbilled revenue 253,566 45,922
Notes receivable and accrued interest 29,329 27,505
Inventories 5,016 2,819
Other current assets 31,578 27,878
--------- ---------
Total current assets 320,708 105,200
--------- ---------
Property and equipment 71,357 55,806
Accumulated depreciation (15,872) (11,235)
--------- ---------
Property-net 55,485 44,571
--------- ---------
Investments in and advances to
unconsolidated companies 30,174 14,847
Notes receivable from stockholders 1,770 1,770
Other assets 10,479 3,775
--------- ---------
TOTAL ASSETS $ 418,616 $ 170,163
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
MASTEC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
June 30, 1996 December 31, 1995
------------- -----------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of debt $ 61,409 $ 27,863
Accounts payable 129,403 19,026
Other current liabilities 33,984 13,744
-------- --------
Total current liabilities 224,796 60,633
-------- --------
Other liabilities 41,840 14,800
-------- --------
Long-term debt 79,729 34,601
Convertible subordinated debentures 0 9,625
-------- --------
Total long-term debt 79,729 44,226
-------- --------
Commitments and contingencies
Stockholders' equity:
Common stock 2,643 2,643
Capital surplus 139,653 134,186
Retained earnings 15,744 5,663
Accumulated translation adjustments (40) 1
Treasury stock (85,749) (91,989)
-------- --------
Total stockholders' equity 72,251 50,504
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $418,616 $170,163
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
MASTEC, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
FOR THE SIX MONTHS ENDED JUNE 30, 1996
Common Stock
Issued Capital Retained Accumulated Treasury
Shares Amount Surplus Earnings Translation Stock Total
- ----------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1995 $26,435 $2,643 $134,186 $ 5,663 $ 1 $(91,989) $50,504
Net income 10,081 10,081
Cumulative effect of
Translation (41) (41)
Stock issued to employees
from Treasury Shares (7) 123 116
Stock issued for debentures
from Treasury Shares 5,474 6,117 11,591
- ----------------------------------------------------------------------------------------------------------------------------------
Balance June 30, 1996 $26,435 $2,643 $139,653 $15,744 $(40) $(85,749) $72,251
==================================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
MASTEC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
SIX MONTHS ENDED
JUNE 30,
1996 1995
------- ------
(Unaudited)
Cash flows from operating activities:
Net income $10,081 $ 8,813
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest 224 (36)
Depreciation and amortization 5,295 2,888
Equity in (earnings) losses of unconsolidated
companies (1,203) 11
Net gain on sale of discontinued operations (105) (2,304)
Loss (gain) on sale of assets 93 (138)
Changes in assets and liabilities net of effect of
acquisitions and divestitures:
Accounts receivable net and unbilled revenue 38,296 (6,776)
Inventories and other current assets 421 (849)
Other assets (2,165) 160
Accounts payable and expenses (10,377) 6,952
Accrued income taxes 444 1,317
Other current liabilities (94) (643)
Net assets of discontinued operations 1,785 556
Deferred taxes (319) (310)
Other liabilities 293 853
------- ------
Net cash provided by operating activities 42,669 10,494
------- ------
Cash flows from investing activities:
Cash acquired in acquisitions 999 0
Cash paid for acquisitions (6,169) 0
Repayment of notes receivable 766 0
Proceeds from sale of preferred stock 5,100 0
Repayment of loans to shareholders 0 1,800
Capital expenditures (2,808) (7,170)
Investment in unconsolidated companies (1,410) 0
Distributions from unconsolidated companies 0 79
Net proceeds from sale of discontinued operations 0 9,718
Proceeds from sale of real estate and other assets 3,535 1,218
------- ------
Net cash provided by investing activities 13 5,645
------- ------
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
MASTEC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
SIX MONTHS ENDED
JUNE 30,
1996 1995
-------- --------
(Unaudited)
Cash flows from financing activities:
Proceeds from Revolver $4,798 $ 0
Borrowings 3,200 0
Proceeds from Term Loan 0 12,000
Proceeds from Equipment Loan 0 2,584
Debt repayments (50,612) (20,718)
Repayment of loans from shareholders 0 (2,500)
Net proceeds from common stock issued from treasury 116 75
Financing costs 0 (516)
-------- --------
Net cash used in financing activities (42,498) (9,075)
-------- --------
Effect of translation on cash (41) 0
Net increase in cash and cash equivalents 143 7,064
Cash and cash equivalents - beginning of period 1,076 5,612
-------- --------
Cash and cash equivalents - end of period $1,219 $12,676
======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the period:
Interest $5,013 $2,568
Income taxes $3,957 $4,121
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
MASTEC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In Thousands)
Supplemental disclosure of non-cash investing and financing activities:
1996
Acquisition of Carolina Com-Tec ----
Fair value of assets acquired:
Accounts receivable $3,660
Inventories 722
Other current assets 26
Property and equipment 657
Other assets 11
------
Total non-cash assets 5,076
------
Liabilities 2,873
Long-term debt 576
------
Total liabilities assumed 3,449
------
Net non-cash assets acquired 1,627
Cash acquired 167
------
Fair value of net assets acquired 1,794
Excess over fair value of assets acquired 4,956
------
Purchase price 6,750
======
Seller Financing $3,500
Cash paid for acquisition 1,000
Contingent consideration 2,250
------
Purchase price $6,750
======
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
MASTEC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In Thousands)
Supplemental disclosure of non-cash investing and financing activities:
1996 1995
---- ----
Acquisition of Sintel:
Fair value of assets acquired:
Accounts receivable $242,280
Inventories 2,258
Other current assets 10,088
Property and equipment 8,093
Investment in unconsolidated companies 9,373
Other assets 2,094
--------
Total non-cash assets 274,186
--------
Liabilities 158,117
Long-term debt 78,024
--------
Total liabilities assumed 236,141
--------
Net non-cash assets acquired 38,045
Cash acquired 832
--------
Purchase price $ 38,877
========
Seller financing 33,465
Cash paid for acquisition 5,164
Acquisition costs paid by the Company 248
--------
Purchase price $ 38,877
========
Property acquired through financing
arrangements $ 5,952 $2,921
======== ======
Property disposed
Receivable arising from the sale of
equipment $ 0 $1,200
======== ======
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
MASTEC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In Thousands)
Supplemental disclosure of non-cash investing and financing activities:
In 1996, the Company converted $11.6 million of its 12% Convertible Subordinated
Debentures into Common Stock. Common Stock was issued from treasury at a cost of
$6.1 million. See Note 4 to the Condensed Consolidated Financial Statements.
In 1996, the Company's purchase of an additional 3% interest in Supercanal,
S.A. was financed in part by the sellers for $2 million. See Note 2 to the
Condensed Consolidated Financial Statements.
The accompanying notes are an integral part of these consolidated financial
statements.
F-11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
1. CONSOLIDATION AND PRESENTATION:
The accompanying unaudited condensed consolidated financial statements of
MasTec, Inc. ("MasTec" or the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X. They do
not include all information and notes required by generally accepted accounting
principles for complete financial statements and should be read in conjunction
with the audited financial statements and notes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1995. The
financial information furnished reflects all adjustments, consisting only of
normal recurring accruals which are, in the opinion of management, necessary for
a fair presentation of the financial position and results of operations for the
periods presented. The results of operations are not necessarily indicative of
future results of operations or financial position of MasTec.
The financial position and results of operations of the Company's foreign
subsidiaries are measured using local currency as the functional currency. The
Company translates foreign currency financial statements by translating balance
sheet accounts at the exchange rate on the balance sheet date and income
statement accounts at the average exchange rate for the period. Translation
gains and losses are recorded in stockholders' equity, and realized gains and
losses are reflected in income.
2. ACQUISITIONS
Carolina Com-Tec
In February 1996, the Company purchased for $6,750,000 the outstanding stock of
Carolina Com-Tec, Inc., a company engaged in installing and maintaining voice,
data and video networks. The stockholders of Carolina Com-Tec, Inc. received
$1.0 million at closing, a $2.0 million 12% note paid June 1, 1996, and a $1.5
million 8% note, payable in quarterly installments over four years. The balance
of the purchase price is payable over the next four years based on future pre-
tax earnings of Carolina Com-Tec, Inc. The assets and liabilities resulting from
the acquisition are disclosed in the supplemental schedule of non-cash investing
and financing activities in the Condensed Consolidated Statements of Cash Flows.
Supercanal
In March 1996, the Company acquired an additional 3% of Supercanal, S.A.
("Supercanal"), an Argentine cable television company, in exchange for $2.0
million and the Company's interest in an Argentine radio station and newspaper
acquired in October 1995 at the time of the Company's initial investment in
Supercanal. The additional 3% was financed by the sellers and is payable over
nine months at 12% interest.
In July 1996, the Company contributed its ownership interest in Supercanal to a
holding company. Concurrently, Multicanal, S.A., one of the leading cable
television operators in Argentina, acquired a 20% interest in the holding
company for up to $17.7 million in cash, subject to adjustment based on the
number of Supercanal's subscribers. MasTec's interest in the holding company was
reduced to approximately 28.5% as a result of Multicanal's investment. Under the
purchase agreement, Multicanal also will provide programming and management
services to Supercanal.
F-12
Sintel
On April 30, 1996, the Company purchased from Telefonica de Espana, S.A.
("Telefonica") 100% of the capital stock of Sistemas e Instalaciones de
Telecomunicacion, S.A. ("Sintel") (the "Sintel Acquisition"), a company engaged
in telecommunications infrastructure construction services in Spain, Argentina,
Chile and Peru. The purchase price for Sintel was Spanish Pesetas ("Pesetas")
4.9 billion (US $39.5 million at an exchange rate of 124 Pesetas to one U.S.
dollar). An initial payment of Pesetas 650 million (US $5.2 million) was made at
closing. An additional Pesetas 650 million (US $5.2 million) is due on December
31, 1996, with the balance of the purchase price, Pesetas 3.6 billion (US $29.1
million), due in two equal installments on December 31, 1997 and 1998. As part
of the terms of the purchase and sale agreement with Telefonica, Sintel sold
certain buildings to Telefonica and Telefonica reimbursed certain tax credits it
had used and made a capital contribution to Sintel (the "Related Transactions").
The total proceeds from the Related Transactions were approximately $41 million.
The assets and liabilities resulting from the acquisition are disclosed in the
supplemental schedule of non-cash investing and financing activities in the
Condensed Consolidated Statements of Cash Flows. The Sintel Acquisition gives
the Company a significant international presence. In Argentina, Chile and Peru,
the Company operates through joint ventures in which it holds interests ranging
from 38% to 50% and accounts for these investments under the equity method. See
Note 7 regarding geographic information.
The following information presents the unaudited pro forma condensed results of
operations for the six months ended June 30, 1996 and 1995 as if the Company's
acquisition of Sintel and the Related Transactions had occurred on January 1,
1995. The Sintel Acquisition has been treated as a "purchase" as the term is
used under generally accepted accounting principles. Management's preliminary
estimate of fair value approximated that of the carrying value of the net assets
acquired after reflecting a reserve for employee terminations net of deferred
taxes. The final allocation will be contingent upon final assessment of the fair
value of the net assets acquired. The allocation reflects management's best
estimate based upon currently available information and significant differences
are not expected. The pro forma results, which include adjustments to increase
interest expense resulting from the debt incurred pursuant to the Sintel
Acquisition ($700,000 and $1.2 million for 1996 and 1995, respectively), offset
by the reduction in interest and depreciation expenses resulting from the
Related Transactions ($1 million and $2.2 million for 1996 and 1995,
respectively) and a tax benefit at 35% for each period, are presented for
informational purposes only and are not necessarily indicative of the future
results of operations or financial position of the Company or the results of
operations or financial position of the Company had the Sintel Acquisition and
the Related Transactions occurred January 1, 1995.
Pro forma results of operations for
the six months ended June 30,
1996 1995
---------------- ----------------
Revenue $254,876 $186,258
Income (loss) from continuing operations 13,264 (6,696)
Net income (loss) 13,277 (4,782)
Earnings (loss) per share:
Continuing operations $0.81 $(0.42)
Discontinued operations 0.00 0.12
Net income (loss) 0.81 (0.30)
F-13
The pro forma results for the six months ended June 30, 1996 and 1995 include
special charges incurred by Sintel related to a restructuring plan of $1.4
million and $13.5 million, net of tax, respectively.
3. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
The Company derives a substantial portion of its revenue from the provision of
telecommunication infrastructure services to Telefonica and to BellSouth
Telecommunications, Inc. ("BellSouth"). For the six months ended June 30, 1996,
approximately 22% and 20% of the Company's revenue was derived from services
performed for Telefonica and BellSouth, respectively. Revenue generated by
Sintel from Telefonica is included from May 1, 1996 (see Note 2). Although the
Company's strategic plan envisions diversification of its customer base, the
Company anticipates that it will continue to be dependent on Telefonica and its
affiliates and BellSouth for a significant portion of its revenue in the future.
4. DEBT
Debt is summarized as follows (in
thousands): June 30, 1996 December 31, 1995
Revolver, Fleet Credit Facility at
LIBOR plus 2.00% (7.49% and 7.25% at
June 30, 1996 and December 31, 1995,
respectively) $ 15,780 $ 10,982
Term Loans, Fleet Credit Facility, at
LIBOR plus 2.25% (7.74% and 7.94% at
June 30, 1996 and December 31, 1995,
respectively) 20,517 23,262
Revolving credit facility, at MIBOR
plus 0.30% (9.12% at June 30, 1996 due
November 1, 1996) 34,056 0
Other bank facilities, at interest
rates from 8.0% to 9.4% 7,186 0
Notes payable for equipment, at
interest rates from 6.7% to 9.5% due
in installments through the year 2000 18,593 14,682
Notes payable for acquisitions, at
interest rates from 7% to 12% due in
installments through February 2000 41,657 8,382
Real estate mortgage notes, at interest
rates from 8.53% to 9.5% due in
installments through the year 2001 2,690 2,531
12% Convertible Subordinated Debentures
due June 1996
659 12,250
------------- -----------------
Total debt 141,138 72,089
Less current maturities (61,409) (27,863)
------------- -----------------
Long-term debt $ 79,729 $ 44,226
============= =================
Not included in the preceding table at June 30, 1996 and December 31, 1995 is
approximately $2.1 million in capital leases related to discontinued operations
(see Note 5).
On May 31, 1996, the Company called its 12% Convertible Subordinated Debentures
(the "Debentures") effective June 30, 1996. All but $659,000 of the Debentures
were converted to Common Stock, increasing the number of shares outstanding by
690,219.
F-14
The Company maintains a $40.0 million credit facility with Shawmut Capital
Corporation n/k/a Fleet Capital Corporation (the "Fleet Credit Facility")
maturing January 2000 and also maintains several other credit facilities for the
purpose of financing equipment purchases. Additionally, the Company has several
credit facilities denominated in Pesetas, one of which is a revolving credit
facility with a wholly-owned finance subsidiary of Telefonica. At June 30, 1996,
the Company had $74.4 million ( 9.5 billion Pesetas) of debt denominated in
Pesetas, including the acquisition debt of $33.2 million incurred pursuant to
the Sintel Acquisition (See Note 2).
Debt agreements contain, among other things, restrictions on the payment of
dividends and require the observance of certain financial covenants such as
minimum levels of cash flow and tangible net worth, all of which were met at
June 30, 1996.
5. DISCONTINUED OPERATIONS
In the third quarter of 1995, the Company determined to concentrate its
resources and better position itself to achieve its strategic growth objectives
by disposing of all of the general products segment that the Company acquired as
part of the Burnup & Sims, Inc. ("Burnup & Sims") acquisition (the "Burnup
Acquisition"). These operations and assets include Southeastern Printing
Company, Inc. ("Southeastern"), Lectro Products, Inc. ("Lectro") and Floyd
Theatres, Inc. ("Floyd Theatres").
In March 1995, the Company sold the indoor theater assets of Floyd Theatres for
approximately $11.5 million of which $1.8 million was used to satisfy
liabilities not assumed by the buyer and transaction costs incurred. A gain of
$1.5 million net of tax, resulted from this transaction in the first quarter of
1995. The remaining outdoor theater operations of Floyd Theatres are currently
being marketed for sale for the underlying real estate value. Southeastern is
being offered for sale and Lectro was sold during the third quarter of 1995.
Discontinued operations include management's best estimates of the amounts
expected to be realized on the sale of these assets. While the estimates are
based on current negotiations, the amounts the Company will ultimately realize
could differ from the amounts assumed in arriving at the loss on disposal of the
discontinued operations.
Summary operating results of discontinued operations, excluding net gains on
disposal and estimated loss during the phase-out period, are as follows (in
thousands):
For the six months ended June 30,
1996 1995
------------- ---------------
Revenue $6,275 $16,219
============= ===============
(Loss) earnings before income taxes $ (86) $ 734
(Benefit) provision for income taxes (33) 272
------------- ---------------
Net (loss) income from discontinued $ (53) $ 462
operations
============= ===============
F-15
The following comprises the net assets of discontinued operations which are
included in other current assets (in thousands):
June 30, 1996 December 31, 1995
------------- -----------------
Receivables, net $1,865 $1,432
Inventory 1,032 1,047
Property, plant and equipment, net 8,697 9,101
Other assets 53 51
Land held for sale 1,095 964
Less:
Capital leases 2,059 2,140
Accounts payable 252 280
Accrued liabilities and reserve for 3,607 3,775
loss on disposal
------------- -----------------
$6,824 $6,400
============= =================
6. EARNINGS PER SHARE
Earnings per share is determined by dividing the income for the period by the
weighted average of outstanding shares for the period after giving effect to
dilutive stock options. The weighted average shares includes shares issued from
the conversion of the Debentures from the date of conversion. Fully diluted
earnings per share is not disclosed because the result is anti-dilutive. A
supplementary earnings per share calculation, assuming the conversion of the
Debentures took place at the beginning of the year, is not presented because the
conversion of the Debentures did not have an impact on the Company's earnings
per share.
F-16
7. GEOGRAPHIC INFORMATION
The Company's principal source of revenue is the provision of telecommunication
infrastructure construction services in the United States and Spain. The Company
did not have significant international operations in 1995, accordingly, only
1996 geographic information is presented below:
Six months ended
June 30, 1996
Revenue
Domestic $133,641
International 37,540
--------
Total $171,181
========
Operating income
Domestic $ 14,249
International 3,612
--------
Total $ 17,861
========
Identifiable assets
Domestic $103,319
International 212,467
Corporate 102,830
--------
Total $418,616
========
There are no transfers between geographic areas. Operating income consists of
revenue less operating expenses, and does not include interest expense, interest
and other income, equity in earnings of unconsolidated companies, minority
interest and income taxes. Domestic operating income is net of corporate general
and administrative expenses. Identifiable assets of geographic areas are those
assets used in the Company's operations in each area. Corporate assets include
cash and cash equivalents, investments in unconsolidated companies, net assets
of discontinued operations, real estate held for sale and notes receivable.
8. CONTINGENCIES
In December 1990, Albert H. Kahn, a stockholder of the Company, filed a
purported class action and derivative suit against Burnup & Sims, the members of
its Board of Directors, and National Beverage Corporation ("NBC"). The complaint
alleges, among other things, that Burnup & Sims' Board of Directors and NBC, as
Burnup & Sims' then largest stockholder, breached their respective fiduciary
duties in approving certain transactions, including the distribution to Burnup &
Sims' stockholders of all of the common stock of NBC owned by Burnup & Sims and
the exchange by NBC of shares of common stock of Burnup & Sims for certain
indebtedness of NBC held by Burnup & Sims. The lawsuit seeks to rescind these
transactions and to recover damages in an unspecified amount.
F-17
In November 1993, Mr. Kahn filed a class action and derivative complaint
against Burnup & Sims, the members of its Board of Directors, Church & Tower,
Inc. and Church & Tower of Florida, Inc. (collectively, "Church & Tower"), and
Jorge L. Mas, Jorge Mas and Juan Carlos Mas, the principal stockholders of
Church & Tower. The 1993 lawsuit alleges, among other things, that the Burnup &
Sims Board of Directors and NBC breached their respective fiduciary duties by
approving the terms of the Burnup Acquisition; and that Church & Tower and its
principal stockholders had knowledge of the fiduciary duties owed by NBC and the
Burnup & Sims Board of Directors and knowingly and substantially participated in
the breach thereof. The lawsuit also claims derivatively that each member of the
Burnup & Sims Board of Directors engaged in mismanagement, waste and breach of
their fiduciary duties in managing Burnup & Sims' affairs. On March 7, 1994,
the Delaware court in which these suits were filed denied plaintiff's motion to
enjoin the Burnup Acquisition. Each of the foregoing lawsuits is in discovery
and no trial date has been set. The Company believes that the allegations in
each of the lawsuits are without merit and intends to defend these lawsuits
vigorously.
The Company is involved in a lawsuit filed by Bell South arising from certain
work performed by a subcontractor of the Company from 1991 to 1993 and a second
lawsuit filed by the County of Gilpin, Colorado, against the Company in
connection with work performed for U.S. West, Inc. in 1992. The amounts claimed
against the Company in these two lawsuits in the aggregate total approximately
$1.5 million. Both lawsuits were filed in November 1995 and are in the early
stages of discovery. The Company believes that the allegations asserted by Bell
South and Gilpin County are without merit and intends to defend these lawsuits
vigorously.
All of the claims asserted in the lawsuits described above, with the exception
of the second lawsuit filed by Albert Kahn in 1993, arise from activities
undertaken prior to March 11, 1994, the date of the Burnup Acquisition.
The Company is also a party to other pending legal proceedings, none of which
the Company believes is material to the Company's financial condition or results
of operations.
9. SUBSEQUENT EVENTS
An agreement has been signed by the principal stockholder of the holding
company for Consorcio Ecuatoriano de Telecomunicaciones, S.A. ("Conecell") to
sell the holding company's stock to Inter-American Communications Corporation
("ICCA"), a U.S. public company, for consideration totaling approximately $105
million, subject to certain conditions. As a result of the agreement, the
maturity date of the Company's $25 million note receivable plus accrued
interest thereon by its terms automatically has been extended to August 30,
1996. The Company will likely extend the due date further to allow additional
time for the transaction to be completed. The consideration for the sale is a
combination of cash, promissory notes of ICCA and ICCA common stock. If the
transaction is completed, the Company would, under the terms of its loan,
receive approximately $35 million of the total consideration in a combination of
cash, promissory notes of ICCA and ICCA common stock.
F-18
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of MasTec, Inc.
Miami, Florida
We have audited the accompanying consolidated balance sheets of MasTec, Inc.
and subsidiaries (formerly Church & Tower) as of December 31, 1995 and 1994,
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of MasTec, Inc. and
subsidiaries as of December 31, 1995 and 1994, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND, L.L.P.
Miami, Florida
March 22, 1996
F-19
MASTEC, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the three years ended December 31, 1995
(In Thousands, Except Per Share Amounts)
1995 1994 1993
--------- -------- --------
Revenue $174,583 $111,294 $44,683
Costs of revenue and expenses:
Costs of revenue, excluding depreciation 130,762 83,952 28,729
Depreciation and amortization 6,913 4,439 609
General and administrative expenses 19,081 13,022 9,871
Operating income 17,827 9,881 5,474
Interest expense
Borrowings (4,819) (3,364) (133)
Notes to stockholders (135) (223) 0
Interest and dividend income 3,060 1,165 315
Interest on notes from stockholders 289 304 0
Other income (expense), net 2,028 1,009 (81)
Special charge-real estate and investments
write-downs (23,086) 0 0
(Loss) income from continuing operations
before equity in (losses) earnings of
unconsolidated companies, income taxes and --------- -------- --------
minority interest (4,836) 8,772 5,575
(Loss) equity in earnings of unconsolidated
companies (300) 247 1,187
(Benefit) provision for income taxes (1,835) 2,325 0
Minority interest 161 0 (10)
--------- -------- ---------
(Loss) income from continuing operations (3,140) 6,694 6,752
Discontinued operations (Note 16):
Income from discontinued operations (net of
applicable income taxes) 38 825 0
Net gain on disposal of discontinued operations
net of a provision of $6,405 to write down
related assets to realizable values and including
operating losses during phase-out period (net of 2,493 0 0
applicable income taxes) --------- -------- ---------
Net (loss) income $(609) $7,519 $6,752
========= ======== =========
Unaudited pro forma data:
Income before income taxes 0 10,396 6,752
Provision for income taxes (1) 0 3,763 2,539
--------- -------- ---------
Pro forma net (loss) income (1) $(609) $ 6,633 $ 4,213
========= ======== =========
F-20
MASTEC, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the three years ended December 31, 1995
(In Thousands, Except Per Share Amounts)
1995 1994 1993
---------- -------- --------
Pro forma net (loss) income (1) $ (609) $ 6,633 $ 4,213
========== ======== ========
Weighted Average shares outstanding 16,046 16,077 10,250
(Loss) earnings per share (1):
Continuing operations $ (0.20) $ 0.36 $ 0.41
Discontinued operations 0.16 0.05 0.00
---------- -------- --------
Net loss (income) $ (0.04) $ 0.41 $ 0.41
========== ======== ========
(1) Net income and earnings per share amounts for 1994 and 1993 have been
adjusted to include a provision for income taxes as though the Company had been
subject to taxation for the entire year. See Note 17 for quarterly financial
data and reported earnings per share.
The accompanying notes are an integral part of these consolidated financial
statements.
F-21
MASTEC, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31, 1995 and 1994
(In Thousands)
1995 1994
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 1,076 $ 5,612
Accounts receivable-net and unbilled revenue 49,057 33,122
Notes receivable 25,892 715
Inventories 2,819 4,111
Deferred and refundable income taxes 1,116 1,368
Theater assets held for sale 0 7,414
Net assets of discontinued operations 6,400 0
Investment in preferred stock 5,100 0
Real estate held for sale 12,292 0
Other current assets 1,448 700
-------- --------
Total current assets 105,200 53,042
-------- --------
Property and equipment-at cost 55,806 46,204
Accumulated depreciation (11,235) (6,102)
-------- --------
Property-net 44,571 40,102
-------- --------
Investments in unconsolidated companies 14,847 284
Investment in preferred stock 0 9,000
Notes receivable from stockholders 1,770 3,570
Real estate investments 0 34,604
Other assets 3,775 1,850
-------- --------
TOTAL ASSETS $170,163 $142,452
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-22
MASTEC, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31, 1995 and 1994
(In Thousands)
1995 1994
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of debt 27,863 8,229
Current portion of notes payable to stockholders 0 1,000
Accounts payable 19,026 8,512
Accrued insurance 3,016 4,227
Accrued compensation 1,804 2,193
Accrued interest 601 631
Accrued income taxes 1,627 0
Other current liabilities 6,696 5,966
-------- --------
Total current liabilities 60,633 30,758
-------- --------
Deferred income taxes 5,238 16,286
Accrued insurance 7,439 6,893
Other liabilities 2,123 1,685
-------- --------
Total other liabilities 14,800 24,864
-------- --------
Long-term debt 34,601 15,206
Notes payable to stockholders 0 1,500
Convertible subordinated debentures 9,625 19,250
-------- --------
Total long-term debt 44,226 35,956
-------- --------
Commitments and contingencies
Stockholders' equity:
Common stock 2,643 2,643
Capital surplus 134,186 134,094
Retained earnings 5,663 6,272
Accumulated translation adjustments 1 0
Treasury stock (91,989) (92,135)
-------- --------
Total stockholders' equity 50,504 50,874
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $170,163 $142,452
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-23
MASTEC, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the three years ended December 31, 1995
(In Thousands)
Common Stock
-----------------
Accumulated
Issued Capital Retained Translation Treasury
Shares Amount Surplus Earnings Adjustment Stock Total
------ ------ ------- -------- ----------- -------- --------
Balance December 31, 1992 10,250 1,025 $ 14,666 $ 15,691
Net income 6,752 6,752
Distributions to stockholders (11,500) (11,500)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1993 10,250 1,025 9,918 10,943
Net income 7,519 7,519
Retained earnings of Church
Church & Tower transferred
to capital surplus 11,165 (11,165) 0
Equity acquired in reverse
acquisition 16,185 1,618 122,969 (92,232) 32,355
Stock issuance costs for
reverse acquisition (18) (18)
Stock issued to employees
from treasury stock (22) 96 74
Stock issued for debentures
from treasury shares 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1994 26,435 2,643 134,094 6,272 (92,135) 50,874
Net loss (609) (609)
Stock issued to 401(k)
Retirement Savings Plan
from treasury shares 92 146 238
Accumulated translation
adjustment 1 1
- ---------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1995 26,435 2,643 134,186 5,663 1 $(91,989) $ 50,504
=================================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
F-24
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three years ended December 31, 1995
(In Thousands)
1995 1994 1993
------- ------- -------
Cash flows from operating activities:
Net (loss) income $ (609) $ 7,519 $ 6,752
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 6,913 5,474 609
Minority interest (161) 0 10
Equity in losses (earnings) of unconsolidated companies 300 (247) (1,187)
Special charge-real estate and investment write downs 23,086 0 0
Gain on sale of discontinued operations (2,667) 0 0
(Gain) loss on sale of assets (156) (609) 283
Stock issued to employees from treasury stock 0 74 0
Changes in assets and liabilities net of effects of
acquisitions and divestitures:
Accounts receivable-net and unbilled revenues (20,322) (8,249) 2,577
Inventories and other current assets (1,626) (128) 111
Other assets (2,545) 511 (538)
Accounts payable and accrued expenses 10,929 139 (968)
Accrued and refundable income taxes 1,754 1,133 0
Other current liabilities (1,194) (2,900) 762
Net assets of discontinued operations 963 0 0
Deferred income taxes (10,092) 884 0
Other liabilities 1,023 (9) 0
------- ------- -------
Net cash provided by operating activities 5,596 3,592 8,411
------- ------- -------
Cash flows used in investing activities:
Capital expenditures (14,668) (4,272) (2,036)
Investment in notes receivable (25,000) 0 0
Investments in unconsolidated companies (7,408) 0 (660)
Notes to stockholders 0 (3,570) 0
Repayment of notes to stockholders 1,800 0 0
Cash acquired in acquisitions 148 6,585 0
Cash paid in acquisitions (1,750) (1,850) 0
Proceeds from sale of assets 2,934 664 0
Repayment of notes receivable 443 0 0
Distributions from unconsolidated companies 245 277 1,484
Net proceeds from sale of discontinued operations 21,293 0 0
------- ------- -------
Net cash used in investing activities (21,963) (2,166) (1,212)
------- ------- -------
F-25
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three years ended December 31, 1995
(In Thousands)
1995 1994 1993
-------- ------- -------
Cash flows from financing activities:
Proceeds from Term Loan 12,000 1,000 0
Proceeds from Equipment Loan 12,500 0 0
Proceeds from Revolver 21,625 0 0
Financing costs (516) 0 0
Proceeds from note payable 5,450 0 989
Debt repayments (26,966) (5,244) (948)
Debt repayments-Revolver (10,000) 0 0
Repayments of notes from stockholders (2,500) (500) 0
Distributions to shareholders 0 0 (8,500)
Net proceeds from common stock issued
from treasury 238 0 0
-------- ------- -------
Net cash provided by (used in)
financing activities 11,831 (4,744) (8,459)
-------- ------- -------
Net decrease in cash and cash
equivalents (4,536) (3,318) (1,260)
Cash and cash equivalents - beginning
of period 5,612 8,930 10,190
-------- ------- -------
Cash and cash equivalents - end of
period $ 1,076 $ 5,612 $ 8,930
======== ======= =======
Cash paid during the period:
Interest $ 4,984 $ 3,984 134
Income taxes $ 7,527 $ 1,695 0
The accompanying notes are an integral part of these consolidated financial
statements.
F-26
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three years ended December 31, 1995
(In Thousands)
Supplemental disclosure of non-cash investing and financing activities:
1995
--------
Acquisition of ULM:
Fair value of assets acquired:
Accounts receivable 167
Other current assets 67
Property 2,688
Other assets 50
--------
Total non-cash assets 2,972
--------
Liabilities 71
Long-term debt 93
--------
Total liabilities assumed 164
--------
Net non-cash assets acquired 2,808
Cash acquired 148
--------
Purchase price $ 2,956
--------
Note payable issued on ULM stockholder $ 800
Cash paid for acquisition 1,750
Contingent consideration 406
--------
Purchase price $ 2,956
========
Sale of Lectro:
Assets sold:
Accounts receivable $ 2,158
Inventories 1,770
Other current assets 22
Property 1,832
Other assets 4
--------
Total non-cash assets 5,786
========
Liabilities 1,878
Long-term debt 343
--------
Total liabilities 2,221
--------
Net non-cash assets sold 3,565
========
Sale Price $12,350
Transaction costs (521)
Note receivable (450)
--------
Net cash proceeds $11,379
========
F-27
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three years ended December 31, 1995
(In Thousands)
1994
---------
Acquisition of Burnup & Sims:
Fair value of net assets acquired:
Accounts receivable, net of $ 18,274
allowances of $1,482
Inventories and other current assets 7,524
Investments 9,000
Property 40,685
Real estate investments and other 32,645
assets
---------
Total non-cash assets $108,128
---------
Liabilities $ 49,559
Long-term debt 31,776
---------
Total liabilities assumed $ 81,335
---------
Net non-cash assets acquired 26,793
Cash acquired 6,362
---------
Net value of assets acquired $ 33,155
=========
Purchase price $ 33,155
=========
Acquisition of DTI:
Fair value of net assets
acquired:
Accounts receivable $ 2,878
Inventories and other current 389
assets
Property 1,270
Real estate investments and 550
other assets
---------
Total non-cash assets $ 5,087
---------
Liabilities 1,988
Long-term debt 471
---------
Total liabilities assumed $ 2,459
---------
Net non-cash assets acquired 2,628
Cash acquired 223
---------
Purchase price $ 2,851
---------
Note payable issued to DTI's $ 1,851
stockholders
Cash paid for acquisition 1,000
---------
Purchase price $ 2,851
=========
F-28
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three years ended December 31, 1995
(In Thousands)
1995 1994
-------- --------
Acquisition of assets of Buchanan:
Fair value of net assets acquired:
Equipment $3,828
Liabilities assumed $2,978
--------
Cash paid for acquisition $ 850
========
Property acquired through financing arrangements $9,452 $2,989
======== ========
Property acquired through capital leases 0 $1,764
======== ========
In 1995, the Company's purchase of Supercanal was financed in part by the seller
for $7 million.
During 1995, MasTec issued $146,000 of common stock from treasury for purchases
made by the MasTec, Inc. 401(k) Retirement Savings Plan. Capital surplus was
increased by $92,000.
During 1994, MasTec sold equipment in exchange for a note receivable for
$631,000.
During 1994, MasTec issued $96,000 of common stock from treasury to its
employees. Capital surplus was reduced by $22,000.
During 1993, Church & Tower declared distributions to stockholders of
$11,500,000. Of the amounts declared, $8,500,000 was paid in cash in 1993,
$500,000 in 1994 and $2,500,000 was paid in 1995.
The accompanying notes are an integral part of these consolidated financial
statements.
F-29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
Nature of business
The Company's principal business consists of the installation and maintenance of
aerial, underground and buried copper and fiber optic cable, underground
conduit, manhole systems and related construction for local telephone companies,
including Regional Bell Operating Companies such as BellSouth
Telecommunications, Inc., U.S. West, Inc. and SBC Communications, Inc. (d/b/a
Southwestern Bell), and non-Bell local telephone companies such as Sprint Corp.
and GTE Corp. (collectively, "telcos"). The Company also provides construction
services to non-telco public utilities that are similar to the
telecommunications construction services it provides to telcos. The Company also
provides telecommunications construction services to long-distance telephone
companies, competitive access providers, and cable television operators
primarily in the United States and to local and long-distance telephone
companies and CATV operators in Latin America.
The Company also provides services that are complimentary to the Company's
construction business, such as the installation and maintenance of traffic
control and signalization devices, the clearance of utility company rights of
way, the installation and maintenance of "smart highway" signalization devices
and the construction of transmission towers for wireless services providers.
These services are rendered to municipalities, public utilities, private
businesses and government agencies such as state departments of transportation.
The Company also designs, installs and maintains local area communications
networks for private businesses.
In addition, the Company also provides general construction and project
management services to municipalities and state and local governments.
Management's estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Principles of consolidation
The Consolidated Financial Statements include MasTec, Inc. and its subsidiaries
(the "Company" or "MasTec"). All material intercompany accounts and transactions
have been eliminated. Certain prior year amounts have been reclassified to
conform to the current presentation. The 1994 income statement has been
reclassified to reflect the discontinuation of certain non-core operations
acquired as part of the Acquisition (as defined below). (See Note 16.)
The Combined Financial Statements for the years ended December 31, 1993 include
the accounts of Church & Tower of Florida, Inc. and Church & Tower, Inc. and its
majority owned joint venture, collectively referred to as the "Church & Tower".
All material intercompany accounts and transactions have been eliminated.
On March 11, 1994, Church & Tower acquired Burnup & Sims, Inc. ("Burnup & Sims")
in a purchase transaction accounted for as a reverse acquisition (the "Burnup
Acquisition"). (See Note 2.)
F-30
Revenue recognition
Revenue and related costs for short-term construction projects, which includes
master contracts, are recognized when the projects are completed.
Revenue from long-term construction contracts are accounted for by the
percentage-of-completion method under which income is recognized based on the
estimated stage of completion of individual contracts. Losses, if any, on such
contracts are provided for when they become known. Billings in excess of costs
and estimated earnings on uncompleted contracts are classified as current
liabilities. Any costs in excess of billings are classified as current assets.
The Company also provides management, coordination, consulting and
administration services for construction projects. Compensation for such
services is recognized ratably over the term of the service agreement.
Earnings per share
Earnings per share is computed by dividing net income by the weighted average
number of common and common equivalent shares during the period. Outstanding
stock options are considered common stock equivalents and are included in the
calculation using the treasury stock method. In computing the 1995 loss per
share, stock options are not considered because they have an anti-dilutive
effect.
Fully diluted earnings per share, assuming conversion of the Debentures with
corresponding adjustments for interest expense, net of tax, is not presented
because the effect of conversion is anti-dilutive. Earnings per share for the
year ended December 31, 1993 was computed using the number of shares outstanding
after giving retroactive effect to the 10,250,000 shares received by the former
shareholders of Church & Tower.
Cash and cash equivalents
The Company considers all short-term investments with maturities of three months
or less when purchased to be cash equivalents. At December 31, 1995 and 1994,
cash and cash equivalents included time deposits of $470,000 and $1.4 million,
respectively.
The Company places its temporary cash investments with high credit quality
financial institutions. At times, such investments may be in excess of the
F.D.I.C. insurance limits. The Company has not experienced any loss to date on
these investments.
Inventories
Inventories (consisting principally of material and supplies) are carried at
the lower of first-in, first-out cost or market.
Property and equipment, net
Property and equipment are recorded at cost, less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful life of the assets as follows: buildings and improvements -- 5 to 20
years and machinery and equipment -- 3 to 7 years. Leasehold improvements are
amortized over the shorter of the term of the lease or the estimated useful
lives of the improvements.
Expenditures for repairs and maintenance are charged to expense as incurred.
Expenditures for betterments and major improvements are capitalized. The
carrying amounts of assets sold or retired and related accumulated depreciation
are eliminated in the year of disposal and the resulting gains and losses are
included in income.
F-31
Investments
The Company's investment in preferred stock, consisting of 150,000 shares of 7%
cumulative preferred stock with a liquidation value of $15,000,000, and in real
estate located primarily in Florida, acquired in connection with the Burnup
Acquisition, are stated at their estimated fair value. (See Note 5 regarding
special charge to adjust the value of the Company's real estate and investments
held for sale.) Investments in unconsolidated companies are accounted for
following the equity method of accounting.
Accrued insurance
The Company is self-insured for certain health care, property and casualty and
worker's compensation exposure and, accordingly accrues the estimated losses not
otherwise covered by insurance.
Income taxes
Prior to March 11, 1994, Church & Tower was taxed under the Subchapter S
provisions of the Internal Revenue Code (IRC), which provide that taxable income
be included in the federal income tax returns of the individual stockholders.
Accordingly, no provision for income taxes has been recorded in the combined
statements of income for the year ended December 31, 1993.
As a result of the Burnup Acquisition, the Company became a taxable corporation
and effective for the year ended December 31, 1994, records income taxes using
the liability method. Under this method, the Company records deferred taxes
based on temporary taxable and deductible differences between the tax bases of
the Company's assets and liabilities and their financial reporting bases. A
valuation allowance is established when it is more likely than not that some or
all of the deferred tax assets will not be realized.
Environmental expenditures
Environmental expenditures that result from the remediation of an existing
condition caused by past operations are expensed. Liabilities are recognized
when cleanup requirements are probable and the cost can be reasonably estimated.
Changes in accounting standards
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of", is effective for fiscal years beginning after December 15, 1995. This
statement requires that long-lived assets and certain identifiable intangibles
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. This pronouncement
is not expected to have a material impact on the financial statements of the
Company.
SFAS No. 123, "Accounting for Stock-Based Compensation" is effective for
transactions entered into in fiscal years that begin after December 15, 1995.
This pronouncement establishes financial accounting and reporting standards for
stock-based employee compensation plans. It encourages, but does not require
companies to recognize compensation expense for grants of stock, stock options
and other equity instruments to employees based on new fair value accounting
rules. Companies that choose not to adopt the new fair value accounting rules
will be required to disclose pro forma net income and earnings per share under
the new method. The Company anticipates adopting the disclosure provisions of
SFAS No. 123, although the impact of such disclosure has not been determined.
F-32
2. ACQUISITIONS AND INVESTING ACTIVITIES
Burnup & Sims
Church & Tower was acquired, through an exchange of stock, effective March 11,
1994, by Burnup & Sims, a publicly traded company with business activities
similar to Church & Tower. As a result of the Burnup Acquisition, the
stockholders of Church & Tower received approximately 65% of the shares of
Burnup & Sims in exchange for 100% of the shares of Church & Tower. Immediately
following the Burnup Acquisition, the name of Burnup & Sims was changed to
MasTec, Inc. and its fiscal year end was changed to December 31.
Under generally accepted accounting principles, the Burnup Acquisition was
accounted for as a reverse acquisition whereby Church & Tower was considered the
acquirer and, therefore, the 1993 financial statements presented are those of
Church & Tower only. In addition, the results for the year ended December 31,
1994 include the operations of Church & Tower during all of 1994 and the
operations of Burnup & Sims from March 11, 1994 to December 31, 1994.
The purchase price "paid" by Church & Tower for Burnup consisted of the market
value of Burnup & Sims Common Stock not acquired by Church & Tower shareholders
in the merger, which equaled $32,355,000 (5,777,592 shares outstanding at an
average market price of $5.60 per share) and $800,000 of acquisition costs
incurred by Church & Tower, resulting in a total purchase price of $33,155,000.
DTI
On June 22, 1994, the Company acquired all of the outstanding shares of stock
of Designed Traffic Installation Company ("DTI"), for $1,000,000 in cash and a
promissory note in the amount of $1,851,000 in a transaction accounted for as a
purchase. The Company may also pay an additional amount contingent upon certain
specific percentages of net pretax earnings earned by DTI over the next four
years. An estimate of such contingent consideration based on earnings has been
recorded in the accompanying financial statements.
Buchanan
On July 26, 1994, the Company purchased from Buchanan Contracting Company
machinery and equipment and the seller's rights under two master contracts with
BellSouth Telecommunications, Inc. covering the Montgomery, Alabama and Memphis,
Tennessee areas, the name "Buchanan Contracting Company Incorporated" and
certain leases for $850,000 in cash, a promissory note of $1,061,000 and an
assumption of debt related to the equipment purchased of $1,917,000. The
acquisition was accounted for as a purchase.
Devono Loan
On July 14, 1995, the Company made a $25.0 million term loan to Devono Company
Limited, a British Virgin Islands corporation ("Devono"), at an annual interest
rate of 15% for a term of 180 days (the "Devono Loan"). Devono may extend the
term of the Devono Loan at an annual interest rate of 17.5% for two additional
ninety day periods, the first of which 90-day extensions has been exercised. The
Devono Loan is non-recourse to Devono, and, in the event of a default, the
Company's sole recourse will be to its security interest in 40% of the
outstanding and issued shares of the common stock of an Ecuadorian company that
owns a 52.6% interest in Consorcio Ecuatoriano de Telecomunicaciones, S.A.
("Conecell"), a company operating a cellular phone network in the Republic of
Ecuador. Pursuant to the loan agreement, the Company may elect to be repaid by
Devono transferring the pledged shares of Cempresa S.A. to the Company.
ULM
On July 17, 1995, the Company purchased for $2.96 million the outstanding stock
of Utility Line Maintenance, Inc. ("ULM"), a company engaged in the utility
right of way clearance business. The stockholder of ULM received $1.75
F-33
million at closing, a 48 month 8% note for $800,000 with the balance of the
purchase price to be paid over the next four years based on future pre-tax
earnings of ULM.
Triduct/Sealand
On October 10, 1995, the Company purchased from Sealand Construction and
Engineering Systems, Inc. and Triduct Corporation (collectively referred to as
"Sealand") certain machinery and equipment and the seller's rights under two
master contracts with BellSouth Telecommunications, Inc. covering the Huntsville
and Decatur, Alabama area for approximately $2.1 million.
Supercanal
On October 19, 1995, the Company acquired a 33% interest in Supercanal, S.A., a
CATV operator in Argentina, as well as interests in a magazine, a newspaper and
a radio station. The total purchase price was $13.6 million, $6.6 million of
which was paid at closing and $7.0 million of which is payable over 24 months at
8% interest. In March 1996, the Company acquired an additional 3% of Supercanal,
S.A. in exchange for $2.0 million and the Company's interest in the radio
station and newspaper.
Teleport
Also in November 1995, the Company purchased an FCC-licensed international
long distance teleport facility for the reception and retransmission of voice,
data and video from Latin America and the Caribbean to the United States. The
purchase price for the teleport facility, which is located on four acres in
Miami, Florida, was approximately $750,000. As of December 31, 1995, the Company
had invested approximately $600,000 in telecommunications and other equipment in
the facility.
TPP
In November 1995, the Company agreed to purchase 28.6% of Telecomunicaciones
Publicas y Privadas, S.A. de C.V. ("TPP"), a Mexican public pay telephone
company, for $6.0 million, with an option to purchase an additional 21.4%. At
December 31, 1995, the Company had invested $670,000 representing a 4.3%
interest.
The costs of certain acquisitions described above were allocated to the
estimated fair value of acquire assets and liabilities assumed based on
independently and internally generated information obtained to date. The most
significant adjustment to the balance sheet resulting from the acquisitions are
disclosed in the supplemental schedule of non-cash investing and financing
activities in the consolidated statement of cash flows.
In February 1996, the Company purchased for $6,750,000 the outstanding stock of
Carolina Com-Tec, Inc., a company engaged in installing and maintaining voice,
data and video networks. The stockholders of Carolina Com-Tec, Inc. received
$1.0 million at closing, a $2.0 million note due June 1, 1996, and a $1.5
million 8% note payable in quarterly installments over four years. The balance
of the purchase price is payable over the next four years based on future pre-
tax earnings of Carolina Com-Tec, Inc.
The following information presents the unaudited pro forma consolidated results
of operations for the year ended December 31, 1994 of MasTec as if the Burnup &
Sims and DTI acquisitions had occurred at the beginning of 1994, after giving
effect to certain adjustments, including depreciation of assets acquired,
reduced interest income as a result of the redemption of subordinated debentures
and other receivables of Burnup & Sims, and the related income tax effect of the
adjustments, including the conversion to a taxable corporation. The unaudited
pro forma results presented below reflects reclassification of discontinued
operations.
F-34
(In Thousands, Except Per Share Amounts)
1994
--------
Revenue $130,660
Income from continuing operations 3,561
Net income 4,079
Earnings per share from continuing
operations 0.22
Earnings per share 0.25
These results are presented for informational purposes only and are not
necessarily indicative of the results of operations or financial position of
MasTec had the Burnup & Sims and DTI acquisitions occurred at the beginning of
1994 or of future results of the combined companies.
3. ACCOUNTS RECEIVABLE-NET
Accounts receivable are net of an allowance for doubtful accounts of $1,146,000,
$1,404,000, and $250,000 at December 31, 1995, 1994 and 1993, respectively. The
Company had no allowance at December 31, 1992. The Company recorded a provision
for doubtful accounts of $425,000, $268,000 and $250,000 during 1995, 1994 and
1993, respectively. In addition, the Company recorded write-offs of $683,000,
$596,000 and $0 during 1995, 1994 and 1993, respectively.
Accounts receivable include retainage which has been billed but is not due until
completion of performance and acceptance by customers, and claims for additional
work performed outside original contract terms. Retainage aggregated $2,561,000
and $1,491,000 at December 31, 1995 and 1994, respectively.
4. PROPERTY AND EQUIPMENT:
Property and equipment was comprised of the following as of December 31, 1995
and 1994 (in thousands):
1995 1994
-------- -------
Land $ 5,645 $10,878
Buildings and improvements 5,362 3,879
Machinery and equipment 43,605 30,354
Office furniture and equipment 1,194 1,093
-------- -------
55,806 46,204
Less-accumulated depreciation (11,235) (6,102)
-------- -------
$ 44,571 $40,102
======== =======
5. REAL ESTATE AND INVESTMENTS WRITE-DOWNS
In the third quarter of 1995, the Company decided to accelerate the pace of its
disposal of non-core real estate assets by selling the majority of these assets
in a bulk sale. Primarily as a result of the Company's decision, the Company
recorded a special charge of $15.4 million to adjust the carrying values of its
real estate investments to estimated net realizable value based on offers
received by the Company to dispose of certain real estate in a bulk transaction.
The original value assigned to the real estate investments contemplated the
disposition of the properties on an individual basis and no consideration had
previously been given to a bulk sale. In February 1996, the Company sold 342
acres of real estate resulting in an additional
F-35
charge of $3.2 million which was recorded in the fourth quarter of 1995 to
reduce the carrying value of such real estate to the value realized.
In March 1996, the Company sold its investment in preferred stock and was repaid
certain receivables due the Company from the buyer for a total consideration of
$6.3 million, the proceeds of which have been invested in short-term
investments.
6. DEBT:
Debt is summarized as follows as of December 31, 1995 and 1994 (in thousands):
1995 1994
------- -------
Revolver, at LIBOR plus 2.00% (7.25%
at December 31, 1995) $10,982 0
Term Loan, at LIBOR plus 2.25% (7.88%
at December 31, 1995) 10,126 0
Term Loan, at 7.7% fixed 636 1,144
Equipment Loan, at LIBOR, plus 2.25%
(7.88% at December 31, 1995) 12,500 0
Other note payables for equipment, at
7.42% due in monthly installments
through the year 2000 5,352 0
Note payable for equipment, at interest
rates from 6.0% to 9.5% due in
installment through the year 2000 9,330 3,899
Note payable, at 7% due in four
semi-annual installments through July
1996 958 1,851
Note payable, at 7% due in eight
quarterly installments through July 1,
1996 265 796
Note payable, at 8% due in 48 monthly
installments through June 1999 701 0
Note payable, at 8% due in 24 monthly
installments through October 1997 6,458 0
Real estate mortgage note, at 8.53%,
monthly installments of $12.5
commencing February 1996, with a final
installment of $2,200 in the year 2001 2,070 0
Real estate mortgage note, at 9.5%
quarterly due November 1996 461 0
12% Convertible Subordinated Debentures 12,250 21,875
Term Loan, at prime rate plus 0.5% (9%
at December 31, 1994) 0 8,294
Term Loan, at prime rate plus 0.5% (9%
at December 31, 1994) 0 1,000
Notes payable to stockholders, at prime
rate plus 2% (10.5% at December 31,
1994) 0 2,500
Capital leases, at interest rates from
6% to 12% due in installments through
the year 2000 0 3,826
------- -------
Total Debt 72,089 45,185
Less Current Maturities (27,863) (9,229)
------- -------
Long Term Debt $44,226 $35,956
======= =======
Not included in the preceding table at December 31, 1995 is approximately 2.2
million in capital leases related to discontinued operations (see Note 16).
The 12% Convertible Subordinated Debentures (the "Debentures") require an annual
payment to a sinking fund, which commenced November 15, 1990, calculated to
retire 75% of the issue prior to maturity. The Company has the option to redeem
all or part of the Debentures prior to the due date by paying the principal
amount at face value. The Debentures are convertible into Common Stock at an
adjusted conversion price of $16.79 per share. At December 31, 1995,
approximately
F-36
730,000 shares were reserved for conversion. The terms of the Debentures include
certain restrictions on the payment of dividends. On April 17, 1995, the Company
prepaid $7.0 million of the Debentures.
The Company maintains a $40.0 million credit facility with Shawmut Capital
Corporation n/k/a Fleet Capital Corporation (the "Shawmut Credit Facility"). The
Shawmut Credit Facility is comprised of three sub-facilities: a $12.0 million
term loan (the "Term Loan") collateralized by certain equipment, a $15.5 million
revolving loan (the "Revolver") collateralized by receivables and inventory and
a $12.5 million equipment revolver term loan (the "Equipment Loan")
collateralized by new or used equipment purchased under the Equipment Loan
facility. The Company used a portion of the proceeds of the Term Loan to repay
$10.4 million in term loans outstanding at December 31, 1994. The remaining
portion of the Term Loan was used primarily to finance new equipment purchases
and costs associated with obtaining the Shawmut Credit Facility.
Interest on the Term Loan and Equipment Loan accrue, at the Company's option, at
the rate of prime or 2.25% over LIBOR. Interest on the Revolver accrues, at the
Company's option, at the rate of prime or 2.00% over LIBOR. The Shawmut Credit
Facility required the Company to pay a commitment fee of $162,500 and an unused
line fee at an annual rate of one quarter of one percent of the amount of the
unused facility. The Term Loan is payable in quarterly installments based upon a
ten year amortization. The Equipment Loan is payable in quarterly installments
based on a four year amortization commencing January 1996. The Shawmut Credit
Facility expires in January 2000. Debt agreements contain, among other things,
restrictions on the payment of dividends and require the observance of certain
financial covenants such as minimum levels of cash flow and tangible net worth.
The Company has letters of credit outstanding totaling $3.8 million. These
letters of credit were issued primarily as security to the Company's insurance
administrators as part of its self-insurance program.
At December 31, 1995 debt matures as follows:
1996 $27,863
1997 14,416
1998 10,831
1999 9,691
2000 3,264
after 2000 6,024
-------
Total $72,089
=======
7. LEASED PROPERTIES
The Company leases certain operating equipment, offices and equipment yard
facilities under cancelable and noncancelable agreements.
Future minimum lease payments under all leases with initial or remaining
noncancelable lease terms in excess of one year at December 31, 1995 are as
follows (in thousands):
Operating
Leases
---------
1996 $577
1997 373
1998 104
------
Total minimum lease payments $1,054
======
Lease agreements frequently include renewal options and require that the Company
pay for utilities, taxes, insurance and maintenance expense. Options to purchase
are also included in some lease agreements, particularly capital leases.
See Note 6 regarding capital leases of discontinued operations.
F-37
8. STOCK OPTION PLANS
The Company had two non-qualified stock option plans (the "1976 and 1978 Plans")
which were replaced by the 1994 Stock Incentive Plan (the "1994 Plan").
The 1976 Plan provides that options may be exercised in four increments
beginning 18 months subsequent to the date of grant. Upon exercise of the
option, the Company will reduce the optionee's purchase price by an amount equal
to the increase in the fair market value on the exercise date of the shares
being purchased over the fair market value of such shares on the date the option
was granted. The purchase price, however, cannot exceed 85% of the fair market
value of such shares on the exercise date, and in no event can the exercise
price be less than $.10 per share. The holder of the option has the alternative
right to cancel such option and instead to exercise stock appreciation rights
entitling the holder to receive cash under certain circumstances. The 1978 Plan
provides that options may be exercised in four increments beginning one year
subsequent to the date of grant. There is no subsequent adjustment of the
purchase price. Approximately 26,100 shares have been reserved for and may still
be issued in accordance with the terms of options issued under the 1976 and 1978
Plans.
The 1994 Plan authorized the grant of options or awards of up to 800,000 shares
of the Company's Common Stock of which 200,000 shares of common stock may be
awarded as restricted stock. As of December 31, 1995, options to purchase
279,100 shares had been granted, 22,120 of which were exercisable at December
31, 1995. Options become exercisable over a five year period in equal increments
of 20% per year beginning the year after the date of grant and must be exercised
within 10 years from the date of grant. Options are issued with an exercise
price no less than the fair market value of the shares at the grant date.
The Company also adopted the 1994 Stock Option Plan for Non-Employee Directors
(the "Directors' Plan"). The Directors' Plan authorized the grant of options to
purchase up to 400,000 shares of the Company's common stock to the non-employee
members of the Company's Board of Directors. Options to purchase 45,000 shares
have been granted to two Board members, 5,000 of which are exercisable at
December 31, 1995. The options granted become exercisable ratably over a three
year period from the date of grant and may be exercised for a period of up to
ten years beginning the year after the date of grant at an exercise price equal
to the fair market value of such shares on the date the option is granted.
Approximately 1,200,000 shares of Common Stock have been reserved for issuance
under the 1994 Plan and Directors Plan.
In addition, during 1994 options to purchase 100,000 shares of common stock at
$5.75 per share were granted to a director outside the Directors' Plan in lieu
of the Director's Plan and annual fees paid to the director. Compensation
expense of $42,500 in connection with the issuance of this option is being
recognized annually over the five year vesting period. The options are
exercisable ratably over a five year period beginning the year after the date of
grant and may be exercised for a period of up to ten years beginning the year
after the date of grant.
F-38
The following is a summary of all stock option transactions:
Shares Exercise Price
Outstanding December 31, 1993 0
Options outstanding under acquired plans 32,800 $ 0.10-$2.00
Granted 240,500 $ 5.75-$7.94
Exercised (1,500) $ 2.00
Canceled 0
-------- -------------
Outstanding December 31, 1994 271,800 $ 0.10-$7.94
Granted 202,000 $10.25-$13.38
Exercised (2,100) $ 0.10-$7.94
Canceled (21,500) $ 0.10-$13.38
-------- -------------
Outstanding December 31, 1995 450,200 $ 0.10-$13.38
======== =============
9. INCOME TAXES
Prior to March 11, 1994, the Company was an S Corporation under the IRC and,
therefore, the results of operations for the year ended December 31, 1993, do
not include a provision for income taxes, as the income of the Company passed
directly to the stockholders.
On March 11, 1994, the Company became a taxable corporation and the effect of
recognizing the change in tax status of approximately $435,000 is included in
the provision for income taxes for the year ended December 31, 1994.
The provision for income taxes consists of the following (in thousands):
1995 1994
------- ------
Current
Federal $ 4,821 $2,444
State (284) 375
------- ------
4,537 2,819
------- ------
Deferred
Federal (5,879) (422)
State (493) (72)
------- ------
(6,372) (494)
------- ------
(Benefit) provision for income taxes (1,835) 2,325
Discontinued operations 135 552
------- ------
Total $(1,700) $2,877
======= ======
F-39
The tax effects of significant items comprising the Company's net deferred tax
liability as of December 31, 1995 and 1994 are as follows (in thousands):
1995 1994
------- -------
Deferred tax assets:
Accrued self insurance $ 2,773 $ 2,619
Operating loss and tax credit 543 422
carryforward
Accrual for disposal of discontinued 1,503 0
operations
All other 2,708 2,639
------- -------
Total deferred tax assets $ 7,527 $ 5,680
------- -------
Deferred tax liabilities:
Property and equipment $ 5,873 $ 4,070
Asset revaluations 2,604 15,219
All other 2,820 2,241
------- -------
Total deferred tax liabilities $11,297 $21,530
------- -------
Valuation allowance 400 0
------- -------
Net deferred tax liabilities $ 4,170 $15,850
======= =======
The net change in the valuation allowance for deferred tax assets in 1995 was an
increase of $400,000. The change relates primarily to foreign net operating
losses generated in the current year.
Deferred tax assets of $1,068,000 and $436,000 for 1995 and 1994, respectively,
have been recorded in current assets in the accompanying consolidated financial
statements.
A reconciliation of the difference between actual income tax expense and income
taxes for continuing operations computed at the federal statutory tax rate is as
follows:
1995 1994
---- ----
U.S. federal statutory rate applied to
pretax income (35)% 34%
State and local taxes (2) 5
Effect of individual exclusion (5) (2)
Change in tax status 0 (9)
Foreign loss producing no tax benefit 6 0
Adjustment of prior years' taxes (5) 0
Change in federal statutory tax rate 9 0
Change in state tax filing status (8) 0
Other 3 (2)
---- ----
(Benefit) Provision for income taxes (37)% 26%
==== ====
The Internal Revenue Service is currently auditing the tax returns of Burnup &
Sims for the fiscal years ended April 30, 1989 through April 30, 1993.
Adjustments, if any, as a result of this audit will be recorded as an adjustment
to purchase accounting.
F-40
10. CAPITAL STOCK
The Company has authorized 50,000,000 shares of its $.10 par value Common Stock.
At December 31, 1995 and 1994, 26,434,814 shares of Common Stock were issued,
16,055,056 and 16,038,581 shares were outstanding, respectively, and 10,379,758
and 10,396,233 were held in treasury, respectively. At December 31, 1993, the
Company's stockholders' equity was retroactively restated to account for the
Burnup Acquisition in March 1994. The restatement gives effect to the number of
shares of Common Stock received by Church & Tower shareholders at the date of
the Burnup Acquisition.
At the date of the Burnup Acquisition, the Company transferred Church & Tower's
previously reported undistributed earnings and profits of approximately
$11,165,000 to capital surplus.
At December 31, 1995, the Company had 5,000,000 shares of authorized but
unissued preferred stock.
11. BUSINESS SEGMENTS:
Business segment information is summarized as follows (in thousands):
1995 1994 1993
-------- -------- -------
Revenue:
Telecommunication construction $172,010 $110,609 $34,010
services
General Construction services 2,539 685 10,673
Telecommunication operations 34 0 0
-------- -------- -------
Total $174,583 $111,294 $44,683
======== ======== =======
(Loss) income from continuing
operations before equity in (losses)
earnings of unconsolidated companies,
income taxes and minority interest:
Telecommunication construction $ 14,969 $ 11,291 $ 9,351
service
General construction services 1,410 140 2,266
Telecommunications operations (1,241) 0 0
Corporate (19,974) (2,659) (6,042)
-------- -------- -------
Total $ (4,836) $ 8,772 $ 5,575
======== ======== =======
Identifiable assets:
Telecommunication construction 92,082 64,668 17,405
service
General construction services 2,115 1,344 400
Telecommunication operations 45,135 0 0
Corporate and discontinued operations 30,831 76,440 3,520
-------- -------- -------
Total $170,163 142,452 21,325
======== ======== =======
Depreciation and amortization expense:
Telecommunication construction 6,454 4,329 609
services
Telecommunication operations 2 0 0
Corporate 457 110 0
-------- -------- -------
Total 6,913 4,439 609
======== ======== =======
Capital expenditures:
Telecommunication construction 20,431 5,901 2,036
services
Telecommunication operations 1,061 0 0
Corporate and discontinued operations 2,628 3,124 0
-------- -------- -------
Total $ 24,120 $ 9,025 $ 2,036
======== ======== =======
The Company's operations are organized into three principal business segments,
telecommunications and related construction services, general construction
services, and telecommunications operations. There are no material intersegment
F-41
sales or transfers. Identifiable assets are those assets used for operations in
each business segment. Corporate assets are principally invested in cash,
preferred stock, real estate, and the net assets of the discontinued operations.
(See Note 16 regarding discontinued operations.)
12. RELATED PARTY TRANSACTIONS:
The Company rents and purchases construction equipment from affiliates. During
1995, 1994 and 1993, the Company incurred approximately $544,000, $617,000 and
$249,000, respectively, of equipment rental expense and purchased approximately
$332,000, $528,000 and $1,432,000, respectively, from these affiliates.
Additionally, at December 31, 1995 and 1994 the Company had recorded $106,000
and $169,000 as amounts due from affiliates. These amounts are included in
accounts receivable in the accompanying balance sheets.
During 1993, the Company declared distributions of Subchapter S earnings to
stockholders of $11,500,000. Of the amounts declared, $2,500,000, $500,000 and
$8,500,000 were paid in cash during 1995, 1994 and 1993, respectively. Notes
receivable from stockholders bear interest at the prime rate plus 2% (10.5% at
December 31, 1995). Interest on the notes is payable annually with principal due
on July 15, 1996.
The Company also leases one equipment storage facility from a stockholder at an
annual rent of $48,000 expiring on October 31, 1998.
13. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK:
The Company provides telecommunications and related construction services
primarily to BellSouth Telecommunications, Inc. Revenue from this entity for the
years ended December 31, 1995, 1994 and 1993 were approximately $73.1 million,
$48.3 million and $29.1 million, respectively. Accounts receivable from the
Company's three largest customers at December 31, 1995 and 1994 were $19.3
million and $11.6 million, respectively.
In addition, the Company recognized revenue from a municipality in connection
with a construction project of approximately $10.7 million during the year ended
December 31, 1993.
14. COMMITMENTS AND CONTINGENCIES:
In December 1990, Albert H. Kahn, a stockholder of the Company, filed a
purported class action and derivative suit against Burnup & Sims, the members of
its Board of Directors, and National Beverage Corporation ("NBC"). The complaint
alleges, among other things, that Burnup & Sims' Board of Directors and NBC, as
Burnup & Sims' then largest stockholder, breached their respective fiduciary
duties in approving certain transactions, including the distribution in 1989 to
Burnup & Sims' stockholders of all of the common stock of NBC owned by Burnup &
Sims and the exchange by NBC of shares of common stock of Burnup & Sims for
certain indebtedness of NBC held by Burnup & Sims. The lawsuit seeks to rescind
these transactions and to recover damages in an unspecified amount.
In November 1993, Mr. Kahn filed a class action and derivative complaint against
Burnup & Sims, the members of its Board of Directors, Church & Tower, and Jorge
L. Mas, Jorge Mas and Juan Carlos Mas, the principal stockholders of Church &
Tower. The 1993 lawsuit alleges, among other things, that the Burnup & Sims
Board of Directors and NBC breached their respective fiduciary duties by
approving the terms of the Burnup Acquisition, and that Church & Tower and its
principal stockholders had knowledge of the fiduciary duties owed by NBC and the
Burnup & Sims Board of Directors and knowingly and substantially participated in
the breach thereof. The lawsuit also claims derivatively that each member of the
Burnup & Sims Board of Directors engaged in mismanagement, waste and breach of
fiduciary duties in managing Burnup & Sims' affairs. On March 7, 1994, the
Delaware court in which these suits were filed denied plaintiff's motion to
enjoin the Burnup Acquisition. Each of the foregoing lawsuits is in discovery
and no trial date has been set. The Company believes that the allegations in
each of the lawsuits are without merit and intends to defend these lawsuits
vigorously.
F-42
The Company is involved in a lawsuit filed by BellSouth arising from certain
work performed by a subcontractor of the Company from 1991 to 1993 and a second
lawsuit filed by the County of Gilpin, Colorado, against the Company in
connection with work performed for U.S. West during 1992. The amounts claimed
against the Company in these two lawsuits in the aggregate total approximately
$1.5 million. Both lawsuits were filed in November 1995 and are in the process
of discovery. The Company believes that the allegations asserted by BellSouth
and Gilpin County in these lawsuits are without merit and intends to defend
these lawsuits vigorously.
All of the claims asserted in the lawsuits described above, with the exception
of the second lawsuit filed by Albert Kahn in 1993, arise from activities
undertaken prior to March 11, 1994, the date of the consummation of the Burnup
Acquisition.
The Company is also a defendant in other legal actions arising in the normal
course of business. The Company believes, that the amount provided in the
financial statements of the Company are adequate to cover the estimated losses
expected to be incurred in connection with these matters.
In 1990, Trilogy Communications, Inc. filed suit against Excom Realty, Inc., a
wholly owned subsidiary of the Company, for damages and declaratory relief. The
Company counterclaimed for damages. On May 1, 1995, the Company settled its
counterclaim for $1.3 million, which is recorded as other income in the
accompanying consolidated financial statements.
In connection with certain construction contracts, the Company has signed
certain agreements of indemnity in the aggregate amount of approximately $93.4
million, of which approximately $49.5 million relate to the uncompleted portion
of contracts in process. These agreements are to secure the fulfillment of
obligations and performance of the related contracts. Included in these amounts
are $57.8 million, of which $28.2 million relate to the uncompleted portion of
contracts in process related to the general construction services segment.
Management believes that no losses will be sustained from these agreements.
Federal, state and local laws and regulations govern the Company's operation of
underground fuel storage tanks. The Company is in the process of removing,
restoring and upgrading these tanks, as required by applicable laws, and has
identified certain tanks and surrounding soil which will require remedial
clean-ups. In this respect, the Company recorded in l993 approximately $566,000
in provisions for costs to be incurred in connection with these clean-ups. The
Company does not expect future costs to be incurred in connection with these
clean-ups to exceed the amounts which have been accrued in the accompanying
financial statements.
15. FAIR VALUE
For certain of the Company's financial instruments, including cash and cash
equivalents, accounts and notes receivable, accounts payable, other accrued
liabilities, and notes payable the carrying amounts approximate fair value due
to their short maturities. Long term floating rate notes are carried at amounts
that approximate fair value. As a result of the acquisitions described in Note
2, other financial instruments, including the Debentures and the investment in
preferred stock, were recorded at their estimated fair values at the acquisition
date. The estimated fair values were based on quoted market rates and third
party valuations for instruments with similar risk terms and maturities. (See
Note 5.)
The Company uses letters of credit to back certain insurance policies. The
letters of credit reflect fair value as a condition of their underlying purpose
and are subject to fees competitively determined in the market place.
The estimated fair values may not be representative of actual values of the
financial instruments that could have been realized as of year end or that will
be realized in the future.
16. DISCONTINUED OPERATIONS
In the third quarter of 1995, the Company determined to concentrate its
resources and better position itself to achieve its strategic growth objectives
by disposing of all of the general products segment that the Company acquired as
part of the
F-43
Burnup Acquisition. (See Note 2.) These operations and assets include
Southeastern Printing Company, Inc. ("Southeastern"), Lectro Products, Inc.
("Lectro") and Floyd Theatres, Inc. ("Floyd Theatres").
In March 1995, the Company sold the indoor theater assets of Floyd Theatres for
approximately $11.5 million of which $1.8 million was used to satisfy
liabilities not assumed by the buyer and transaction costs incurred. A gain of
$1.5 million net of tax, resulted from this transaction in the first quarter. A
portion of the proceeds ($7.0 million) was used to prepay a portion of the
Debentures. In August 1995, the Company sold the stock of Lectro for $11.9
million in cash and a note receivable (the "Note") of $450,000. Proceeds, net of
transaction expenses were $11.3 million. A gain of $5.9 million, net of tax was
recorded in the third quarter. The proceeds were used to repay $10.0 million
borrowed to finance the Devono Loan. A portion of the Note ($250,000) is subject
to adjustment based on ultimate collectability of Lectro's accounts receivable
as of June 30, 1995. Any changes in proceeds from the Note as a result of any
adjustments are not expected to be material.
The remaining outdoor theatre operations of Floyd Theatres are currently being
marketed for sale as either operating facilities or for the underlying real
estate value. In the third quarter of 1995, the Company recorded a provision of
$3.2 million, net of tax, related to Floyd Theatres' real estate to reflect a
bulk sale value and estimated losses during the phase-out period. The Company
has received offers to sell Southeastern. Based on these offers, a loss on
disposal of $1.8 million, net of tax, has been recorded. Disposal of these non-
core assets is anticipated to be completed in 1996.
Discontinued operations include management's best estimates of the amounts
expected to be realized on the sale of these assets. While the estimates are
based on current negotiations, the amounts the Company will ultimately realize
could differ materially in the near term from the amounts assumed in arriving at
the loss on disposal of the discontinued operations.
Summary operating results of discontinued operations, excluding net gains on
disposal and estimated loss during the phase-out period, are as follows (in
thousands):
December 31, December 31,
1995 1994
------------ ------------
Revenue $21,952 $29,902
============ ============
Earnings before income taxes $ 58 $ 1,377
Provision for income taxes 20 552
------------ ------------
Net income from discontinued operations $ 38 $ 825
============ ============
The following comprises the net assets of discontinued operations at December
31, 1995 (in thousands):
Receivables, net $ 1,432
Inventory 1,047
Property, plant and equipment, net 9,101
Other assets 51
Land held for sale 964
Less:
Capital leases 2,140
Accounts payable 280
Accrued liabilities and reserve for loss on disposal 3,775
-------
$ 6,400
=======
(See statement of cash flows for discontinued operations disposed of during
1995).
F-44
17. QUARTERLY FINANCIAL DATA (Unaudited)
Third Fourth
1995 (1): First Second Quarter Quarter
Quarter Quarter (2) (3) Total
Revenue $34,623 $39,174 $46,642 $54,144 $174,583
======= ======= ======= ======= ========
Operating income 4,497 6,036 3,696 3,598 17,827
====== ======= ======= ======= ========
Income (loss) from continuing operations $ 2,542 4,447 $(7,438) $(2,601) $ (3,140)
Income (loss) from discontinued
operations including gain (loss) on
disposal, net of taxes 1,709 205 1,551 (934) 2,531
------- ------- ------- ------- --------
Net income (loss) $ 4,161 $ 4,652 $(5,887) $(3,535) $ (609)
======= ======= ======= ======= ========
Earnings per share:
Income (loss) of continuing operations $ 0.15 $ 0.28 $ (0.46) $ (0.16) $ (0.20)
Income (loss) of discontinued
operations 0.11 0.01 0.10 (0.06) 0.16
------- ------- ------- ------- --------
$ 0.26 $ 0.29 $ (0.36) $ (0.22) $ (0.04)
======= ======= ======= ======= ========
(Dollars in Thousands, Except Earnings
Per Share)
1994 (1): First Second Third Fourth
Quarter Quarter Quarter Quarter Total
(5) (6) (7)
Revenue $14,350 $27,305 $36,056 $33,583 $111,294
======= ======= ======= ======= ========
Operating income 1,156 1,915 3,717 3,093 9,881
======= ======= ====== ======= ========
Income from continuing operations 625 1,109 2,136 1,938 5,808
Income (loss) of discontinued operations 91 474 470 (210) 825
------- ------- ------- ------- --------
Net income 716 1,583 2,606 1,728 6,633
======= ======= ======= ======= ========
Earnings per share:
Income from continuing operations $ 0.04 $ 0.07 $ 0.13 $ 0.12 $ 0.36
Income (loss) of discontinued
operations 0.00 0.03 0.03 (0.01) 0.05
------- ------- ------- ------- --------
$ 0.04 $ 0.10 $ 0.16 $ 0.11 $ 0.41
======= ======= ======= ======= ========
(1) Results of operations have been reclassified for discontinued operations.
(See Note 16.)
(2) In the third quarter of 1995, the Company recorded a special charge of
$15.4 million to write down its real estate held for sale. (See Note 5.)
(3) In the fourth quarter of 1995, the Company recorded an additional charge
of $7.7 million to write down real estate held for sale and its investment in
preferred stock. (See Note 5.)
F-45
(4) Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly per share data in 1995 does not
equal the total computed for the year due to changes in the average number of
shares outstanding.
(5) The first quarter of 1994 has been presented on a pro forma basis to
include a provision for income taxes as though the Company had been subject to
taxation during the entire quarter.
(6) In the fourth quarter of 1994, the Company recorded certain adjustments
related to other quarters which increased net income by approximately $207,000,
the effect of which on previously recorded quarters was not significant. Also
contributing to the increase was a successful settlement of litigation.
(7) Net income and earnings per share amounts for 1994 have been adjusted to
include a provision for income taxes as though the Company had been subject to
taxation for the entire year.
F-46
================================================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH IT
RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF ANY
OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
-------------------------
TABLE OF CONTENTS
Page
Available Information.......................................................
Information Incorporated by
Reference..................................................................
Prospectus Summary..........................................................
Risk Factors................................................................
Use of Proceeds.............................................................
Price Range of Common Stock.................................................
Dividend Policy.............................................................
Capitalization..............................................................
Selected Consolidated Financial Data........................................
Management's Discussion and
Analysis of Financial Condition and
Results of Operations......................................................
Business....................................................................
Management..................................................................
Principal and Selling Stockholders..........................................
Certain Relationships and Related
Transactions...............................................................
Selection of Auditors.......................................................
Description of Capital Stock................................................
Underwriting................................................................
Legal Matters...............................................................
Experts.....................................................................
Index to Financial Statements...............................................
================================================================================
================================================================================
MASTEC, INC.
SHARES OF
-----------
COMMON STOCK
----------
PROSPECTUS
----------
BEAR, STEARNS & CO., INC.
JEFFERIES & COMPANY, INC.
AUGUST , 1996
---
================================================================================
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following sets forth expenses and costs payable by the Company (other
than underwriting discounts and commissions) expected to be incurred in
connection with the issuance and distribution of the securities described in
this Registration Statement. All amounts are estimated except for the SEC
registration fee and the NASD filing fee.
AMOUNT
-------
Registration fee under Securities Act $26,115
NASD filing fee 7,573
Nasdaq fees 17,500
Legal fees and expenses *
Accounting fees and expenses *
Blue Sky fees and expenses *
Printing and engraving expenses *
Registrar and transfer agent fees *
Miscellaneous expenses -------
Total $ *
=======
* To be filed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate") provides that the Company shall indemnify to the fullest extent
authorized by the Delaware General Corporation Law (the "DGCL"), each person who
is involved in any litigation or other proceeding because such person is or was
a director or officer of the Company, against all expense, loss or liability
reasonably incurred or suffered in connection therewith. The Company's By-laws
provide that a director or officer may be paid expenses incurred in defending
any proceeding in advance of its final disposition upon receipt by the Company
of an undertaking, by or on behalf of the director or officer, to repay all
amounts so advanced if it is ultimately determined that such director or officer
is not entitled to indemnification.
Section 145 of the DGCL permits a corporation to indemnify any director or
officer of the corporation against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with any action, suit or proceeding brought by reason of the fact
that such person is or was a director or officer of the corporation, if such
person acted in good faith and in a manner that he reasonably believed to be in
or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, if he had no reason to believe his conduct
was unlawful. In a derivative action, (i.e., one brought by or on behalf of the
corporation), indemnification may be made only for expenses, actually and
reasonably incurred by any director or officer in connection with the defense or
settlement of such an action or suit, if such person acted in good faith and in
a manner that he reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made if
such person shall have been adjudged to be liable to the corporation, unless and
only to the extent that the court in which the
II-1
action or suit was brought shall determine that the defendant is fairly and
reasonably entitled to indemnity for such expenses despite such adjudication of
liability.
Pursuant to Section 102(b)(7) of the DGCL, the Company's Certificate
eliminates the liability of a director to the corporation or its stockholders
for monetary damages for such breach of fiduciary duty as a director, except for
liabilities arising (a) from any breach of the director's duty of loyalty to the
corporation or its stockholders, (b) from acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law,
(c) under Section 174 of the DGCL, or (d) from any transaction from which the
director derived an improper personal benefit.
The Company has obtained primary and excess insurance policies insuring the
directors and officers of the Company and its subsidiaries against certain
liabilities they may incur in their capacity as directors and officers. Under
such policies, the insurer, on behalf of the Company, may also pay amounts for
which the Company has granted indemnification to the directors or officers.
Additionally, reference is made to the Underwriting Agreement filed as
Exhibit 1.1 hereto, which provides for indemnification by the Underwriters of
the Company, its directors and officers who sign the Registration Statement, the
Selling Stockholders and persons who control the Company, under certain
circumstances.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following documents are filed as exhibits to this registration
statement:
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Company, filed as Exhibit 3(i) to
Company's Registration Statement on Form S-8 (File No. 33-55327) and
incorporated by reference herein.
3.2 By-laws of the Company, filed as Exhibit 3.1 to Company's Form 10-Q for the
quarter ended March 31, 1996 and incorporated by reference herein.
5.1 Opinion of Fried, Frank, Harris, Shriver & Jacobson.*
10.1 Stock Purchase Agreement dated June 22, 1994, between MasTec, Inc. and
Designed Traffic Installation Co., filed as Exhibit 2 to the Company's Form 8-K
dated July 6, 1994 and incorporated by reference herein.
10.2 Loan and Security Agreement dated January 29, 1995, between the Company and
Barclays Business Credit, Inc. (n/k/a Fleet Financial Corporation), filed as
Exhibit 10 to the Company's Form 8-K dated February 9, 1995 and incorporated by
reference herein.
10.3 Loan Agreement dated July 14, 1995 between the Company and Devono Company
Limited, filed as Exhibit 10 to the Company's Form 10-Q for the quarter ended
June 30, 1995 and incorporated by reference herein.
II-2
10.4 Amendment to Loan and Security Agreement dated February 29, 1996 between
the Company and Fleet Capital Corporation filed as Exhibit 10.5 to the Company's
Form 10-K for the year ended December 31, 1995 and incorporated by reference
herein.
10.5 Stock Option Agreement dated March 11, 1994 between the Company and Arthur
B. Laffer filed as Exhibit 10.6 to the Company's Form 10-K for the year ended
December 31, 1995 and incorporated by reference herein.
10.6 Stock Purchase Agreement dated April 1, 1996 between the Company and
Telefonica de Espana, S.A., filed as Exhibit 2.1 to the Company's Form 8-K dated
April 30, 1996 and incorporated by reference herein.
21.1 Subsidiaries of the Company.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Arthur Andersen.*
23.3 Consent of Fried, Frank, Harris, Shriver & Jacobson (included in Exhibit
5.1 above).
24.1 Power of Attorney (included on Signature Page of this Registration
Statement).
* To be filed by amendment.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual reports pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
II-3
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Miami, State of Florida, on August 27, 1996.
MASTEC, INC.
/s/ Edwin D. Johnson
-------------------------------
Edwin D. Johnson
Senior Vice President - Chief Financial Officer
(Principal Financial and Accounting Officer)
The undersigned directors and officers of MasTec, Inc. hereby constitute
and appoint Edwin D. Johnson and Jose M. Sariego, and each of them with full
power to act without the other and with full power of substitution and
resubstitution, our true and lawful attorneys-in-fact with full power to execute
in our name and behalf in the capacities indicated below this Registration
Statement on Form S-3 and any and all amendments thereto and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission and hereby ratify and confirm all that such
attorneys-in-fact, or any of them, or their substitutes shall lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
[S] [C] [C]
/s/Jorge Mas President and Chief Executive August 27, 1996
- ------------ Officer (Principal Executive
Jorge Mas Officer)
/s/ Jorge L. Mas Chairman of the Board August 27, 1996
- ----------------
Jorge L. Mas
II-5
/s/Eliot C. Abbot Director August 27, 1996
- -----------------
Eliot C. Abbot
/s/Arthur B. Laffer Director August 27, 1996
- -------------------
Arthur B. Laffer
/s/Samuel C. Hathorn, Jr. Director August 27, 1996
- -------------------------
Samuel C. Hathorn, Jr.
/s/Jose S. Sorzano Director August 27, 1996
- ------------------
Jose S. Sorzano
II-6
Exhibit 1.1
MASTEC, INC.
_________ SHARES OF COMMON STOCK
UNDERWRITING AGREEMENT
____ __, 1996
Bear, Stearns & Co. Inc.
Jefferies & Company, Inc.
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York 10167
Ladies and Gentlemen:
MasTec, Inc., a Delaware corporation (the "Company") and the stockholders
of the Company listed on Schedule II hereto (collectively, the "Selling
Stockholders" and, together with the Company, the "Sellers") confirm their
agreement with the several Underwriters listed on Schedule I hereto
(collectively, the "Underwriters"), for whom Bear, Stearns & Co. Inc. and
Jefferies & Company, Inc. have been duly authorized to act as representatives
(the "Representatives") as follows:
1. Description of Securities. The Company and the Selling Stockholders
severally propose, upon the terms and subject to the conditions set forth
herein, to issue and sell to the Underwriters an aggregate of _________ shares
(the "Firm Shares") of the Company's common stock, $0.10 par value per share
(the "Common Stock"). The Firm Shares consist of _________ shares to be issued
and sold by the Company (the "Firm Company Shares") and _______ outstanding
shares to be sold by the Selling Stockholders. The Company also proposes to sell
to the Underwriters, upon the terms and conditions set forth in Section 3
hereof, up to an additional _______ shares (the "Additional Shares" and together
with the Firm Company Shares, the "Company Shares") of Common Stock. The Firm
Shares and the Additional Shares are hereinafter collectively referred to as the
"Shares."
2. Registration Statement and Prospectus. The Company has prepared and
filed with the Securities and Exchange Commission (the "Commission") in
conformity with the requirements of the Securities Act of 1933, as amended (the
"Act"), and the rules and regulations promulgated thereunder by the Commission
(the "Securities Act Regulations"; which together with the Exchange Act
Regulations (as defined below), are referred to herein as the "Regulations"), a
registration statement, as amended by certain amendments thereto, on Form S-3
(File No. 333-_____), including a preliminary prospectus, subject to completion,
relating to the Shares. The Company will next file with the Commission either
(i) prior to the effectiveness of such registration statement, a further
amendment
thereto, including therein a final prospectus or (ii) after the effectiveness of
such registration statement, a final prospectus in accordance with Rules 430A
and 424(b)(1) of the Securities Act Regulations, the documents so filed in
either case to include all Rule 430A Information (as defined below) and to
conform, in content and form, to the last printer's proof thereof furnished to
and approved by the Underwriters immediately prior to such filing. If the
Company files a registration statement to register any additional shares of
Common Stock in connection with the offering of the Shares and relies on Rule
462(b) for such registration statement to become effective upon filing with the
Commission (the "Rule 462 Registration Statement"), then any reference to
"Registration Statement" herein shall be deemed to be both the registration
statement referred to above (No. 333-_____) and the Rule 462 Registration
Statement, as each such registration statement may be amended pursuant to the
Act.
As used in this Underwriting Agreement (the "Agreement"), (i) the term
"Effective Date" means the later of the date that the registration statement is
declared effective by the Commission, or, if a post-effective amendment is filed
with respect thereto, the date of such post-effective amendment's effectiveness,
(ii) the term "Registration Statement" means the registration statement, as
amended at the time when it becomes effective or, if a post-effective amendment
is filed with respect thereto, as amended by such post-effective amendment at
the time of its effectiveness, including in each case all information
incorporated by reference therein, all Rule 430A Information deemed to be
included therein at the Effective Date pursuant to Rule 430A of the Securities
Act Regulations and all financial statements and exhibits included or
incorporated by reference therein, (iii) the term "Rule 430A Information" means
information with respect to the Shares and the public offering thereof
permitted, pursuant to the provisions of paragraph (a) of Rule 430A of the
Securities Act Regulations, to be omitted from the form of prospectus included
in the Registration Statement at the time it is declared effective by the
Commission, (iv) the term "Prospectus" means the form of final prospectus
relating to the Shares first filed with the Commission pursuant to Rule 424(b)
of the Securities Act Regulations or, if no filing pursuant to Rule 424(b) is
required, the form of final prospectus included in the Registration Statement at
the Effective Date and (v) the term "preliminary prospectus" means any
preliminary prospectus (as described in Rule 430 of the Securities Act
Regulations) with respect to the Shares that omits Rule 430A Information. Any
reference herein to the Registration Statement, the Prospectus, any amendment or
supplement thereto or any preliminary prospectus shall be deemed to refer to and
include the documents incorporated by reference therein which were filed under
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the
rules and regulations of the Commission promulgated thereunder (the "Exchange
Act Regulations"), and any reference herein to the terms "amend," "amendment" or
"supplement" with respect to the Registration Statement or Prospectus shall be
deemed to refer to and include the filing after the execution hereof of any
document with the Commission deemed to be incorporated by reference therein. For
purposes of this Agreement the term "subsidiaries" shall mean all direct and
indirect subsidiaries of the Company, as listed on Exhibit A hereto, and shall
include those corporations, partnerships and other business entities, whether
domestic or foreign, which are, or under generally accepted accounting
principles should be, consolidated for purposes of the Company's financial
reporting.
3. Purchase and Sale of the Shares. Subject to all the terms and conditions
set forth herein (i) the Company agrees to issue and sell _________ Firm Shares
and (ii) each Selling Stockholder agrees, severally and not jointly, to sell the
number of Firm Shares set forth opposite such Selling Stockholder's name on
Schedule II hereto to each Underwriter and, upon the basis of the
representations, warranties, covenants and agreements of the Company and the
Selling Stockholders herein contained and subject to all the terms and
conditions set forth herein, each Underwriter agrees, severally and not jointly,
to purchase from the Company and the Selling Stockholders, at a purchase
2
price of $_____ per Share, the number of Firm Shares set forth opposite the name
of such Underwriter on Schedule I hereto (or such number of Firm Shares
increased as set forth in Section 13 hereof).
The Company also agrees, subject to all the terms and conditions set forth
herein, to sell to the Underwriters, and, upon the basis of the representations,
warranties and agreements of the Company herein contained and subject to all the
terms and conditions set forth herein, the Underwriters shall have the right to
purchase from the Company, solely for the purpose of covering over-allotments in
connection with sales of the Firm Shares, at the purchase price per share,
pursuant to an option (the "over-allotment option") which may be exercised at
any time and from time to time prior to 9:00 p.m., New York City time, on the
30th day after the date of the Prospectus (or, if such 30th day shall be a
Saturday or Sunday or a holiday, on the next business day thereafter when the
New York Stock Exchange is open for trading), up to an aggregate of _______
Additional Shares. Upon any exercise of the over-allotment option, each
Underwriter, severally and not jointly, agrees to purchase from the Company the
number of Additional Shares (subject to such adjustments as the Underwriters may
determine in order to avoid fractional shares) that bears the same proportion to
the aggregate number of Additional Shares to be purchased by the Underwriters as
the number of Firm Shares set forth opposite the name of such Underwriter on
Schedule I hereto (or such number of Firm Shares increased as set forth in
Section 13 hereof) bears to the aggregate number of Firm Shares.
The Sellers hereby agree, severally and not jointly, and the Company shall,
concurrently with the execution of this Agreement, deliver an agreement executed
by each stockholder listed on Schedule II hereto, pursuant to which each such
person agrees not to sell, offer to sell, solicit an offer to buy, contract to
sell, grant any option to purchase, or otherwise transfer or dispose of any
capital stock of the Company, or any securities that are convertible into or
exercisable or exchangeable for capital stock of the Company, except to the
Underwriters pursuant to this Agreement, for a period of ____ days from the date
of the Prospectus as set forth in each such agreement, in each case, without the
prior written consent of Bear, Stearns & Co., Inc., which consent will not be
unreasonably withheld.
4. Offering. It is understood that the Underwriters propose to make a
public offering of their respective portions of the Shares as soon after the
Registration Statement and this Agreement have become effective as in the
Representatives' judgment is advisable and initially to offer the Shares for
sale to the public as set forth in the Prospectus.
5. Delivery of the Shares and Payment Therefor. Delivery to the
Representatives of and payment for the Firm Shares shall be made at the office
of Latham & Watkins, 885 Third Avenue, New York, NY 10022, at 10:00 a.m., New
York City time, on ____ __, 1996 (the "Closing Date"). The place of closing for
the Firm Shares and the Closing Date may be varied by agreement between the
Representatives and the Company.
Delivery to the Underwriters of and payment for any Additional Shares to be
purchased by the Underwriters shall be made at the office of Latham & Watkins,
885 Third Avenue, New York, NY 10022 at such time on such date (the "Option
Closing Date"), which may be the same as the Closing Date but shall in no event
be earlier than the Closing Date nor earlier than two nor later than ten
business days after the giving of the notice hereinafter referred to, as shall
be specified in a written notice from the Representatives to the Company of the
Representatives' determination to purchase a number, specified in such notice,
of Additional Shares. The place of closing for any Additional Shares and the
Option Closing Date for such Shares may be varied by agreement between the
Representatives and the Company.
3
Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and in such denominations
as the Representatives shall request prior to 9:30 a.m., New York City time, on
the second business day preceding the Closing Date or the Option Closing Date,
as the case may be. Such certificates shall be made available to the
Representatives in New York City for inspection and packaging not later than
9:30 a.m., New York City time, on the business day next preceding the Closing
Date or the Option Closing Date, as the case may be. The certificates evidencing
the Firm Shares and any Additional Shares to be purchased hereunder shall be
delivered to the Representatives on the Closing Date or the Option Closing Date,
as the case may be, against payment of the purchase price therefor by wire
transfer of immediately available funds to the Company's and each of the Selling
Stockholders' accounts, provided that each of the Company and the Selling
Stockholders shall give at least two business days' prior written notice to the
Underwriters of the information required to effect such wire transfers.
6. Covenants of the Company. The Company covenants and agrees with
each Underwriter that:
(a) The Company will, if the Registration Statement has not
heretofore become effective under the Act, file an amendment to the
Registration Statement or, if necessary pursuant to Rule 430A of the
Securities Act Regulations, file a post-effective amendment to the
Registration Statement, as soon as practicable after the execution and
delivery of this Agreement, and will use its best efforts to cause the
Registration Statement or such post-effective amendment to become
effective at the earliest possible time. If the Registration Statement
has become or becomes effective pursuant to Rule 430A of the
Securities Act Regulations, or filing of the Prospectus is otherwise
required under Rule 424(b) of the Securities Act Regulations, the
Company will file the Prospectus, properly completed, pursuant to Rule
424(b) of the Securities Act Regulations within the time period
therein prescribed and will provide evidence satisfactory to the
Underwriters of such timely filing. The Company in all other respects
will comply fully and in a timely manner with the applicable
provisions of Rule 424 and Rule 430A of the Securities Act Regulations
and with Rule 462 of the Securities Act Regulations, if applicable.
(b) The Company will promptly advise the Underwriters, and, if so
requested by the Underwriters, confirm such advice in writing, (i)
when the Registration Statement, any Rule 462 Registration Statement
or any post-effective amendment thereto has become effective and if
and when the Prospectus is sent for filing pursuant to Rule 424(b) of
the Securities Act Regulations, (ii) of receipt by the Company or any
representative or attorney of the Company of any communications from
the Commission relating to the Company, the Registration Statement,
any preliminary prospectus, the Prospectus, any document incorporated
by reference therein, or the transactions contemplated by this
Agreement, including, without limitation, the receipt of a request by
the Commission for any amendment or supplement to the Registration
Statement or Prospectus, or any document incorporated by reference
therein, or the receipt of any comments from the Commission, (iii) of
the initiation or threatening of any proceedings for, or receipt by
the Company of any notice with respect to, the issuance by the
Commission of any stop order suspending effectiveness of the
Registration Statement or any post-effective amendment thereto or the
issuance by any state securities commission or other regulatory
authority of any order suspending the qualification or exemption from
qualification of the Shares for the offering or sale in any
jurisdiction and (iv) during the period when the
4
Prospectus is required to be delivered under the Act, of any material
change in the Company's condition (financial or otherwise), business,
prospects, properties, assets, liabilities, net worth, results of
operations, cash flows or of the happening of any event that makes any
statement of a material fact made in the Registration Statement untrue
or that requires the making of any additions to or changes in the
Registration Statement in order to make the statements therein not
misleading or that makes any statement of a material fact made in the
Prospectus untrue or that requires the making of any additions to or
changes in the Prospectus required to be made therein or necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The Company
will use its reasonable best efforts to prevent the issuance of an
order by the Commission at any time suspending the effectiveness of
the Registration Statement or any post-effective amendment thereto, or
by any state securities commission or other regulatory authority
suspending the qualification or exemption from qualification of the
Shares and, if any such order is issued, to obtain its withdrawal or
lifting at the earliest possible time.
(c) The Company will furnish to the Underwriters without charge up
to four signed copies of the Registration Statement (including all
exhibits and all documents incorporated by reference therein, as filed
with the Commission) and four signed copies of all amendments thereto,
and the Company will furnish without charge to those persons
designated by each Underwriter such number of conformed copies of the
Registration Statement, of each preliminary prospectus, the Prospectus
and all amendments of and supplements to such documents, if any, as
such Underwriter may reasonably request. The Company consents to the
use of the Prospectus and any amendments or supplements thereto by any
Underwriter or any dealer, both in connection with the offering or
sale of the Shares and for such period of time thereafter as delivery
of a Prospectus is required by the Act.
(d) The Company will not file any amendment or supplement to the
Registration Statement, or any document that upon filing is deemed to
be incorporated by reference in the Registration Statement or
Prospectus or any amendment of or supplement to the Prospectus,
whether before or after the Effective Date, to which the Underwriters
reasonably object in writing after being timely furnished in advance a
copy thereof. The Company shall promptly prepare and file with the
Commission, upon the Underwriters' reasonable request, any amendment
to the Registration Statement or any supplement to the Prospectus that
may be necessary or advisable in connection with the distribution of
the Shares by the Underwriters. The Company will use its best efforts
to cause any such amendment or supplement to become effective as
promptly as possible.
(e) During the time that a prospectus relating to the Shares is
required to be delivered under the Act, the Company will (i) comply as
far as it is able with all requirements imposed upon it by the Act and
by the Regulations, as from time to time in force, so far as necessary
to permit the continuance of sales of or dealing in the Shares as
contemplated by the provisions hereof and the Prospectus, and (ii)
will file promptly all documents required to be filed with the
Commission pursuant to Section 13 or 14 of the Exchange Act and the
Exchange Act Regulations. If at any time when a prospectus relating to
the Shares is required to be delivered under the Act any event shall
have occurred as a result of which the Registration Statement or the
Prospectus as then supplemented includes an untrue statement of a
material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not
5
misleading, or if it shall be necessary, in the judgment of the
Company or in the reasonable opinion of either counsel to the Company
or counsel to the Underwriters, at any time to amend or supplement the
Registration Statement or Prospectus to comply with the Act or the
Regulations, or to file under the Exchange Act, so as to comply
therewith, any document incorporated by reference in the Registration
Statement or Prospectus or in any amendment or supplement thereto, the
Company will notify the Underwriters promptly and prepare and file
with the Commission an appropriate amendment or supplement (in form
and substance satisfactory to the Underwriters) so that the statements
in the Registration Statement and the Prospectus, as so amended or
supplemented, will not, in the light of the circumstances existing as
of the date the Prospectus is so delivered, be misleading, or so to
effect such compliance with the Act or the Exchange Act and the
Regulations, and the Company will use its best efforts to cause any
such amendment to the Registration Statement to be declared effective
as promptly as possible.
(f) The Company will cooperate with the Underwriters and
Underwriters' counsel, at or prior to the time the Registration
Statement becomes effective, to qualify or register the Shares for
offering and sale and to determine the eligibility for investment of
the Shares under the securities laws of such jurisdictions as the
Underwriters may designate and to maintain such qualification or
registration in effect for so long as required for the distribution
thereof provided, however that the Company shall not be required in
connection therewith to register or qualify as a foreign corporation
or to file any general consent to service of process in any
jurisdiction where it is not already so qualified or subject.
(g) The Company will make generally available (within the meaning
of Section 11(a) of the Act) to its security holders and to the
Underwriters as soon as practicable, but not later than 60 days after
the close of the period covered thereby, an earnings statement,
covering a period of at least twelve consecutive full calendar months
commencing after the effective date of the Registration Statement (but
in no event commencing later than 90 days after such date), that
satisfies the provisions of Section 11(a) of the Act and Rule 158 of
the Securities Act Regulations.
(h) The Company will apply the proceeds from the sale of the
Shares as set forth under the heading "Use of Proceeds" in the
Prospectus.
(i) The Company will do and perform all things required or
necessary to be done and performed under this Agreement by it prior to
the Closing Date and to satisfy all conditions precedent on its part
to the delivery of the Shares.
(j) Prior to the Closing Date, the Company will furnish to the
Underwriters, as soon as they have been prepared in the ordinary
course by the Company, copies of any unaudited interim financial
statements of the Company and Sistemas e Instalaciones de
Telecomunicacion, S.A. ("Sintel"), for any periods subsequent to the
periods covered by the financial statements appearing in the
Registration Statement and the Prospectus.
(k) Neither the Company nor any of its subsidiaries will take,
directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate
the sale or resale of the Shares. Except as permitted by the Act, the
Company will not distribute any Registration
6
Statement, preliminary prospectus, Prospectus or other offering material in
connection with the offering and sale of the Shares.
(l) The Company will use its best efforts to have the Shares listed for
quotation on the Nasdaq National Market concurrently with the effectiveness of
the Registration Statement.
(m) The Company will cooperate and assist in any filings required to be
made by the Underwriters with the National Association of Securities Dealers,
Inc. ("NASD") and in the performance of any due diligence investigation by any
broker/dealer participating in the sale of the Shares.
(n) For a period of five years from Closing Date the Company will deliver
without charge to the Underwriters, as they may reasonably request, promptly
upon their becoming available, copies of (i) all reports or other publicly
available information that the Company shall mail or otherwise make available to
its stockholders and (ii) all reports, financial statements and proxy or
information statements filed by the Company with the Commission or any national
securities exchange and such other publicly available information concerning the
Company or its subsidiaries, including without limitation, press releases.
(o) During the period of ___ days from the date of the Prospectus, the
Company will not, without the prior written consent of Bear Stearns & Co., Inc.,
which consent will not be unreasonably withheld, directly or indirectly issue,
sell, offer to sell, solicit an offer to buy, contract to sell, grant any option
to purchase or otherwise transfer or dispose of or register or announce the sale
or offering of any shares of capital stock of the Company, or any securities
that are convertible into or exercisable or exchangeable for capital stock of
the Company, other than (i) the issuance of shares of capital stock of the
Company in connection with future acquisitions by the Company of assets of, or
equity interests in, telecommunications and related infrastructure services
businesses; (ii) the grant of stock options to employees under the Company's
stock option plans; (iii) the issuance of the Company's common stock upon the
exercise of outstanding stock options, warrants and convertible debt securities;
and (iv) the issuance of shares of the Company's common stock pursuant to a
shelf registration statement on Form S-4 (File No. 333-09607).
(p) The Company shall cause each person listed on Schedule II to enter into
an agreement in the form set forth in Exhibit D to the effect that they will
not, for a period of 180 days after the commencement of the public offering of
the Shares, request or demand the filing of a registration statement with
respect to, offer, sell, contract to sell or otherwise dispose of any shares of
Common Stock (or any securities convertible into or exercisable or exchangeable
for Common Stock) or grant any options or warrants to purchase any shares of
Common Stock without the prior written consent of Bear, Stearns & Co. Inc.,
which consent will not be unreasonably withheld.
(q) The Company will comply with all the provisions of any undertakings
contained in the Registration Statement under the heading "Incorporation of
Certain Documents by Reference."
7. Representations and Warranties of the Company and the Selling
Stockholders.
7
(1) The Company represents and warrants to each Underwriter that:
(a) When the Registration Statement becomes effective, when any post-
effective amendment to the Registration Statement becomes effective, when
the Prospectus is first filed with the Commission pursuant to Rule 424(b)
of the Securities Act Regulations, when any supplement to or amendment of
the Prospectus is filed with the Commission, and at the Closing Date, the
Registration Statement (which, as defined includes all documents
incorporated by reference therein) and, if filed at such time, the
Prospectus (which, as defined includes all documents incorporated by
reference therein) and any amendments thereof and supplements thereto will
comply in all material respects with the applicable provisions of the Act,
the Exchange Act and the Regulations, and such Registration Statement
(which, as defined includes all documents incorporated by reference
therein) did not and will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading; and such
Prospectus (including all documents incorporated by reference therein) or
supplement thereto did not and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. When any related
preliminary prospectus was first filed with the Commission (whether filed
as part of the Registration Statement or an amendment thereof or pursuant
to Rule 424(a) of the Regulations) and when any amendment or supplement
thereto was first filed with the Commission, such preliminary prospectus
and any amendment or supplement thereto complied in all material respects
with the applicable provisions of the Act and the Regulations and did not
contain an untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. No representation or warranty is made in this
subsection (a), however, with respect to any statements in or omissions
from the Registration Statement or the Prospectus or any related
preliminary prospectus or any amendment or supplement thereto based upon
and conforming with information furnished in writing by or on behalf of the
Underwriters or the Selling Stockholders to the Company expressly for use
therein. The Company acknowledges for all purposes under this Agreement
(including Section 11 hereof) that the statements set forth in the last
paragraph on the front cover page of the Prospectus, the two paragraphs on
the inside front cover page of the Prospectus and in the first and second
paragraphs and the third sentence of the third paragraph below the table
under the caption "Underwriting" in the Prospectus constitute the only
written information furnished to the Company by the Underwriters for use in
the Prospectus or any preliminary prospectus (or any amendments or
supplements thereto).
(b) The Company and the transactions contemplated by this Agreement meet
the requirements for using Form S-3 under the Act. The documents incorporated by
reference in the Registration Statement, the Prospectus, any amendment or
supplement thereto or any Preliminary Prospectus and any further documents
incorporated by reference, when they became or become effective under the Act or
were or are filed with the Commission under the Exchange Act, as the case may
be, conformed or will conform in all material respects with the requirements of
the Act or the Exchange Act, as applicable, and the Regulations; no such
document when it was or is filed (or, if an amendment with respect to any such
document was or is filed, when such amendment was filed), contained an untrue
statement of a material fact
8
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein not misleading.
(c) There are no contracts or documents of the Company or any of its
subsidiaries that are required to be described or referred to in the
Registration Statement, or to be filed as exhibits thereto or in or to any of
the documents incorporated by reference therein by the Act, the Exchange Act or
by the Regulations other than those described or referred to therein or filed as
exhibits thereto.
(d) No stop order suspending the effectiveness of the Registration
Statement or preventing or suspending the use of any preliminary prospectus has
been issued and no proceedings for that purpose have been commenced or are
pending before or, to the knowledge of the Company, are contemplated by the
Commission. No stop order suspending the sale of the Shares in any jurisdiction
designated by the Representatives has been issued and no proceedings for that
purpose have been commenced or are pending or, to the knowledge of the Company,
are contemplated.
(e) Each of the Company and its subsidiaries (A) has been duly organized,
is validly existing as a corporation in good standing under the laws of its
respective jurisdiction of incorporation, (B) has all requisite corporate power
and authority to carry on its business as it is currently being conducted and as
described in the Registration Statement and the Prospectus and to own, lease and
operate its properties and (C) is duly qualified and in good standing as a
foreign corporation authorized to do business in each jurisdiction in which the
nature of its business or its ownership or leasing of property requires such
qualification except, with respect to this clause (C), where the failure to be
so qualified or in good standing does not and could not reasonably be expected
to (x) individually or in the aggregate, result in a material adverse effect on
the properties, business, results of operations, condition (financial or
otherwise), affairs or prospects of the Company and its subsidiaries, taken as a
whole, (y) interfere with or adversely affect the issuance or marketability of
the Shares pursuant hereto or (z) in any manner draw into question the validity
of this Agreement (any of the events set forth in clauses (x), (y) or (z), a
"Material Adverse Effect"). All of the issued and outstanding shares of capital
stock of, or other ownership interests in, each subsidiary have been duly
authorized and validly issued, and, with respect to the capital stock, are fully
paid and non-assessable and were not issued in violation of or subject to any
preemptive or similar rights and, except as set forth in the Prospectus or on
Exhibit A, are owned by the Company directly or through subsidiaries, free and
clear of any security interest, mortgage, pledge, lien, encumbrance, claim or
other restriction on transferability or voting. Except as set forth in the
Prospectus or on Exhibit A, neither the Company nor any of its subsidiaries owns
or holds any interest in any corporation, partnership, trust or association,
joint venture or other entity.
(f) All of the outstanding shares of capital stock of the Company have
been duly authorized, validly issued and are fully paid and nonassessable and
were not issued in violation of any preemptive or similar rights; the Shares
have been duly authorized and, when issued and delivered to the Underwriters
against payment therefor in accordance with the terms hereof, will be validly
issued, fully paid and nonassessable and free of any preemptive or similar
rights. The authorized, issued and outstanding capital stock of the Company
conforms in all respects to the description thereof set forth in the
Registration Statement and Prospectus. Except as set forth in the Prospectus,
there are no outstanding subscriptions, rights, warrants,
9
calls, commitments of sale or options to acquire, or instruments convertible
into or exchangeable or exercisable for, any capital stock or other equity
interest in the Company or any of its subsidiaries.
(g) The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby, including, without limitation,
the corporate power and authority to issue, sell and deliver the Company Shares
as provided herein.
(h) This Agreement has been duly and validly authorized, executed and
delivered by the Company and is the legal, valid and binding agreement of the
Company, enforceable against it in accordance with its terms, except insofar as
indemnification and contribution provisions may be limited by applicable law or
equitable principles and subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization or similar laws affecting the rights of
creditors generally and subject to general principles of equity.
(i) None of the Company or any of the subsidiaries is (A) in violation of
its charter or bylaws, (B) in default in the performance of any bond, debenture,
note, indenture, mortgage, deed of trust or other agreement or instrument to
which it is a party or by which it is bound or to which any of its properties is
subject, or (C) in violation of any local, state, Federal or Spanish law,
statute, ordinance, rule, regulation, requirement, judgment or court decree
applicable to the Company or any subsidiary or any of their assets or properties
(whether owned or leased) other than, in the case of clauses (B) and (C), any
default or violation that could not reasonably be expected to have a Material
Adverse Effect. To the best knowledge of the Company, there exists no condition
that, with notice, the passage of time or otherwise, would constitute a default
under any such document or instrument, except for defaults that could not
reasonably be expected to have a Material Adverse Effect.
(j) All of the Company's subsidiaries are listed on Exhibit A hereto. None
of (A) the execution, delivery or performance by the Company of this Agreement
and (B) the issuance and sale of the Company Shares violate, conflict with or
constitute a breach of any of the terms or provisions of, or a default under (or
an event that with notice or the lapse of time, or both, would constitute a
default), or require consent under, or result in the imposition of a lien or
encumbrance on any properties of the Company or any subsidiary, or an
acceleration of any indebtedness of the Company or any subsidiary pursuant to,
(i) the charter or bylaws of the Company or any subsidiary, (ii) any bond,
debenture, note, indenture, mortgage, deed of trust or other agreement or
instrument to which the Company or any subsidiary is a party or by which any of
them or their property is or may be bound, (iii) any statute, rule or regulation
applicable to the Company or any subsidiary or any of their respective assets or
properties or (iv) any judgment, order or decree of any court or governmental
agency or authority having jurisdiction over the Company or the subsidiaries or
any of their assets or properties, except in the case of clauses (ii), (iii) and
(iv) for such violations conflicts, breaches, defaults, consents, impositions of
liens or accelerations that would not singly, or in the aggregate, have a
Material Adverse Effect. Other than as described in the Prospectus, no consent,
approval, authorization or order of, or filing, registration, qualification,
license or permit of or with, (A) any court or governmental agency, body or
administrative agency or (B) any other person is required for (1) the execution,
delivery and performance by the Company of this Agreement or (2) the issuance
and sale of the Company Shares and the transactions contemplated hereby and
thereby, except
10
(x) such as have been obtained and made under the Act and state securities
or Blue Sky laws and regulations or such as may be required by the NASD or
(y) where the failure to obtain any such consent, approval, authorization
or order of, or filing registration, qualification, license or permit would
not reasonably be expected to result in a Material Adverse Effect.
(k) There is (i) no action, suit, investigation or proceeding before
or by any court, arbitrator or governmental agency, body or official,
domestic or foreign, now pending or, to the best knowledge of the Company
or any subsidiary, threatened or contemplated to which the Company or any
of its subsidiaries is or may be a party or to which the business or
property of the Company or any of its subsidiaries is or may be subject,
(ii) no statute, rule, regulation or order that has been enacted, adopted
or issued by any governmental agency or that has been proposed by any
governmental body or (iii) no injunction, restraining order or order of any
nature by a federal or state court or foreign court of competent
jurisdiction to which the Company or any subsidiary is or may be subject or
to which the business, assets or property of the Company or any subsidiary
are or may be subject that, in the case of clauses (i), (ii) and (iii)
above, (x) is required to be disclosed in the Registration Statement or the
Prospectus and that is not so disclosed, (y) could reasonably be expected
to, individually or in the aggregate, result in a Material Adverse Effect
or (z) might interfere with, adversely affect or in any manner question the
validity of the issuance and sale of the Shares or any of the other
transactions contemplated by this Agreement and the Registration Statement.
(l) Except as set forth in the Prospectus, there is (i) no significant
unfair labor practice complaint pending against the Company or any
subsidiary nor, to the best knowledge of the Company, threatened against
any of them, before the National Labor Relations Board, any state or local
labor relations board or any foreign labor relations board, and no
significant grievance or significant arbitration proceeding arising out of
or under any collective bargaining agreement is so pending against the
Company or any subsidiary or, to the best knowledge of the Company,
threatened against any of them, (ii) no significant strike, labor dispute,
slowdown or stoppage pending against the Company or any subsidiary nor, to
the best knowledge of the Company, threatened against the Company or any
subsidiary and (iii) to the best knowledge of the Company, no union
representation question existing with respect to the employees of the
Company or any subsidiary that, in the case of clauses (i), (ii) or (iii),
could reasonably be expected to result in a Material Adverse Effect. To
the best knowledge of the Company, except as set forth in the Prospectus,
no collective bargaining organizing activities are taking place with
respect to the Company and the subsidiaries. None of the Company or any
subsidiary has violated (A) any federal, state or local law or foreign law
relating to discrimination in hiring, promotion or pay of employees, (B)
any applicable wage or hour laws or (C) any provision of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or the rules
and regulations thereunder, which in the case of clause (A), (B) or (C)
above could reasonably be expected to result in a Material Adverse Effect.
(m) None of the Company or any subsidiary has violated any
environmental, safety or similar law or regulation applicable to it or its
business or property relating to the protection of human health and safety,
the environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), lacks any permit, license or other
approval required of it under applicable Environmental Laws or is violating
any term or condition of such permit, license or approval which could
reasonably be expected to, either individually or in the aggregate, have a
Material Adverse Effect.
11
(n) Each of the Company and the subsidiaries has (i) good and
marketable title to all of the properties and assets described in the
Prospectus as owned by it, free and clear of all liens, charges,
encumbrances and restrictions, except such as are described in the
Registration Statement or as would not have a Material Adverse Effect,
(ii) peaceful and undisturbed possession under all material leases to which
any of them is a party as lessee, (iii) all licenses, certificates,
permits, authorizations, approvals, franchises and other rights from, and
has made all declarations and filings with, all federal, state and local
authorities, all self-regulatory authorities and all courts and other
tribunals (each an "Authorization") necessary to engage in the business
conducted by any of them in the manner described in the Prospectus, except
as described in the Prospectus or where failure to hold such Authorizations
would not, individually or in the aggregate, have a Material Adverse Effect
and (iv) no reason to believe that any governmental body or agency is
considering limiting, suspending or revoking any such Authorization. All
such Authorizations are valid and in full force and effect and each of the
Company and the subsidiaries is in compliance in all material respects with
the terms and conditions of all such Authorizations and with the rules and
regulations of the regulatory authorities having jurisdiction with respect
thereto. All material leases to which the Company and the subsidiaries is a
party are valid and binding and no default by the Company or any subsidiary
has occurred and is continuing thereunder and, to the best knowledge of the
Company and the subsidiaries, no material defaults by the landlord are
existing under any such lease that could reasonably be expected to result
in a Material Adverse Effect.
(o) Each of the Company and the subsidiaries owns, possesses or has
the right to employ all patents, patent rights, licenses (including all
state, local or other jurisdictional regulatory licenses), inventions,
copyrights, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, software, systems or
procedures), trademarks, service marks and trade names, inventions,
computer programs, technical data and information (collectively, the
"Intellectual Property") presently employed by it or its subsidiaries in
connection with the businesses now operated by it or which are proposed to
be operated by it or its subsidiaries free and clear of and without
violating any right, claimed right, charge, encumbrance, pledge, security
interest, restriction or lien of any kind of any other person, except where
the failure to own or possess or have the right to employ any Intellectual
Property could not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect. None of the Company or
any subsidiary has received any notice of infringement of or conflict with
asserted rights of others with respect to any of the foregoing. To the
best knowledge of the Company, except where the infringement could not
reasonably be expected to have a Material Adverse Effect, the use of the
Intellectual Property in connection with the business and operations of the
Company and the subsidiaries does not infringe on the rights of any person.
(p) None of the Company or any subsidiary, or to the best knowledge of
the Company, any of their respective officers, directors, partners,
employees, agents or affiliates or any other person acting on behalf of the
Company or any subsidiary has, directly or indirectly, given or agreed to
give any money, gift or similar benefit (other than legal price concessions
to customers in the ordinary course of business) to any customer, supplier,
employee or agent of a customer or supplier, official or employee of any
governmental agency (domestic or foreign), instrumentality of any
government (domestic or foreign) or any political party or candidate for
office (domestic or foreign) or other person who was, is or may be in a
12
position to help or hinder the business of the Company or any subsidiary
(or assist the Company or any subsidiary in connection with any actual or
proposed transaction) which (i) might subject the Company or any
subsidiary, or any other individual or entity to any damage or penalty in
any civil, criminal or governmental litigation or proceeding (domestic or
foreign), which could reasonably be expected to have a Material Adverse
Effect, (ii) if not given in the past, might have had a material adverse
effect on the assets, business or operations of the Company or any
subsidiary or (iii) if not continued in the future, might have a Material
Adverse Effect.
(q) All material tax returns required to be filed by the Company and
each of the subsidiaries in all jurisdictions have been so filed. All
taxes, including withholding taxes, penalties and interest, assessments,
fees and other charges due or claimed to be due from such entities or that
are due and payable have been paid, other than those being contested in
good faith and for which adequate reserves have been provided or those
currently payable without penalty or interest. To the knowledge of the
Company, there are no material proposed additional tax assessments against
the Company, the assets or property of the Company or any subsidiary.
(r) None of the Company or the subsidiaries is (i) an "investment
company" or a company "controlled" by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended or (ii) a
"holding company" or a "subsidiary company" or an "affiliate" of a holding
company within the meaning of the Public Utility Holding Company Act of
1935, as amended.
(s) Except as disclosed in the Prospectus, no holders of any
securities of the Company or any of the subsidiaries or their respective
affiliates or of any options, warrants or other convertible or exchangeable
securities of the Company or the subsidiaries or their respective
affiliates are entitled to include any such securities in or to have such
securities registered under the Registration Statement.
(t) Each of the Company and the subsidiaries maintains third-party
insurance or has established self-insurance arrangements covering its
properties, operations, personnel and businesses. Such third-party
insurance or self-insurance arrangements insures against such losses and
risks as are adequate in accordance with customary industry practice to
protect the Company and the subsidiaries and their respective businesses.
None of the Company or any subsidiary has received notice from any third-
party insurer or agent of such insurer that substantial capital
improvements or other expenditures will have to be made in order to
continue such insurance. All such insurance is outstanding and duly in
force on the date hereof.
(u) None of the Company or any of its subsidiaries has taken, directly
or indirectly, any action designed to, or that might reasonably be expected
to, cause or result in stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Shares.
Except as permitted by the Act, the Company has not distributed any
Registration Statement, preliminary prospectus, Prospectus or other
offering material in connection with the offering and sale of the Shares.
13
(v) Subsequent to the respective dates as of which information is
given in the Registration Statement and up to the Closing Date, except as
set forth in the Registration Statement, there has not been any material
adverse change in the business, prospects, properties, assets, liabilities,
operations, condition (financial or otherwise), results of operations or
cash flows of the Company and its subsidiaries, taken as a whole, whether
or not arising from transactions in the ordinary course of business, and
since the date of the latest balance sheet included in the Registration
Statement, neither the Company nor any of its subsidiaries has incurred or
undertaken any liabilities or obligations, direct or contingent, which are
material to the Company and its subsidiaries, taken as a whole, except for
liabilities or obligations which were incurred or undertaken in the
ordinary course of business or are reflected in the Registration Statement
and the Prospectus. Subsequent to the dates as of which information is
given in the Registration Statement and the Prospectus, except as disclosed
therein, there has not been any decrease in the capital stock of the
Company, any increase in long-term indebtedness or any material increase in
short-term indebtedness of the Company, any of its subsidiaries or any
payment of or declaration to pay any dividends or any other distribution
with respect to the capital stock of the Company.
(w) Coopers & Lybrand L.L.P., whose reports are included or
incorporated by reference in the Registration Statement, are independent
certified public accountants with regard to the Company as required by the
Act and the Securities Act Regulations. Arthur Andersen, whose reports are
included or incorporated by reference in the Registration Statement, are
independent certified public accountants of Sintel as required by the Act
and the Securities Act Regulations.
(x) The consolidated historical financial statements of the Company,
its subsidiaries and the related notes and schedules included in the
Registration Statement and the Prospectus comply in all material respects
with the requirements of the Act and the Securities Act Regulations,
including, without limitation, Regulation S-X, and present fairly the
financial position of the Company and its subsidiaries as of the dates
indicated and the results of operations and cash flows of the Company and
its subsidiaries for the periods therein specified. Such historical
consolidated financial statements (including the related notes and
schedules) have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
therein specified, subject in the case of interim statements to normal
year-end audit adjustments. Since the date of the latest of such
historical consolidated financial statements, there has been no material
adverse change in the financial position, results of operations or business
of the Company and its subsidiaries, taken as a whole.
(y) The financial information of the Company and its subsidiaries set
forth in the Prospectus under the captions "Prospectus Summary -- Summary
Consolidated Financial Data," "Capitalization," "Selected Consolidated
Financial Data," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" has been fairly stated in all material
respects in relation to the relevant financial statements of the Company
and its subsidiaries and from which such information has been derived.
(z) The pro forma financial information and the related notes thereto
included in the Registration Statement have been prepared in accordance
with the Commission's rules and guidelines with respect to pro forma
financial statements, have been properly compiled on the
14
pro forma basis described therein and, in the opinion of the Company, the
assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the transactions
and circumstances referred to therein.
(aa) Except pursuant to this Agreement, there are no contracts,
agreements or understandings between the Company and any other person that
would give rise to a valid claim against the Company or any of the
Underwriters for a brokerage commission, finder's fee or like payment in
connection with the issuance, purchase and sale of the Shares.
(bb) Each certificate signed by any officer of the Company and
delivered to the Underwriters or counsel for the Underwriters shall be
deemed to be a representation and warranty by the Company to the
Underwriters as to the matters covered thereby.
(cc) The Company has complied with all provisions of Section 517.075,
Florida Statutes, relating to doing business with the Government of Cuba or
with any person or any affiliate located in Cuba.
(dd) Each of the Company Shares and this Agreement, as or when
executed and delivered, will conform in all material respects to the
descriptions thereof contained in the Registration Statement and the
Prospectus.
(ee) The Company has delivered to the Underwriters true and correct
executed copies of the acquisition agreement (the "Acquisition Agreement"),
dated as of April 30, 1996, with respect to the purchase of Sintel, and all
related documents and there have been no material amendments, alterations,
modifications or waivers thereto other than those as to which the
Underwriters shall previously have been advised. The Acquisition Agreement
is the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except insofar as
indemnification and contribution provisions may be limited by applicable
law or equitable principles and subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization or similar laws affecting
the rights of creditors generally and subject to general principles of
equity. The Company has not received any notice from, or given any notice
to, any other party indicating that the Company or such other party is in
breach of or in default under the Acquisition Agreement. To the best
knowledge of the Company, no other party to the Acquisition Agreement is in
breach of or in default under the Acquisition Agreement, nor has any
assertion been made by the Company of any such breach or default. The
Company is not in breach of or in default under, nor has any event occurred
which (with or without the giving of notice or the passage of time or both)
would result in any breach of or default under, the Acquisition Agreement.
(ff) The closing contemplated by the Acquisition Agreement has
occurred, and the Company has purchased all of the issued and outstanding
stock of Sintel in accordance with the Acquisition Agreement. The
execution, delivery and performance by the Company of the Acquisition
Agreement, and the consummation by the Company of the transactions
contemplated thereby, was duly authorized by all necessary corporate action
on the part of the Company.
(2) Each Selling Stockholder severally represents and warrants to each
Underwriter, and, with respect to Section 7(2)(j), covenants and agrees with
each Underwriter, that:
15
(a) Such Selling Stockholder is the lawful owner of the Shares to be
sold by such Selling Stockholder pursuant to this Agreement and has, and on
the Closing Date (and Option Closing Date, if applicable) will have, good
and clear title to such Shares, free of all restrictions on transfer,
liens, encumbrances, security interests and claims whatsoever.
(b) Upon delivery of and payment for such Shares pursuant to this
Agreement, good and clear title to such Shares will pass to the
Underwriters, free of all restrictions on transfer, liens, encumbrances,
security interests and claims whatsoever.
(c) Such Selling Stockholder has no reason to believe that the
representations and warranties of the Company contained in this Section 7
are not true and correct, is familiar with the Registration Statement and
has no knowledge of any material fact, condition or information not
disclosed in the Prospectus or any supplement thereto which has adversely
affected or may adversely affect the business of the Company or any of its
subsidiaries; and the sale of Shares by such Selling Stockholder pursuant
hereto is not prompted by any material information concerning the Company
or any of its subsidiaries which is not set forth in the Prospectus or any
supplement thereto.
(d) If such Selling Stockholder is a corporation, such Selling
Stockholder has been duly incorporated and is an existing corporation in
good standing under the laws of its jurisdiction of incorporation.
(e) Such Selling Stockholder has, and on the Closing Date will have,
full legal right, power and authority to enter into this Agreement and the
Custody Agreement between the Selling Stockholders and the Company, as
Custodian (the "Custody Agreement") and to sell, assign, transfer and
deliver such Shares in the manner provided herein and therein, and this
Agreement and the Custody Agreement have been duly authorized, executed and
delivered by such Selling Stockholder and each of this Agreement and the
Custody Agreement is a valid and binding agreement of such Selling
Stockholder enforceable in accordance with its terms, except insofar as
indemnification and contribution provisions may be limited by applicable law
or equitable principles and subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization or similar laws affecting the rights
of creditors generally and subject to general principles of equity.
(f) The power of attorney signed by such Selling Stockholder
appointing Jorge Mas as its attorney-in-fact to the extent set forth
therein with regard to the transactions contemplated hereby and by the
Registration Statement and the Custody Agreement has been duly authorized,
executed and delivered by or on behalf of such Selling Stockholder and is a
valid and binding instrument of such Selling Stockholder enforceable in
accordance with its terms, and, pursuant to such power of attorney, such
Selling Stockholder has authorized Jorge Mas to execute and deliver on its
behalf this Agreement and any other document necessary or desirable in
connection with transactions contemplated hereby and to deliver the Shares
to be sold by such Selling Stockholder pursuant to this Agreement.
(g) Such Selling Stockholder has not taken, and will not take,
directly or indirectly, any action designed to, or which might reasonably
be expected to, cause or result in stabilization or manipulation of the
price of any security of the Company to facilitate the sale or
16
resale of the Shares pursuant to the distribution contemplated by this
Agreement, and other than as permitted by the Act, the Selling Stockholder
has not distributed and will not distribute any prospectus or other
offering material in connection with the offering and sale of the Shares.
(h) The execution, delivery and performance of this Agreement by such
Selling Stockholder, compliance by such Selling Stockholder with all the
provisions hereof and the consummation of the transactions contemplated
hereby will not require any consent, approval, authorization or other order
of any court, regulatory body, administrative agency or other governmental
body (except as such may be required under the Act, state securities laws
or Blue Sky laws) and will not conflict with or constitute a breach of any
of the terms or provisions of, or a default under, organizational documents
of such Selling Stockholder, if not an individual, or any agreement,
indenture or other instrument to which such Selling Stockholder is a party
or by which such Selling Stockholder or property of such Selling
Stockholder is bound, or violate or conflict with any laws, administrative
regulation or ruling or court decree applicable to such Selling Stockholder
or property of such Selling Stockholder.
(i) Such parts of the Registration Statement, comprised of the table
and notes thereto under the caption "Principal and Selling Stockholders"
which specifically relate to such Selling Stockholder do not, and will not
on the Closing Date (and option Closing Date, if applicable), contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of circumstances under which they were made, not misleading.
(j) At any time during the period described in paragraph 6(e) hereof,
if there is any change in the information referred to in the above
paragraph, the Selling Stockholders will immediately notify the
Representatives of such change.
The Company and the Selling Stockholders acknowledge that each of the
Underwriters and, for purposes of the opinions to be delivered to the
Underwriters pursuant to Section 10 hereof, counsel to the Company and counsel
to the Underwriters, will rely upon the accuracy and truth of the foregoing
representations and hereby consents to such reliance.
9. Payment of Expenses. Whether or not the transactions
contemplated in this Agreement are consummated or this Agreement becomes
effective or is terminated, the Company agrees to pay and be responsible for all
costs, expenses, fees and taxes incident to the performance of the obligations
of the Company and the Selling Stockholders hereunder, including in connection
with: (i) preparing, printing, duplicating, filing and distributing the
Registration Statement, as originally filed and all amendments thereto
(including, without limitation, financial statements and all exhibits thereto),
each preliminary prospectus, the Prospectus and any amendments thereof or
supplements thereto, the underwriting documents (including this Agreement) and
all other documents related to the public offering of the Shares (including
those supplied to the Underwriters in quantities as hereinabove stated); (ii)
the preparation (including, without limitation, duplication costs) and delivery
of all preliminary and final Blue Sky memoranda prepared and delivered in
connection herewith; (iii) the registration with the Commission (including all
filing fees incident thereto) and the issuance, transfer and delivery of the
Shares to the Underwriters, including, without limitation, the fees of the
transfer agent and registrar for the Company, the cost of its personnel and
other internal costs, the costs of printing and engraving the certificates
representing the Shares and any transfer or other taxes payable thereon; (iv)
the qualification or registration of the Shares for offering and sale under
state and foreign securities or Blue
17
Sky laws, including, without limitation, the costs of printing and mailing a
preliminary and final Blue Sky memoranda and the reasonable fees and
disbursements of Underwriters' counsel in relation thereto; (v) the fees,
disbursements and expenses of the Company's counsel and accountants; (vi) the
filing, registration, review and clearance of the terms of the public offering
of the Shares with and by the NASD including, in each case, any filing fees and
fees and disbursements of Underwriters' counsel in connection therewith; and
(vii) "roadshow" travel and other expenses incurred in connection with the
marketing and sale of the Shares (other than out-of-pocket expenses incurred by
the Underwriters for travel, meals and lodging).
10. Conditions of Underwriters' Obligations. The several obligations
of the Underwriters to purchase and pay for the Firm Shares, as provided herein,
shall be subject to the absence from any certificates, opinions, written
statements or letters furnished pursuant to this Section 10 to the Underwriters
or to Underwriters' counsel of any misstatement or omission and to the
satisfaction of each of the following additional conditions:
(a) All of the representations and warranties of the Company contained
herein shall be true and correct on the date hereof and on the Closing Date
with the same force and effect as if made on and as of the date hereof and
the Closing Date, respectively. The Company shall have performed or
complied with all of the agreements herein contained and required to be
performed or complied with by it at or prior to the Closing Date.
(b) The Registration Statement shall have become effective (or if a
post-effective amendment is required to be filed pursuant to Rule 430A
under the Securities Act Regulations, such post effective amendment shall
become effective) not later than 5:00 P.M., New York City time, on the date
of this Agreement or at such later time and date as shall have been
consented to in writing by the Representatives. At or prior to the Closing
Date no stop order suspending the effectiveness of the Registration
Statement or any post-effective amendment thereof shall have been issued
and no proceedings therefor shall have been initiated or threatened by the
Commission; and every request for additional information on the part of the
Commission (including, without limitation, any request or comment with
respect to the Registration Statement, the Prospectus or any document
incorporated by reference therein) shall have been complied with in all
material respects. No stop order suspending the sale of the Shares in any
jurisdiction designated by the Representatives shall have been issued and
no proceedings for that purpose shall have been commenced or be pending or,
to the knowledge of the Company, be contemplated.
(c) No action shall have been taken and no statute, rule, regulation
or order shall have been enacted, adopted or issued by any governmental
agency which would, as of the Closing Date, prevent the issuance of the
Shares; and no action, suit or proceeding shall have been commenced and be
pending against or affecting or, to the best knowledge of the Company,
threatened against, the Company or the subsidiaries before any court or
arbitrator or any governmental body, agency or official that, if adversely
determined, could reasonably be expected to result in a Material Adverse
Effect.
(d) Since the date of the latest balance sheet included in the
Registration Statement and the Prospectus, and except as disclosed therein
or contemplated thereby, (i) there shall not have been any material adverse
change, or any development that is reasonably likely to result in a
material adverse change, in the capital stock or the long-term debt, or
material increase in
18
the short-term debt, of the Company and the subsidiaries from that set
forth in the Registration Statement and the Prospectus, (ii) no dividend
or distribution of any kind shall have been declared, paid or made by the
Company or any subsidiary on any class of its capital stock and (iii)
neither the Company nor any subsidiary shall have incurred any liabilities
or obligations, direct or contingent, that are material, individually or in
the aggregate, to the Company and the subsidiaries, taken as a whole, and
that are required to be disclosed on a balance sheet or notes thereto in
accordance with generally accepted accounting principles and are not
disclosed on the latest balance sheet or notes thereto included in the
Registration Statement and the Prospectus. Since the date hereof and since
the dates as of which information is given in the Registration Statement
and the Prospectus, there shall not have occurred any material adverse
change, or any development involving a prospective material adverse change,
in the condition (financial or otherwise), business, properties, assets,
liabilities, prospects, net worth, results of operations or cash flow of
the Company and its subsidiaries.
(e) The Underwriters shall have received a certificate, dated the
Closing Date, signed on behalf of the Company by (i) Jorge Mas, President
and Chief Executive Officer and (ii) a principal financial officer and
Secretary, in form and substance reasonably satisfactory to the
Underwriters, confirming, as of the Closing Date, the matters set forth in
paragraphs (a), (b), (c) and (d) of this Section 10 and that, as of the
Closing Date, the obligations of the Company to be performed hereunder on
or prior thereto have been duly performed and stating that each signer of
such certificate has examined the Registration Statement and the Prospectus
and to the best of their knowledge (A) as of the date of such certificate,
such documents do not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein (in the case of the Prospectus, in the
light of the circumstances under which they were made) not misleading and
(B) since the Effective Date no event has occurred as a result of which it
is necessary to amend or supplement the Registration Statement or
Prospectus in order to make the statements therein, in the light of the
circumstances under which they were made, not untrue or misleading in any
material respect, and (C) there has been no document required to be filed
under the Exchange Act and the Exchange Act Regulations that upon such
filing would be incorporated by reference into the Prospectus that has not
been so filed.
(f) All the representations and warranties of the Selling Stockholders
contained in this Agreement shall be true and correct on the Closing Date
with the same force and effect as if made on and as of the Closing Date and
the Underwriters shall have received a certificate to such effect, dated
the Closing Date, from each Selling Stockholder.
(g) At the Closing Date, the Underwriters shall have received the
opinion of Fried, Frank, Harris, Shriver & Jacobson, counsel for the
Company, or such other counsel reasonably satisfactory to the Underwriters,
dated the Closing Date, in form and substance reasonably satisfactory to
the Underwriters and Underwriters' counsel, to the effect set forth in
Exhibit B hereto.
(h) At the Closing Date, the Underwriters shall have received the
opinion of Jose M. Sariego, General Counsel of the Company, dated the
Closing Date, in form and substance reasonably satisfactory to the
Underwriters and Underwriters' counsel, to the effect set forth in Exhibit
C hereto.
19
(i) At the time this Agreement is executed and at the Closing Date the
Underwriters shall have received from each of (A) Coopers & Lybrand L.L.P.,
independent certified public accountants for the Company and (B) Arthur
Andersen, independent certified public accountants for Sintel, in each
case, dated as of the date of this Agreement and as of the Closing Date,
customary comfort letters addressed to the Underwriters and in form and
substance satisfactory to the Underwriters and counsel to the Underwriters
with respect to the financial statements and certain financial information
of the Company and Sintel, together with each of their respective direct
and indirect subsidiaries contained in the Registration Statement and the
Prospectus.
(j) Latham & Watkins shall have been furnished with such documents, in
addition to those set forth above, as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in
this Section 10 and in order to evidence the accuracy, completeness or
satisfaction in all material respects of any of the representations,
warranties or conditions herein contained.
(k) On or prior to the Closing Date, the Underwriters shall have
received the executed agreements referred to in Section 6(p) hereof.
(l) Prior to the Closing Date, the Company, its subsidiaries and the
Selling Stockholders shall have furnished to the Underwriters such further
information, certificates and documents as the Underwriters may reasonably
request.
If any of the conditions specified in this Section 10 shall not have
been fulfilled when and as required by this Agreement, or if any of the
certificates, opinions, written statements or letters furnished to the
Underwriters or to Underwriters' counsel pursuant to this Section 10 shall not
be reasonably satisfactory in form and substance to the Underwriters and to
Underwriters' counsel, all of the obligations of the Underwriters hereunder may
be cancelled by the Underwriters at, or at any time prior to, the Closing Date.
Notice of such cancellation shall be given to the Sellers in writing, or by
telephone, telecopy, telex or telegraph, confirmed in writing.
11. Indemnification.
(a) The Company and each Selling Stockholder, jointly and severally,
agree to indemnify and hold harmless (i) each of the Underwriters, (ii)
each person, if any, who controls any Underwriter within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act and (iii) the
respective officers, directors, partners, employees, representatives and
agents of any of the Underwriters or any controlling person to the fullest
extent lawful, from and against any and all losses, liabilities, claims,
damages and expenses whatsoever (including but not limited to attorneys'
fees and any and all expenses whatsoever incurred in investigating,
preparing or defending against any investigation or litigation, commenced
or threatened, or any claim whatsoever, and any and all amounts paid in
settlement of any claim or litigation), joint or several, to which they or
any of them may become subject under the Act, the Exchange Act or
otherwise, insofar as such losses, liabilities, claims, damages or expenses
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, as originally filed or any amendment thereof, or
any related preliminary prospectus or the Prospectus, or in any
20
supplement thereto or amendment thereof, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein (in the
case of the preliminary prospectus or the Prospectus, in the light of the
circumstances under which they were made) not misleading; provided,
however, that the Company and the Selling Stockholders will not be liable
in any such case to the extent, but only to the extent, that (i) any such
loss, liability, claim, damage or expense arises out of or is based upon
any such untrue statement or alleged untrue statement or omission or
alleged omission made therein in reliance upon and in conformity with
written information furnished to the Company by or on behalf of any
Underwriter expressly for use therein and (ii) the foregoing indemnity with
respect to any untrue statement contained in or omitted from a preliminary
prospectus shall not inure to the benefit of any Underwriter (or any person
controlling such Underwriter), from whom the person asserting any such
loss, liability, claim, damage or expense purchased any of the Shares which
are the subject thereof if it is finally judicially determined that such
loss, liability, claim, damage or expense resulted solely from the fact
that the Underwriter sold Shares to a person to whom there was not sent or
given, at or prior to the written confirmation of such sale, a copy of the
Prospectus, as amended or supplemented, and (x) the Company shall have
previously and timely furnished sufficient copies of the Prospectus, as so
amended or supplemented, to such Underwriter in accordance with this
Agreement, (y) the Prospectus, as so amended or supplemented, would have
corrected such untrue statement or omission of a material fact and (z) such
delivery to such person is required by the Securities Act; and provided
further that each of the Selling Stockholders will only be liable in any
such case to the extent, but only to the extent, that any such loss,
liability, claim, damage or expense arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with written
information furnished to the Company or the Underwriters by or on behalf of
such Selling Stockholder expressly for use therein. Notwithstanding the
foregoing, the aggregate liability of any Selling Stockholder pursuant to
the provisions of this paragraph shall be limited to an amount equal to the
aggregate purchase price received by such Selling Stockholder from the sale
of such Selling Stockholder's Shares hereunder. This indemnity agreement
will be in addition to any liability which the Company or any Selling
Stockholder may otherwise have, including under this Agreement.
(b) Each Underwriter, severally and not jointly, agrees to indemnify
and hold harmless the Company, its directors, each of its officers who
signed the Registration Statement and each person, if any, who controls the
Company and each Selling Stockholder and each person, if any, who controls
such Selling Stockholder within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, against any losses, liabilities, claims,
damages and expenses whatsoever (including but not limited to attorneys'
fees and any and all expenses whatsoever incurred in investigating,
preparing or defending against any investigation or litigation, commenced
or threatened, or any claim whatsoever and any and all amounts paid in
settlement of any claim or litigation), joint or several, to which they or
any of them may become subject under the Act, the Exchange Act or
otherwise, insofar as such losses, liabilities, claims, damages or expenses
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, as originally filed or any amendment thereof, or
any related preliminary prospectus or the Prospectus, or in any amendment
thereof or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in light of
the
21
circumstances under which they were made, not misleading, in each case
to the extent, but only to the extent, that any such loss, liability,
claim, damage or expense arises out of or is based upon any untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information
furnished to the Company by or on behalf of any Underwriter expressly for
use therein; provided, however, that in no case shall any Underwriter be
liable or responsible for any amount in excess of the underwriting
discounts and commissions received by such Underwriter, as set forth on the
cover page of the Prospectus. This indemnity will be in addition to any
liability which any Underwriter may otherwise have, including under this
Agreement.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under such subsection, notify each party
against whom indemnification is to be sought in writing of the commencement
thereof (but the failure so to notify an indemnifying party shall not
relieve it from any liability which it may have under this Section 11
except to the extent that it has been prejudiced in any material respect by
such failure or from any liability which it may otherwise have). In case
any such action is brought against any indemnified party, and it notifies
an indemnifying party of the commencement thereof, the indemnifying party
will be entitled to participate therein, and to the extent it may elect by
written notice delivered to the indemnified party promptly after receiving
the aforesaid notice from such indemnified party, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified party.
Notwithstanding the foregoing, the indemnified party or parties shall have
the right to employ its or their own counsel in any such case, but the fees
and expenses of such counsel shall be at the expense of such indemnified
party or parties unless (i) the employment of such counsel shall have been
authorized in writing by one of the indemnifying parties in connection with
the defense of such action, (ii) the indemnifying parties shall not have
employed counsel to take charge of the defense of such action within a
reasonable time after notice of commencement of the action or (iii) such
indemnified party or parties shall have reasonably concluded that there may
be defenses available to it or them which are different from or additional
to those available to one or all of the indemnifying parties (in which case
the indemnifying party or parties shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties), in
any of which events such fees and expenses shall be borne by the
indemnifying parties; provided, however, that the indemnifying party under
subsection (a) or (b) above, shall only be liable for the legal expenses of
one counsel (in addition to any local counsel) for all indemnified parties
in each jurisdiction in which any claim or action is brought. Anything in
this subsection to the contrary notwithstanding, an indemnifying party
shall not be liable for any settlement of any claim or action effected
without its written consent; provided, however, that such consent was not
unreasonably withheld.
12. Contribution. In order to provide for contribution in
circumstances in which the indemnification provided for in Section 11 is for any
reason held to be unavailable from the Company or any of the Selling
Stockholders or is insufficient to hold harmless a party indemnified thereunder,
the Company, the Selling Stockholders and the Underwriters shall contribute to
the aggregate losses, claims, damages, liabilities and expenses of the nature
contemplated by such indemnification provision (including any investigation,
legal and other expenses incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claims asserted, but after
deducting in the case of losses, claims, damages, liabilities and expenses
suffered by the Company or any Selling
22
Stockholder, any contribution received by the Company or any Selling Stockholder
from persons, other than the Underwriters, who may also be liable for
contribution, including persons who control the Company or such Selling
Stockholder within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act), to which the Company, any Selling Stockholder and one or more of
the Underwriters may be subject, in such proportion as is appropriate to reflect
the relative benefits received by the Company, the Selling Stockholders and the
Underwriters from the offering of the Shares or, if such allocation is not
permitted by applicable law or indemnification is not available as a result of
the indemnifying party not having received notice as provided in Section 11, in
such proportion as is appropriate to reflect not only the relative benefits
referred to above but also the relative fault of the Company, the Selling
Stockholders and the Underwriters in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative benefits received
by the Company, the Selling Stockholders and the Underwriters shall be deemed to
be in the same proportion as (x) the total proceeds from the offering of Shares
(net of underwriting discounts and commissions but before deducting expenses)
received by the Company or any Selling Stockholder and (y) the underwriting
discounts and commissions received by the Underwriters, respectively, in each
case as set forth in the table on the cover page of the Prospectus. The relative
fault of the Company, the Selling Stockholders and the Underwriters shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, the Selling
Stockholders or the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company, the Selling Stockholders and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 12
were determined by pro rata allocation or by any other method of allocation
which does not take into account the equitable considerations referred to above.
Notwithstanding the provisions of this Section 12, (i) in no case shall any
Underwriter be required to contribute any amount in excess of the amount by
which the underwriting discount applicable to the Shares purchased by such
Underwriter pursuant to this Agreement exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of any untrue or
alleged untrue statement or omission or alleged omission, (ii) the aggregate
liability of any Selling Stockholder pursuant to the provisions of this
paragraph shall be limited to an amount equal to the aggregate purchase price
received by such Selling Stockholder from the sale of such Selling Stockholder's
Shares hereunder and (iii) no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 12, (A) each person, if any, who
controls an Underwriter within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act and (B) the respective officers, directors, partners,
employees, representatives and agents of any of the Underwriters or any
controlling person shall have the same rights to contribution as such
Underwriter, and each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, shall
have the same rights to contribution as the Company, subject in each case to
clauses (i), (ii) and (iii) of this Section 12. Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim for
contribution may be made against another party or parties under this Section 12,
notify such party or parties from whom contribution may be sought, but the
failure to so notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have under this Section 12 or otherwise. No party shall be liable for
contribution with respect to any action or claim settled without its written
consent; provided, however, that such written consent was not unreasonably
withheld.
23
13. Substitution of Underwriters.
(a) If any Underwriter or Underwriters shall default in its or their
obligation to purchase Shares hereunder, and if the total number of Shares
with respect to which such default relates do not (after giving effect to
arrangements, if any, made pursuant to subsection (b) below) exceed 10% of
the total number of Shares which the Underwriters have agreed to purchase
hereunder, then such Shares to which the default relates shall be purchased
by the non-defaulting Underwriters in proportion to the respective
proportions which the number of Shares set forth opposite their respective
names on Schedule I hereto bear to the total number of Shares set forth
opposite the names of the non-defaulting Underwriters.
(b) In the event that such default relates to more than 10% of the
total number of Shares, the non-defaulting Underwriters may in their
discretion arrange for themselves or for another party or parties to
purchase the Shares to which such default relates on the terms contained
herein. In the event that within five (5) calendar days after such a
default the non-defaulting Underwriters do not arrange for the purchase of
the Shares to which such default relates as provided in this Section 13,
this Agreement, the obligations of the Underwriters to purchase, and of the
Company to sell, the Shares shall thereupon terminate without liability on
the part of the Company or the Selling Stockholders with respect thereto
(except in each case as provided in Sections 9, 11(a) and 12) or the
Underwriters (except as provided in Sections 11(b) and 12), but nothing in
this Agreement shall relieve a defaulting Underwriter of its liability, if
any, to the other Underwriters, the Company and the Selling Stockholders
for damages occasioned by its default hereunder.
(c) In the event that the Shares to which the default relates are to
be purchased by the non-defaulting Underwriters, or are to be purchased by
another party or parties as aforesaid, the Underwriters or the Company
shall have the right to postpone the Closing Date for a period not
exceeding five (5) business days in order to effect whatever changes may
thereby be made necessary in the Registration Statement or the Prospectus
or in any other documents and arrangements, and the Company agrees to file
promptly any amendment or supplement to the Registration Statement or the
Prospectus which, in the opinion of Underwriters' counsel, may thereby be
made necessary or advisable. The term "Underwriter" as used in this
Agreement shall include any party substituted under this Section 13 with
like effect as if it had originally been a party to this Agreement with
respect to such Shares.
14. Effective Date of Agreement; Termination.
(a) This Agreement shall become effective when the Underwriters and
the Sellers shall have received notification of the effectiveness of the
Registration Statement. Until this Agreement becomes effective as
aforesaid, it may be terminated by the Sellers by notifying the
Underwriters or by the Underwriters by notifying the Sellers.
Notwithstanding the foregoing, the provisions of this Section 14 and of
Sections 11 and 12 shall at all times be in full force and effect.
(b) The Underwriters shall have the right to terminate this Agreement
at any time prior to the Closing Date by notice to the Sellers from the
Underwriters, without liability (other than with respect to Sections 11 and
12) on the Underwriters' part to the Sellers if, on or prior to such date,
(i) the Company or any Selling Stockholder shall have failed, refused or
been
24
unable to perform in any material respect any agreement on its part to be
performed hereunder, (ii) any other condition to the obligations of the
Underwriters hereunder as provided in Section 10 is not fulfilled when and
as required in any material respect, (iii) in the reasonable judgment of
the Underwriters any material adverse change shall have occurred since the
respective dates as of which information is given in the Registration
Statement in the condition (financial or otherwise), business, properties,
assets, liabilities, prospects, net worth, results of operations or cash
flows of the Company and the subsidiaries taken as a whole, other than as
set forth in the Registration Statement, or (iv)(A) any domestic or
international event or act or occurrence has materially disrupted, or in
the opinion of the Underwriters will in the immediate future materially
disrupt, the market for the Company's securities or for securities in
general; or (B) trading in securities generally on the New York or American
Stock Exchanges shall have been suspended or materially limited, or minimum
or maximum prices for trading shall have been established, or maximum
ranges for prices for securities shall have been required, on such
exchange, or by such exchange or other regulatory body or governmental
authority having jurisdiction; or (C) a banking moratorium shall have been
declared by Federal or state authorities, or a moratorium in foreign
exchange trading by major international banks or persons shall have been
declared; or (D) there is an outbreak or escalation of armed hostilities
involving the United States on or after the date hereof, or if there has
been a declaration by the United States of a national emergency or war, the
effect of which shall be, in the Underwriters' reasonable judgment, to make
it inadvisable or impracticable to proceed with the offering or delivery of
the Shares on the terms and in the manner contemplated in the Registration
Statement; or (E) there shall have been such a material adverse change in
general economic, political or financial conditions or if the effect of
international conditions on the financial markets in the United States
shall be such as, in the Underwriters' reasonable judgment, makes it
inadvisable or impracticable to proceed with the delivery of the Shares as
contemplated hereby.
(c) Any notice of termination pursuant to this Section 14 shall be by
telephone or telephonic facsimile, confirmed in writing by letter.
(d) If this Agreement shall be terminated pursuant to any of the
provisions hereof (otherwise than pursuant to (i) notification by the
Underwriters as provided in Section 14(a) or (ii) Section 13(b)), or if the
sale of the Shares provided for herein is not consummated because any
condition to the obligations of the Underwriters set forth herein is not
satisfied or because of any refusal, inability or failure on the part of
the Company to perform any agreement herein or comply with any provision
hereof, the Company will, subject to demand by the Underwriters, reimburse
the Underwriters for all out-of-pocket expenses (including, without
limitation, the fees and expenses of Underwriters' counsel) incurred by the
Underwriters in connection herewith.
15. Agreements of the Selling Stockholders. Each Selling Stockholder
severally agrees with the Underwriters and the Company:
(a) To pay or to cause to be paid all transfer taxes with respect to
the Shares to be sold by such Selling Stockholder; and
(b) To take all reasonable actions in cooperation with the Company
and the Underwriters to cause the Registration Statement to become
effective at the earliest possible
25
time, to do and perform all things to be done and performed under this
Agreement prior to the Closing Date and to satisfy all conditions precedent
to the delivery of the Shares pursuant to this Agreement.
16. Survival of Representations and Agreements. All representations
and warranties, covenants and agreements of the Underwriters and the Company
contained in this Agreement, including, without limitation, the agreements
contained in Sections 9 and 14(d), the indemnity agreements contained in Section
11 and the contribution agreements contained in Section 12, shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any Underwriter or any controlling person thereof or by or on
behalf of the Company, any of their officers and directors or any controlling
person thereof and shall survive delivery of and payment for the Shares to and
by the Underwriters. The agreements contained in Sections 9, 11, 12 and 14(d)
shall survive the termination of this Agreement, including, without limitation,
termination pursuant to Section 13 or 14. The Underwriters shall inform the
Company if they become aware of any breach by the Company by the Company or the
Selling Stockholders.
17. Notice. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to the
Underwriters, shall be mailed, delivered, or telexed, telegraphed or telecopied
and confirmed in writing c/o Bear, Stearns & Co. Inc., 245 Park Avenue, New
York, New York 10167, Attention: Corporate Finance Department, telecopy number:
(212) 272-3092; and if sent to the Company, shall be mailed, delivered or
telexed, telegraphed or telecopied and confirmed in writing to MasTec, Inc.,
3155 N.W. 77th Avenue, Suite 130, Miami, Florida 33122-1205, Attention: Legal
Department, telecopy number: (305) 406-1907 or -1908, with a copy to Fried,
Frank, Harris, Shriver & Jacobson, 1001 Pennsylvania Avenue, N.W., Suite 800,
Washington, D.C. 20004-2505, Attention: Stephen I. Glover; and if sent to the
Selling Stockholders, shall be mailed, delivered, or telexed, telegraphed or
telecopied and confirmed in writing to MasTec, Inc., 3155 N.W. 77th Avenue,
Suite 130, Miami, Florida 33122-1205; Attention: Legal Department, telecopy
number: (305) 406-1907 or -1908, with a copy to Fried, Frank, Harris, Shriver &
Jacobson, 1001 Pennsylvania Avenue, N.W., Suite 800, Washington, D.C. 20004-
2505; Attention: Stephen I. Glover; provided, however, that any notice to any
party pursuant to Section 11 or 12 shall be mailed, delivered or telexed,
telegraphed or telecopied and confirmed in writing to such party.
18. Parties. This Agreement shall inure solely to the benefit of, and
shall be binding upon, each of the Underwriters and the Sellers and the
controlling persons, directors, officers, employees and agents referred to in
Sections 11 and 12, and their respective successors and assigns, and no other
person shall have or be construed to have any legal or equitable right, remedy
or claim under or in respect of or by virtue of this Agreement or any provision
herein contained. The term "successors and assigns" shall not include a
purchaser, in its capacity as such, of Shares from any of the Underwriters.
19. Construction. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York.
20. Headings. The headings of the paragraphs and sections of this
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
26
21. Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument.
[Signature page to follow]
If the foregoing correctly sets forth the understanding among the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement between
us.
Very truly yours,
MASTEC, INC.
By:_________________________
Name: Jorge Mas
Title: President and Chief Executive
Officer
THE SELLING STOCKHOLDERS NAMED
ON SCHEDULE II HERETO
By:_________________________
Name: Jorge Mas
Title: Attorney-in-fact
Confirmed and accepted as of
the date first above written:
BEAR, STEARNS & CO. INC.
JEFFERIES & COMPANY, INC.
BY: BEAR, STEARNS & CO. INC.
By:_______________________________
Name:
Title:
27
SCHEDULE I
Amount of Shares
Underwriter to be Purchased
- ----------- ---------------
Bear, Stearns & Co. Inc. ...................................................
Jefferies & Company, Inc. ..................................................
Total
==============
S-1
SCHEDULE II
Selling Stockholders
--------------------
Number of Firm
Name of Selling Stockholder Shares Being Sold
- --------------------------- -----------------
Total
=================
S-2
EXHIBIT A
SUBSIDIARIES OF MASTEC, INC.
A-1
EXHIBIT B
FORM OF OPINION OF FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
1. The Shares have been duly authorized, and, when issued against
payment therefor, will be validly issued, and are fully paid and
nonassessable and were not issued in violation of any preemptive or similar
rights. The authorized, issued and outstanding capital stock of the
Company conforms in all respects to the description thereof set forth in
the Registration Statement and Prospectus. Except as set forth in the
Prospectus, there are no outstanding subscriptions, rights, warrants,
calls, commitments of sale or options to acquire, or instruments
convertible into or exercisable or exchangeable for, any capital stock or
other equity interest in the Company or any of its subsidiaries known to
such counsel, after reasonable inquiry.
2. The Company Shares have been duly authorized and, when issued and
delivered to the Underwriters against payment therefor in accordance with
the terms hereof, will be validly issued, fully paid and nonassessable and,
to the knowledge of such counsel after reasonable inquiry, free of any
preemptive or similar rights that entitle or will entitle any person to
acquire any Shares upon the issuance thereof by the Company.
3. The statements under the caption "Description of Capital Stock" in
the Prospectus, insofar as such statements constitute a summary of legal
matters, documents or proceedings referred to therein fairly present the
information called for with respect to such legal matters, documents and
proceedings.
4. None of (A) the execution, delivery or performance by the Company
of the Underwriting Agreement or (B) the issuance and sale of the Shares
violates, conflicts with or constitutes a breach of any of the terms or
provisions of, or a default under (or an event that with notice or the
lapse of time, or both, would constitute a default), or require consent
under, or result in the imposition of a lien or encumbrance on any
properties of the Company or any subsidiary, or an acceleration of any
indebtedness of the Company or any subsidiary pursuant to, (i) the charter
or bylaws of the Company or any subsidiary, (ii) any bond, debenture, note,
indenture, mortgage, deed of trust or other agreement or instrument to
which the Company or any subsidiary is a party or by which any of them or
their property is or may be bound and which is listed as a material
contract filed as an exhibit to the Company's 1995 Annual Report on Form
10-K and any subsequent Exchange Act reports (assuming that all of such
agreements are governed by New York law), (iii) any local, state, federal
or administrative statute, rule or regulation applicable to the Company or
any subsidiary or any Selling Stockholder or any of their respective assets
or properties (except with respect to the matters set forth in the opinion
of _______________________, as to which no opinion need be expressed) or
(iv) any judgment, order or decree of any court or governmental agency or
authority having jurisdiction over the Company or any subsidiary or any of
their assets or properties known to such counsel,
B-1
except in the case of clauses (ii), (iii) and (iv) for such violations,
conflicts, breaches, defaults, consents, impositions of liens or
accelerations that (x) would not, singly or in the aggregate, have a
Material Adverse Effect or (y) are disclosed in the Registration Statement.
Assuming compliance with applicable state securities and Blue Sky laws, as
to which such counsel need express no opinion, and except for the filing of
a registration statement under the Act, no consent, approval, authorization
or order of, or filing, registration, qualification, license or permit of
or with, any court or governmental agency, body or administrative agency is
required for (1) the execution, delivery and performance by the Company of
the Underwriting Agreement, (2) the issuance and sale of the Shares or (3)
consummation by the Company and the subsidiaries of the transactions
described in the Registration Statement except such as have been obtained
and made or have been disclosed in the Registration Statement, and except
where the failure to obtain such consents or waivers would not, singly or
in the aggregate, have a Material Adverse Effect. To such counsel's
knowledge, after reasonable inquiry, no consents or waivers from any other
person are required for the execution, delivery and performance by the
Company of the Underwriting Agreement or the issuance and sale of the
Shares, other than such consents and waivers as have been obtained.
5. None of the Company or the subsidiaries is (i) an "investment
company" or a company "controlled" by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended or (ii) a
"holding company" or a "subsidiary company" or an "affiliate" of a holding
company within the meaning of the Public Utility Holding Company Act of
1935, as amended.
6. Except as set forth in the Underwriting Agreement, to such
counsel's knowledge, after reasonable inquiry, no holders of any securities
of the Company or any of the subsidiaries or their respective affiliates or
of any options, warrants or other convertible or exchangeable securities of
the Company or the subsidiaries or their respective affiliates are entitled
to include any such securities in or to have such securities registered
under the Registration Statement.
7. Except as disclosed in the Registration Statement, to the
knowledge of such counsel, no search of courts having been made, there is
(i) no action, suit, investigation or proceeding before or by any court,
arbitrator or governmental agency, body or official, domestic or foreign,
now pending, or threatened or contemplated to which any of the Company or
any subsidiary is or may be a party or to which the business or property of
the Company or any of its subsidiaries is or may be subject, (ii) no
statute, rule, regulation or order that has been enacted, adopted or issued
by any governmental agency or that has been proposed by any governmental
body or (iii) no injunction, restraining order or order of any nature by a
federal or state court of competent jurisdiction to which any of the
Company or any subsidiary is or may be subject or to which the business,
assets or property of the Company or any of its subsidiaries are or may be
subject has been issued that, in the case of clauses (i), (ii) and (iii)
above, (x) is required to be disclosed in the Registration Statement or the
Prospectus and that is not so disclosed, (y) could reasonably be expected
to have, either individually or in the
B-2
aggregate, a Material Adverse Effect or (z) might interfere with, adversely
affect or in any manner question the validity of the issuance and sale of
the Shares or any of the other transactions contemplated by the
Underwriting Agreement and the Registration Statement.
8. Such counsel is not aware of any order directed to any document
incorporated by reference in the Registration Statement which has been
issued by the Commission or any challenge that has been made by the
Commission as to the accuracy or adequacy of any such document.
9. The Company and the transactions contemplated by the Underwriting
Agreement meet the requirements for using Form S-3 under the Act. The
documents filed under the Act and the Exchange Act and incorporated by
reference in the Registration Statement and the Prospectus or any amendment
thereof or supplement thereto or from which information is so incorporated
by reference (other than the financial statements, notes and schedules
thereto and other financial, statistical and accounting information
included or incorporated by reference therein, as to which no opinion need
be expressed) comply as to form in all material respects with the Act or
the Exchange Act, as the case may be, and the Regulations.
10. The Registration Statement was declared effective under the Act on
_______ __, 1996. To such counsel's knowledge, after reasonable inquiry,
no stop order suspending the effectiveness of the Registration Statement or
preventing or suspending the use of any preliminary prospectus has been
issued, and no proceedings for that purpose have been instituted or
threatened by the Commission.
11. The Registration Statement and the Prospectus (not including the
financial statements, notes and schedules thereto, the pro forma financial
statements and notes thereto and other financial, statistical and
accounting information included or incorporated by reference therein, as to
which no opinion need be expressed) comply as to form in all material
respects with the applicable requirements of the Act and the Regulations.
12. There are no contracts or documents of the Company or any of its
subsidiaries known to such counsel, after reasonable inquiry, that are
required to be filed (A) as exhibits to the Registration Statement by the
Act, (B) as exhibits to any of the documents incorporated by reference by
the Exchange Act or (C) by the Regulations that have not been so filed.
13. The Company has authorized capital stock as set forth in the
Prospectus. All the shares of capital stock of the Company outstanding
prior to the issuance of the Shares are duly and validly authorized and
issued, are fully paid and nonassessable and were not issued in violation
of or subject to any preemptive rights.
14. The statements made in the Prospectus under the captions "Company
History and Sintel Acquisition" and "Telecommunications Construction -
International Operations
B-3
(Sintel)" insofar as they purport to constitute summaries or to describe
the provisions of the documents, transactions or legal matters therein
described, in summary form, have been reviewed by such counsel and are fair
and accurate summaries in all material respects.
15. The Acquisition Agreement has been duly executed and delivered by
the Company and constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with the terms of such
agreement.
16. The execution and delivery by the Company of the Acquisition
Agreement, and the performance of its obligations thereunder, (i) has been
authorized by all necessary corporate action on the part of the Company,
(ii) does not contravene any provision of the Certificate of Incorporation
or By-Laws of the Company, (iii) does not require under any present statute
or present regulation of any governmental agency or authority of the United
States, known by such counsel to be applicable to the Company, or under the
Delaware General Corporation Law, any filing by it with, or any approval or
consent of, any governmental agency or authority of the United States or
the State of Delaware, that has not been made or obtained and (iv) does not
violate (A) any present statute, or present regulation of any government
agency or authority of the United States known by such counsel to be
applicable to the Company, or the Delaware General Corporation Law (except
for the securities or blue sky laws of the various states, as to which such
counsel may express no opinion), in either case that, in the experience of
such counsel, are normally applicable to transactions of the type
contemplated by the Acquisition Agreement or (B) any material agreement,
court decree or order binding upon it or its property, except for such
contraventions, breaches, defaults or violations that would not have a
material adverse effect on the condition (financial or otherwise), earnings
or business affairs of the Company and its subsidiaries, taken as a whole.
We have participated in conferences with officers and other representatives
of the Company, representatives of the independent certified public accountants
of the Company and Sintel and the Underwriters and their representatives at
which the contents of the Prospectus and the Registration Statement and any
amendment thereof or supplement thereto and related matters were discussed and,
although we have not undertaken to investigate or verify independently, and do
not assume any responsibility for, the accuracy, completeness or fairness of the
statements contained in the Prospectus and the Registration Statement or any
amendment thereof or supplement thereto (except as indicated above), on the
basis of the foregoing, no facts have come to our attention which led us to
believe that the Prospectus and the Registration Statement (or any amendment
thereof made prior to the Closing Date as of the date of such amendment) as of
its date or the Closing Date, contained an untrue statement of a material fact
or omitted to state any fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading (except we express no opinion as to financial statements
and related notes, the financial statement schedules and other financial and
statistical data included therein).
B-4
EXHIBIT C
FORM OF OPINION OF JOSE M. SARIEGO
1. Each of the Company and its subsidiaries is duly organized and
validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, and has all requisite corporate power and
authority to carry on its business as it is being conducted and as
described in the Registration Statement and Prospectus and to own, lease
and operate its properties, and is duly qualified and in good standing as a
foreign corporation authorized to do business in each jurisdiction in which
the nature of its business or its ownership or leasing of property requires
such qualification, except where the failure to be so qualified would not,
singly or in the aggregate, have a material adverse effect on the business,
financial condition or results of operations of the Company and the
subsidiaries, taken as a whole. All of the issued and outstanding shares
of capital stock of, or other ownership interests in, each subsidiary have
been duly authorized and validly issued, are fully paid and non-assessable
and were not issued in violation of or subject to any preemptive or similar
rights under the Delaware General Corporation Law, and, except as set forth
in the Prospectus, are owned by the Company of record, and beneficially
directly or through subsidiaries, free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or other restriction on
transferability or voting. Except as set forth in the Prospectus, neither
the Company nor any of its subsidiaries owns or holds any interest in any
corporation, partnership, trust or association, joint venture or other
entity.
2. All the outstanding shares of capital stock of the Company
(including the Shares to be sold by the Selling Stockholders) have been
duly authorized, validly issued, and are fully paid and nonassessable and
were not issued in violation of any preemptive or similar rights. The
authorized, issued and outstanding capital stock of the Company conforms in
all respects to the description thereof set forth in the Registration
Statement and Prospectus. Except as set forth in the Prospectus, there are
no outstanding subscriptions, rights, warrants, calls, commitments of sale
or options to acquire, or instruments convertible into or exercisable or
exchangeable for, any capital stock or other equity interest in the Company
or any of its subsidiaries known to such counsel, after reasonable inquiry.
3. The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under the Underwriting
Agreement to consummate the transactions contemplated thereby, including,
without limitation, the corporate power and authority to issue, sell and
deliver the Company Shares as provided therein.
4. The Underwriting Agreement has been duly and validly authorized,
executed and delivered by the Company and, assuming due execution by the
other parties thereto, is the legally valid and binding agreement of the
Company.
C-1
5. The form of certificates for the Shares conforms to the
requirements of the General Corporation Law of the State of Delaware.
C-2
EXHIBIT D
FORM OF LOCK-UP AGREEMENT
MASTEC, INC.
LOCK-UP LETTER
____________, 1996
Bear, Stearns & Co. Inc.
Jefferies & Company, Inc.
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York 10167
Ladies and Gentlemen:
The undersigned understands that Bear, Stearns & Co. Inc. and
Jefferies & Company, Inc. (the "Representatives") of the several underwriters
(the "Underwriters"), propose to enter into an Underwriting Agreement with
MasTec, Inc. (the "Company"), providing for the public offering by the
Underwriters, including the Representatives, of common stock, $0.10 par value
(the "Common Stock") of the Company (the "Offering").
In consideration of the Underwriters' agreement to purchase and
undertake the Offering of the Common Stock and for other good and valuable
consideration, receipt of which is hereby acknowledged, the undersigned agrees
that, without the prior written consent of Bear, Stearns & Co. Inc., the
undersigned will not, directly or indirectly offer, sell, contract to sell,
pledge or otherwise dispose of any shares of Common Stock (including, without
limitation, shares of Common Stock which may be issued upon exercise of a stock
option or warrant) or any securities convertible into or exercisable or
exchangeable for such Common Stock for a period of ____ days after the
commencement of the Offering.
In addition, the undersigned agrees that the Company may, and that the
undersigned will, (i) with respect to any shares for which the undersigned is
the record holder, cause the transfer agent for the Company to note stop
transfer instructions with respect to such shares on the transfer books and
records of the Company and (ii) with respect to any shares for which the
undersigned is the beneficial holder but not the record holder, cause the record
D-1
holder of such shares to cause the transfer agent for the Company to note stop
transfer instructions with respect to such shares on the transfer books and
records of the Company.
The undersigned hereby represents and warrants that the undersigned
has full power and authority to enter into this letter agreement, and that, upon
request, the undersigned will execute any additional documents necessary or
desirable in connection with the enforcement hereof. All authority herein
conferred or agreed to be conferred shall survive the death or incapacity of the
undersigned and any obligations of the undersigned shall be binding upon the
heirs, personal representatives, successors, and assigns of the undersigned.
Very truly yours,
___________________________
(Signature)
________________________________
(Name-Please Type)
________________________________
(Address)
________________________________
________________________________
(Social Security or Taxpayer Identification No.)
Number of shares owned or Certificate numbers:
subject to warrants, options _________________________
or convertibles securities:
____________________________ _________________________
D-2
Exhibit 21.1
Subsidiaries of the Registrant
Set forth below is a list of the significant subsidiaries of the Company as of
August __, 1996.
Burnup & Sims Communication Services, Inc.
Burnup & Sims ComTec, Inc.
Burnup & Sims Network Designs
Burnup & Sims of California, Inc.
Burnup & Sims of Texas, Inc.*
Burnup & Sims of the Carolinas, Inc.
Burnup & Sims TelCom of Florida, Inc.
Burnup & Sims TSI, Inc.
Carolina Com-Tec, Inc.?
Church & Tower, Inc.+
Church & Tower Fiber Tel, Inc.
Church & Tower of Florida, Inc.+
Church & Tower of TN, Inc.
Designed Traffic Installation Co., Inc.+
LatLink Corporation
MasTec International, Inc.
MasTec Teleport, Inc.
Sistemas e Instalaciones de Telecomunicacion, S.A. #
Utility Line Maintenance, Inc. @
The jurisdiction of incorporation for each of the subsidiaries is Delaware
except the following: *Texas, +Florida, @Georgia, #Spain, ?North Carolina. All
operating subsidiaries of the Company are 100% owned, with the exception of
MasTec Teleport, Inc. which is 80% owned.
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement of Form S-3 of our
report, dated March 22, 1996, on our audits of the consolidated financial
statements of MasTec, Inc. and subsidiaries (formerly Church & Tower) as of
December 31, 1995 and 1994, and for the years ended December 31, 1995, 1994 and
1993. We also consent to the reference to our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Miami, Florida
August 27, 1996
