Pursuant to Rule 424(b)
Registration No. 333-0
PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED AUGUST 5, 1996)
MASTEC, INC.
Common Stock
This Prospectus Supplement is being furnished to Harrison-Wright
Company, Incorporated, a North Carolina corporation ("Harrison-Wright"), and to
the holders of the common stock, $1.00 par value (the "Harrison-Wright Common
Stock") and the preferred stock, $50.00 par value of Harrison-Wright (the
"Harrison-Wright Preferred Stock") (the "Harrison-Wright Shareholders") in
connection with the Asset Purchase Agreement, which is now expected to be dated
on or about November 21, 1996 (the "Asset Purchase Agreement"), to be entered
into by and among Harrison-Wright and its wholly-owned subsidiary Utility
Precast, Inc., a North Carolina corporation ("UPI") (Harrison-Wright and UPI
sometimes individually referred to as a "Seller" and collectively referred to as
the "Sellers") and H-W Acquisition I Co., Inc., a Delaware corporation ("H-W
I"), H-W Acquisition II Co., Inc., a Delaware corporation ("H-W II") and H-W
Acquisition III Co., Inc., a Delaware corporation ("H-W III,") (H-W I, H-W II
and H-W III sometimes individually referred to as a "Buyer" and collectively
referred to as the "Buyers"). Each of the Buyers is a newly-formed, indirect
wholly-owned subsidiary of MasTec, Inc., a Delaware corporation ("MasTec" or the
"Company"). The Prospectus dated August 5, 1996 and copies of a draft dated
November 5, 1996 of the Asset Purchase Agreement are being attached hereto as
Annex A and Annex B, respectively. Pursuant to the Asset Purchase Agreement,
Sellers will sell all of the properties, assets and rights that each Seller owns
and that are used or are held or are intended for use in the conduct or
operation of the Sellers' businesses (the "Acquired Assets") to Buyers, in
exchange for the assumption by the Buyers of certain of the Sellers' liabilities
(the "Assumed Liabilities") and $6,834,767.39, or, at the Buyers' option, the
number of shares of the common stock, $.10 par value (the "Common Stock"), of
MasTec equal to $6,834,767.39 divided by the closing sale price of the Common
Stock on the Nasdaq National Market System for the trading day immediately
preceding the closing date of the transactions contemplated by the Asset
Purchase Agreement (the "Closing Date") on which trading of the Common Stock
occurred (the "Purchase Price Shares"). The Closing Date is now expected to be
on or about November 21, 1996. Based upon the closing sale price of the Common
Stock for November 4, 1996 (the "Closing Price"), the number of shares of Common
Stock which the Sellers would receive is 135,678. See "Terms of the
Transaction."
Harrison-Wright is delivering a Notice of Special Meeting of Shareholders
and related materials (collectively the "Notice of Special Meeting") to the
Harrison-Wright Shareholders. UPI expects to seek written consent approving the
transactions contemplated by the Asset Purchase Agreement from its sole
shareholder, Harrison-Wright.
See "Risk Factors" on page 13 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.
The date of this Prospectus Supplement is November 7, 1996.
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 Supplement constitutes part of a Registration Statement on
Form S-4 (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. Pursuant to Rule 424(b) of the
Securities Act of 1933, as amended, this Prospectus Supplement will be filed
with the Commission electronically via EDGAR. 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 Supplement 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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PROSPECTUS SUPPLEMENT 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 Supplement. 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 largest 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 telecommunication service companies such as local exchange
carriers, long-distance carriers, competitive access providers, cable television
operators and cellular 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 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") under multi-year contracts
similar to those in the United States. Telefonica has committed to minimum
levels of work under these contracts totaling approximately $200 million (at
current exchange rates) per year in 1996, 1997 and 1998.
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, 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
to large corporate customers such as First Union National Bank ("First Union"),
IBM,
3
Medaphis, Smith Barney, Inc. and Dean Witter Reynolds, Inc. and to universities
and government agencies. The Company also provides infrastructure services to
public utilities and the traffic control and highway safety industry, and
provides general construction and project management services to state and local
governments.
The telecommunications industry which the Company services 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 Community and privatization and regulatory initiatives in South and
Central 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.
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 services providers
to upgrade 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 in previously monopolistic markets will
ultimately require their own infrastructure.
. Deployment of more powerful multi-media 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 anticipated general 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 provides competitive advantages
in bidding for and winning new contracts for telecommunication infrastructure
projects.
4
The Company's executive offices are located at 3155 N.W. 77th Avenue, Miami,
Florida, 33122-1205 and its telephone number is (305) 599-1800.
Recent Developments
The Company's revenue for the third quarter of 1996, which ended September
30, 1996, was $142.4 million, as compared to revenue generated in the third
quarter of 1995 of $46.6 million. The Company reported income from continuing
operations for the third quarter of 1996 of $9.4 million, or $0.55 per share, as
compared with $2.6 million, excluding special charges, or $0.16 per share, in
the comparable quarter of 1995.
The Company's revenue for the nine months ended September 30, 1996 was
$313.6 million and its income from continuing operations was $19.4 million. The
Company's revenue for the nine months ended September 30, 1995 was $120.4
million and its adjusted income from continuing operations, excluding special
charges, for the same period was $9.5 million.
The Transaction
The Buyers have been formed for the purpose of acquiring substantially all
of the assets, and assuming certain liabilities, of the Sellers (such
acquisition and assumption sometimes referred to herein as the "H-W
Acquisition"). MasTec, the Sellers and the Buyers have negotiated the terms of
the Asset Purchase Agreement to accomplish the proposed sale and assumption of
liabilities. The parties may make additional changes to the Asset Purchase
Agreement prior to the execution and delivery thereof. Certain terms of the
proposed Asset Purchase Agreement are outlined below. A copy of the proposed
Asset Purchase Agreement is attached as Annex A.
Purchase Price
As payment for the Acquired Assets, the Buyers will (a) assume the Assumed
Liabilities and (b) deliver to the Sellers $6,834,767.39 in cash or, at Buyers'
option, that whole number of validly issued, fully paid, non-assessable shares
of Common Stock with a value equal to $6,834,767.39 based upon the closing sale
price of the Common Stock on the Nasdaq National Market System as reported on
the Nasdaq composite tape for the trading day immediately preceding the Closing
Date on which trading of the Common Stock has occurred (the "Purchase Price
Shares") ((a) and (b) collectively referred to as the "Purchase Price").
Purchase Price Adjustment
The Purchase Price will be subject to a dollar for dollar downward
adjustment if there has been any material adverse change in the financial
condition of the Sellers during the period from July 31, 1996 and the Closing
Date. A decrease of up to $400,000 in the consolidated shareholders' equity
during this period due to operating losses would not be considered to be a
material adverse change.
5
Disposition of the Purchase Price Shares
The Sellers may elect to sell all or any portion of the Purchase Price
Shares in the open market, or to distribute the Purchase Price Shares to their
stockholders. If the Sellers elect to sell or transfer all or any portion of the
Purchase Price Shares in the open market during the period beginning with the
Closing Date and ending on the expiration of the 15th trading day following the
Closing Date on which the trading of the Common Stock can occur (such 15 day
trading period referred to as the "Liquidation Period") then the Buyers
guarantee to the Sellers that the Sellers shall receive cash proceeds from the
sale of any Purchase Price Shares sold during the Liquidation Period, net of any
brokerage commissions or other directly related expenses of sale incurred by
Sellers with respect thereto, in an amount per share not less than the Closing
Price (the "Guaranteed Minimum") determined on an aggregate basis for all sales
during the Liquidation Period. The Buyers agree to pay all brokerage commissions
or other directly related expenses of sale in connection with any sales of the
Purchase Price Shares during the Liquidation Period. If the Sellers do not
realize net sale proceeds per share (determined on an aggregate basis for all
sales during the Liquidation Period) at least in the amount of the Guaranteed
Minimum, then the Buyers, upon expiration of the Liquidation Period, shall pay
to the Sellers the amount by which the Guaranteed Minimum multiplied by the
number of Purchase Price Shares sold during the Liquidation Period exceeds the
aggregate net sales proceeds from sales of Purchase Price Shares during the
Liquidation Period. If the Sellers realize net sales proceeds (determined on an
aggregate basis for all sales during the Liquidation Period) in excess of the
Guaranteed Minimum multiplied by the number of Purchase Price Shares sold during
the Liquidation Period (the "Excess Amount"), then the Sellers, upon the
expiration of the Liquidation Period, shall pay to Buyers the Excess Amount. If
the Sellers' broker is unable to sell all of the Purchase Price Shares which the
Sellers' elected to sell within the Liquidation Period, the Buyers shall cause
MasTec to redeem from the Sellers' broker all of the remaining Purchase Price
Shares which the Sellers' broker did not sell despite the Sellers' instruction
to do so during the Liquidation Period at the purchase price per share equal to
the Closing Price.
6
Representations and Warranties of the Sellers
In the Asset Purchase Agreement, the Sellers make certain representations
and warranties for the benefit of the Buyers regarding (a) their organization
and similar corporate matters, authorization to do business, their corporate
power and authority to enter into the Asset Purchase Agreement and to consummate
the transactions contemplated therein, the execution, delivery, validity and
enforceability of the Asset Purchase Agreement; (b) the ownership of all of the
capital stock of UPI by Harrison-Wright; (c) the absence of any conflicts or
creation of liens under either Seller's charter or bylaws, or any agreements by
which a Seller may be bound, the absence of undisclosed consents necessary to
consummate the terms of the Asset Purchase Agreement, and the absence of
violations of laws, rules, regulations, judgments, orders or decrees to which
either Seller is subject or may be bound; (d) the financial statements of the
Sellers and the liabilities of the Sellers other than as set forth in the
financial statements; (e) absence of material adverse changes; (f) title to the
Sellers' properties and assets; (g) title to the Sellers' real property; (h)
leases to which either Seller is a party; (i) material contracts of either
Seller; (j) any documents, laws, rules, orders, judgments or other restrictions
on the operation of the Sellers' businesses; (k) litigation involving either of
the Sellers; (l) taxes paid by the Sellers; (m) each Sellers' intellectual
property; (n) condition of the Acquired Assets; (o) compliance with applicable
laws; (p) options to purchase the Acquired Assets; (q) accounts receivable and
payable; (r) the Sellers' employee relations; (s) the Sellers' employee benefit
plans; (t) the Sellers' compliance with environmental laws and regulations; (u)
the Sellers' insurance; (v) licenses and permits of the Sellers; (w) the
disclosure made by the Sellers; (x) investment representations; (y) the capital
structure of the Sellers; (z) the special meetings of stockholders to be held by
the Sellers; and other matters.
Representations and Warranties of the Buyers
In the Asset Purchase Agreement, the Buyers and the Company make certain
representations and warranties for the benefit of the Sellers regarding the
Buyers and the Company including (a) their organization and similar corporate
matters, authorization to do business, their corporate power and authority to
enter into the Asset Purchase Agreement and to consummate the transactions
contemplated therein, the execution, delivery, validity and enforceability of
the Asset Purchase Agreement; and (b) the absence of any conflicts or creation
of liens under their charters or bylaws, or any agreements by which MasTec or a
Buyer may be bound, and the absence of undisclosed consents necessary to
consummate the terms of the Asset Purchase Agreement; (c) the disclosure made by
the Buyers; (d) the due and valid issuance of the Common Stock, the registration
of the Common Stock under the Securities Act of 1933, as amended, and the
listing of the Common Stock on the Nasdaq National Market; and other matters.
7
Escrow Amount
$590,500 of the Purchase Price, or that number of the Purchase Price Shares
which has a value in the aggregate (based on the Closing Price) equal to
$590,500, if Sellers elect to exercise their rights to deliver shares of Common
Stock in lieu of cash (the "Escrowed Amount"), shall be delivered to First Union
National Bank, N.A. as Escrow Agent pursuant to the Escrow Agreement by and
among the Buyers, the Sellers and the Escrow Agent. The Buyers shall be entitled
to offset against the Escrowed Amount the amount of (a) any purchase price
adjustment; (b) any indemnification obligation of the Sellers; (c) certain of
the accounts receivable of the Sellers acquired by the Buyers as part of the
Acquired Assets which have not been collected by the Buyers within the 180 day
period following the Closing Date; and (d) any liability or cost associated with
or arising from the presence or removal of asbestos from the real property
acquired from the Sellers or from the removal of, contamination caused by, or
remediation related to underground storage tanks which are or were on the real
property acquired from the Sellers. With certain limited exceptions (related to
the computation of the Purchase Price, refunds of the Excess Amount, collections
of accounts receivable or claims alleging fraud or misconduct) the Buyers' right
to offset these amounts against the Escrowed Amount is limited to the total
amount of the Escrowed Amount. Also, except for the foregoing exceptions, the
Buyers can seek to offset these amounts against the Escrowed Funds only to the
extent their aggregate claims exceed $25,000. At the end of one year, any
remaining Escrowed Amount shall be delivered to the Sellers.
Guarantee Agreement
In conjunction with the execution of the Asset Purchase Agreement, MasTec
shall execute an agreement (the "Guarantee Agreement") under the terms of which
MasTec will guarantee the obligations of the Buyers to indemnify the Sellers for
any liability arising out of (a) any breach or inaccuracy of the Buyers'
representations or warranties in the Asset Purchase Agreement; (b) any breach by
the Buyers of any covenant or agreement contained in the Asset Purchase
Agreement; (c) any violations of the Buyers or MasTec of any federal or state
securities law relating in any way to the issuance or delivery of the Purchase
Price Shares or subsequent sale of the Purchase Price Shares; or (d)
noncompliance with any applicable bulk sales laws.
Closing Date
The Sellers and the Buyers contemplate that the Asset Purchase Agreement
will be executed and delivered, and all agreements or other actions required or
contemplated by the terms therein will be completed, on or about November 21,
1996.
The Special Meeting of Harrison-Wright Shareholders
The Notice of Special Meeting will be delivered to the Harrison-Wright
Shareholders in connection with a special meeting of the Harrison-Wright
Shareholders (the "Special Meeting") to be held on November 15, 1996 at 9:00
o'clock a.m. at the principal offices of Harrison-Wright, 305 S. Church Street,
Charlotte, North Carolina, 28202.
8
At the Special Meeting, the Harrison-Wright Shareholders will consider and
vote upon, among other things, a proposal to approve the transactions
contemplated by the Asset Purchase Agreement. The affirmative vote of a majority
of the holders of the outstanding shares of the Harrison-Wright Common Stock, as
well as the affirmative vote of the holders of two-thirds of the outstanding
shares of the Harrison-Wright Preferred Stock, will be required to approve the
H-W Acquisition.
Dissenters' Rights
The Harrison-Wright Shareholders are or may be entitled to assert
dissenters' rights under Article 13 of the North Carolina Business Corporation
Act with respect to the sale of the Acquired Assets to the Buyers. A copy of
Article 13 has been delivered to the Harrison-Wright Common Stockholders and the
Harrison-Wright Preferred Stockholders with the Notice of Special Meeting.
Approval of the Shareholders of UPI
UPI expects to seek written consent approving the transactions contemplated
by the Asset Purchase Agreement from its sole stockholder, Harrison-Wright.
Summary Selected Consolidated Financial Information
The following tables present summary selected and pro forma financial data
of the Company as of the dates and for the periods indicated. This data is
derived from the audited Consolidated Financial Statements for the five years
ended December 31, 1995, and from the unaudited, Condensed Consolidated
Financial Statements for the six months ended June 30, 1996 and 1995. The
audited Consolidated Financial Statements for the three years ended December 31,
1995 and the unaudited Condensed Consolidated Financial Statements for the six
months ended June 30, 1996 and 1995 appear elsewhere in this Prospectus
Supplement. The 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.
Summary unaudited pro forma financial data 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 data 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.
9
The unaudited data set forth below includes, in the opinion of management,
all material adjustments, consisting only of normal recurring accruals,
necessary for a fair presentation.
Summary Selected Consolidated Financial Data
(In thousands, except per share amounts)
Six Months Ended
June 30,
Year Ended December 31, (Unaudited)
--------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1995 1996 (8)
(1) (1) (1) (2)
Income statement data:
Revenue $31,588 $34,136 $44,683 $111,294 $174,583 $73,797 $171,181
Operating income 5,463 8,313 $ 5,474 $ 9,881 $ 17,827 $10,533 $ 17,861
------- ------- ------- -------- -------- ------- --------
Interest expense, net of
interest and dividend
income (3) (198) (174) (182) 2,118 1,605 1,199 3,036
Special charges (4) 0 0 0 0 23,086 0 0
Other (expense) income, net 85 209 (81) 1,009 2,028 1,659 415
Equity (losses) in earnings of
unconsolidated companies
and minority interest (446) (416) 1,177 247 (139) 25 979
Provision (benefit) for
income taxes (5) 1,992 3,113 2,539 3,211 (1,835) 4,119 6,151
------- ------- ------- -------- -------- ------- --------
Income (loss) from
continuing operations $ 3,308 $ 5,167 $ 4,213 $ 5,808 $ (3,140) $ 6,899 $ 10,068
======= ======= ======= ======== ======== ======= ========
Net income (loss) $ 3,308 $ 5,167 $ 4,213 $ 6,633 $ (609) $ 8,813 $ 10,081
======= ======= ======= ======== ======== ======= ========
Average shares outstanding (6) 10,250 10,250 10,250 16,077 16,046 16,168 16,312
======= ======= ======= ======== ======== ======= ========
Earnings (loss) per share
from continuing operations $0.32 $0.50 $0.41 $0.36 $(0.20) $0.43 $0.62
======= ======= ======= ======== ======== ======= ========
At June
30, 1996
--------
Balance sheet data:
Property and equipment, net 2,406 $ 3,656 $ 4,632 $ 40,102 $ 44,571 $ 55,485
Total assets 11,733 23,443 21,325 $142,452 $170,163 $418,616
Total long-term debt 371 855 3,579 $ 35,956 $ 44,226 $ 79,729
Stockholders' equity 9,436 15,690 10,943 $ 50,874 $ 50,504 $ 72,251
10
Selected Pro Forma Consolidated Financial Data
(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 (7) 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 (3) 19,263 9,282 9,502
Interest and dividend income (3) 4,342 1,623 2,820
Special charges (4) 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
======= ======= =======
- ------------------------------------------------
(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) 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.
(4) Consists of writedowns of certain real estate and other investments.
11
(5) Church & Tower was not subject to income taxes because it was an S
corporation and, consequently, income from continuing operations for 1991,
1992 and 1993 and the results of operations prior to the Burnup Acquisition
have been adjusted to reflect a pro forma provision for income taxes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a discussion of the Burnup Acquisition.
(6) 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.
(7) Consists of severance costs relating to workforce reductions at Sintel.
(8) Includes the results of Sintel for the two months ended June 30, 1996.
12
RISK FACTORS
An investment in the Common Stock 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 investing in any Common Stock.
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.
Risks 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
13
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 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 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
14
dividends and other distributions and its lack of majority control may inhibit
the Company's ability to implement strategies that it favors.
Risks 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 a contract for a particular project. There can be no
assurance that the Company's competitors will not develop
15
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 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 Stockholders
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, beneficially own more than 50% of the outstanding shares of common
stock of the Company. Accordingly, they 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. 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
16
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.
BOOK VALUE AND OTHER PER SHARE DATA
The following table sets forth certain historical per share financial
information for the Common Stock for the six month period ended June 30, 1996
and for the year ended December 31, 1995. The information presented herein
should be read in conjunction with the 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."
Year Ended Six Months Ended
December 31, 1995 June 30, 1996
Book value $ 4.42 $3.14
Cash dividends -- --
Income (loss) from
continuing operations $(0.20) $0.62
17
MARKET PRICE DATA
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....................... $38 3/8 $30 3/8
Fourth Quarter (through November 4). $50 7/8 $32 5/8
On November 4, 1996, the most recent practicable date prior to the printing
of this Prospectus Supplement, the closing sale price of the Common Stock as
reported on the Nasdaq National Market was $50 7/8 per share.
The Sellers are both privately held companies and the common stock of both
Sellers has never been publicly traded.
REGULATORY REQUIREMENTS
No federal or state regulatory requirements must be complied with in
connection with the H-W Acquisition. Article 12 of the North Carolina Business
Corporation Act provides that a corporation may sell, lease, exchange or
otherwise dispose of all, or substantially all, of its property, other than in
the usual course of business, if the corporation's board of directors proposes,
and the corporation's shareholders approve, the proposed transaction. See "The
Special Meeting of Harrison-Wright Shareholders-Voting Requirements, -
Dissenters' Rights."
18
THE SPECIAL MEETING OF HARRISON-WRIGHT SHAREHOLDERS
The following is a brief summary of the Notice of Special Meeting to be
delivered by Harrison-Wright to the Harrison-Wright Shareholders. The Notice of
Special Meeting is incorporated by reference herein. This summary is qualified
in its entirety by reference to the Notice of Special Meeting. The following
also refers to UPI's plan to seek written consent from its sole shareholder,
Harrison-Wright.
Date, Time and Place of Special Meeting
The Notice of Special Meeting will be delivered to the Harrison-Wright
Shareholders in connection with a special meeting of the Harrison-Wright
Shareholders (the "Special Meeting") to be held on November 15, 1996 at 9:00
o'clock a.m. at the principal offices of Harrison-Wright, 305 S. Church Street,
Charlotte, North Carolina, 28202.
Business to be Transacted at the Special Meeting
At the Special Meeting, the Harrison-Wright Shareholders will consider and
vote upon the following matters:
1. A proposal to approve the H-W Acquisition pursuant to the Asset
Purchase Agreement.
2. A proposal to approve a special sales incentive compensation
arrangement to pay four key management employees special incentive compensation
related to their efforts in connection with the H-W Acquisition and payable only
in the event of the consummation of the H-W Acquisition, and an additional
retainer fee payable to the certified public accountant of Harrison-Wright for
his services in connection with the H-W Acquisition and also payable only in the
event of the consummation of the H-W Acquisition.
3. A proposal to approve the following actions, which are conditioned on
the consummation of the sale of the H-W Acquisition:
a. An amendment to the Articles of Incorporation of Harrison-Wright
to change its name to "H-W Liquidating Company, Inc."; and
b. A Plan of Complete Liquidation and Dissolution of Harrison-Wright.
This plan has been delivered to the Harrison-Wright Shareholders
along with the Notice of Special Meeting.
4. Any and all other matters that may properly come before the Special
Meeting, or any adjournment thereof.
19
Voting Requirements
The affirmative vote of a majority of the holders of the outstanding shares
of the Harrison-Wright Common Stock, as well as the affirmative vote of the
holders of two-thirds of the outstanding shares of the Harrison-Wright Preferred
Stock will be required to approve the sale of the Acquired Assets pursuant to
the Asset Purchase Agreement.
Dissenters' Rights
The Harrison-Wright Shareholders are or may be entitled to assert
dissenters' rights under Article 13 of the North Carolina Business Corporation
Act with respect to the sale of the Acquired Assets to the Buyers. A copy of
Article 13 has been delivered to the Harrison-Wright Common Stockholders and the
Harrison-Wright Preferred Stockholders with the Notice of Special Meeting.
Approval of the Shareholders of UPI
UPI will seek a written consent approving the transactions contemplated by
the Asset Purchase Agreement from its sole shareholder, Harrison-Wright.
TERMS OF THE TRANSACTION
Asset Purchase Agreement
The following is a brief summary of the proposed Asset Purchase Agreement.
Capitalized terms not otherwise defined in this summary shall have the meaning
assigned to them in the Asset Purchase Agreement. The Asset Purchase Agreement
is incorporated by reference herein. This summary is qualified in its entirety
by reference to the Asset Purchase Agreement.
Overview. The Buyers have been formed for the purpose of acquiring
substantially all of the assets of, and assuming certain liabilities of the
Sellers. MasTec, the Sellers and the Buyers have negotiated the terms of the
"Asset Purchase Agreement" to accomplish the proposed sale and assumption of
liabilities. Certain terms of the Asset Purchase Agreement are outlined below.
Purchase Price. As payment for the Acquired Assets, the Buyers will (a)
assume the Assumed Liabilities and (b) deliver to the Sellers $6,834,767.39 in
cash or, at Buyers' option, that whole number of validly issued, fully paid,
non-assessable shares of Common Stock with a value equal to $6,834,767.39 based
upon the closing sale price of the Common Stock on the Nasdaq National Market
System as reported on the Nasdaq composite tape for the trading day immediately
preceding the Closing Date on which trading of the Common Stock has occurred
(the "Purchase Price Shares") ((a) and (b) collectively referred to as the
"Purchase Price").
20
Purchase Price Adjustment. The Purchase Price will be subject to a dollar for
dollar downward adjustment if there has been any material adverse change in the
financial condition of the Sellers during the period from July 31, 1996 and the
Closing Date. A decrease of up to $400,000 in the consolidated shareholders'
equity during this period due to operating losses would not be considered to be
a material adverse change.
Disposition of the Purchase Price Shares. The Sellers may elect to sell all or
any portion of the Purchase Price Shares in the open market, or to distribute
the Purchase Price Shares to their stockholders. If the Sellers elect to sell
or transfer all or any portion of the Purchase Price Shares in the open market
during the period beginning with the Closing Date and ending on the expiration
of the 15th trading day following the Closing Date on which the trading of the
Common Stock can occur (such 15 day trading period referred to as the
"Liquidation Period") then the Buyers guarantee to the Sellers that the Sellers
shall receive cash proceeds from the sale of any Purchase Price Shares sold
during the Liquidation Period, net of any brokerage commissions or other
directly related expenses of sale incurred by Sellers with respect thereto, in
an amount per share not less than the Closing Price (the "Guaranteed Minimum")
determined on an aggregate basis for all sales during the Liquidation Period.
The Buyers agree to pay all brokerage commissions or other directly related
expenses of sale in connection with any sales of the Purchase Price Shares
during the Liquidation Period. If the Sellers do not realize net sale proceeds
per share (determined on an aggregate basis for all sales during the Liquidation
Period) at least in the amount of the Guaranteed Minimum, then the Buyers, upon
expiration of the Liquidation Period, shall pay to the Sellers the amount by
which the Guaranteed Minimum multiplied by the number of Purchase Price Shares
sold during the Liquidation Period exceeds the aggregate net sales proceeds from
sales of Purchase Price Shares during the Liquidation Period. If the Sellers
realize net sales proceeds (determined on an aggregate basis for all sales
during the Liquidation Period) in excess of the Guaranteed Minimum multiplied by
the number of Purchase Price Shares sold during the Liquidation Period (the
"Excess Amount"), then the Sellers, upon the expiration of the Liquidation
Period, shall pay to Buyers the Excess Amount. If the Sellers' broker is unable
to sell all of the Purchase Price Shares which the Sellers' elected to sell
within the Liquidation Period, the Buyers shall cause MasTec to redeem from the
Sellers' broker all of the remaining Purchase Price Shares which the Sellers'
broker did not sell despite the Sellers' instruction to do so during the
Liquidation Period at the purchase price per share equal to the Closing Price.
Representations and Warranties of the Sellers. In the Asset Purchase
Agreement, the Sellers make certain representations and warranties for the
benefit of the Buyers regarding (a) their organization and similar corporate
matters, authorization to do business, their corporate power and authority to
enter into the Asset Purchase Agreement and to consummate the transactions
contemplated therein, the execution, delivery, validity and enforceability of
the Asset Purchase Agreement; (b) the ownership of all of the capital stock of
UPI by Harrison-Wright; (c) the absence of any conflicts or creation of liens
under either Seller's charter or bylaws, or any agreements by which a Seller may
be bound, the absence of undisclosed consents necessary to consummate the terms
of the Asset Purchase Agreement, and the absence of violations of laws, rules,
regulations, judgments, orders or decrees to which either Seller is
21
subject or may be bound; (d) the financial statements of the Sellers and the
liabilities of the Sellers other than as set forth in the financial statements;
(e) absence of material adverse changes; (f) title to the Sellers' properties
and assets; (g) title to the Sellers' real property; (h) leases to which either
Seller is a party; (i) material contracts of either Seller; (j) any documents,
laws, rules, orders, judgments or other restrictions on the operation of the
Sellers' businesses; (k) litigation involving either of the Sellers; (l) taxes
paid by the Sellers; (m) each Sellers' intellectual property; (n) condition of
the Acquired Assets; (o) compliance with applicable laws; (p) options to
purchase the Acquired Assets; (q) accounts receivable and payable; (r) the
Sellers' employee relations; (s) the Sellers' employee benefit plans; (t) the
Sellers' compliance with environmental laws and regulations; (u) the Sellers'
insurance; (v) licenses and permits of the Sellers; (w) the disclosure made by
the Sellers; (x) investment representations; (y) the capital structure of the
Sellers; (z) the special meetings of stockholders to be held by the Sellers; and
other matters.
Representations and Warranties of the Buyers. In the Asset Purchase
Agreement, the Buyers and the Company make certain representations and
warranties for the benefit of the Sellers regarding the Buyers and the Company
including (a) their organization and similar corporate matters, authorization to
do business, their corporate power and authority to enter into the Asset
Purchase Agreement and to consummate the transactions contemplated therein, the
execution, delivery, validity and enforceability of the Asset Purchase
Agreement; and (b) the absence of any conflicts or creation of liens under their
charters or bylaws, or any agreements by which MasTec or a Buyer may be bound,
and the absence of undisclosed consents necessary to consummate the terms of the
Asset Purchase Agreement; (c) disclosure made by the Buyers; (d) the due and
valid issuance of the Common Stock, the registration of the Common Stock under
the Securities Act of 1933, as amended, and the listing of the Common Stock on
the Nasdaq National Market; and other matters.
Indemnification of the Buyers by the Sellers. The Sellers, jointly and
severally, will indemnify and hold the Buyers and their respective officers,
directors, stockholders, affiliates, employees, representatives and other agents
harmless from and against any and all claims, demands, actions, controversies,
suits, liabilities, losses, damages, costs and charges (including without
limitation reasonable counsel and paralegal fees and other expenses) of every
nature and character, whether groundless or otherwise (collectively "Losses"),
suffered or paid, directly or indirectly, through application of either Seller's
or Buyers' assets or otherwise, as a result of or arising by reason of,
connected to or resulting from (a) any breach of or inaccuracy in any of either
Seller's representations or warranties under the Asset Purchase Agreement; (b)
any breach by either Seller of any covenant or agreement contained in the Asset
Purchase Agreement; and (c) any claim, debt, obligation or liability of either
Seller that is not an Assumed Liability pursuant to the Asset Purchase
Agreement.
Indemnification of the Sellers by the Buyers. The Buyers, jointly and
severally, agree to indemnify and hold each Seller and their respective
officers, directors, stockholders, affiliates, employees, representatives and
other agents harmless from and against any and all Losses incurred or subjected,
directly or indirectly, as a result of or arising by reason of, connected to or
22
resulting from (a) any breach of or inaccuracy in any of the Buyers'
representations or warranties hereunder; (b) any breach by Buyers of any
covenant or agreement contained in the Asset Purchase Agreement; (c) any claim,
debt, obligation or liability of either Seller that is specifically assumed by
Buyers as an Assumed Liability pursuant to the Asset Purchase Agreement; (d) any
violation by the Buyers or MasTec of any federal or state securities law
relating in any way to the issuance or delivery to Sellers of the Purchase Price
Shares and the subsequent sale of the Purchase Price Shares; (e) noncompliance
with any applicable bulk transfer laws; and (f) any severance pay or other
compensation-related liability or other claim or liability arising from Buyers'
failure or refusal to hire or termination of any employee of either Seller as of
the Closing Date which such employee Buyers (i) do not hire or (ii) elect to
terminate; and (g) any violation by Sellers of any federal or state securities
law in connection with any sale by Sellers of the Purchase Price Shares under
the Asset Purchase Agreement or under the Escrow Agreement provided that the
Sellers' actions in connection with such sales were taken in accordance with the
terms and conditions of the Asset Purchase Agreement and the Escrow Agreement.
Escrow Amounts. $590,500 of the Purchase Price, or that number of the
Purchase Price Shares which has a value in the aggregate (based on the Closing
Price) equal to $590,500, if Sellers elect to exercise their rights to deliver
shares of Common Stock in lieu of cash (the "Escrowed Amount"), shall be
delivered to First Union National Bank, N.A. as Escrow Agent pursuant to the
Escrow Agreement by and among the Buyers, the Sellers and the Escrow Agent. The
Buyers shall be entitled to offset against the Escrowed Amount the amount of (a)
any purchase price adjustment; (b) any indemnification obligation of the
Sellers; (c) certain of the accounts receivable of the Sellers acquired by the
Buyers as part of the Acquired Assets which have not been collected by the
Buyers within the 180 day period following the Closing Date; and (d) any
liability or cost associated with or arising from the presence or removal of
asbestos from the real property acquired from the Sellers or from the removal
of, contamination caused by, or remediation related to underground storage tanks
which are or were on the real property acquired from the Sellers. With certain
limited exceptions (related to the computation of the Purchase Price, refunds of
the Excess Amount, collections of accounts receivable or claims alleging fraud
or misconduct) the Buyers' right to offset these amounts against the Escrowed
Amount is limited to the total amount of the Escrowed Amount. Also, except for
the foregoing exceptions, the Buyers can seek to offset these amounts against
the Escrowed Funds only to the extent their aggregate claims exceed $25,000. At
the end of one year, any remaining Escrowed Amount shall be delivered to the
Sellers.
Conditions to Buyers' Obligations. The purchase of the Acquired Assets by
Buyers on the Closing Date is conditioned upon satisfaction, or written waiver
by Buyer, of various conditions including (a) the absence of material adverse
change in the assets or liabilities, the business or condition (financial or
otherwise), the results of operations, or prospects of either Seller; (b) the
representations and warranties of Sellers contained in the Asset Purchase
Agreement shall be true and correct on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
such date; (c) all of the covenants and agreements of each Seller to be
performed prior to the Closing Date pursuant to the Asset Purchase Agreement
shall have been duly complied with or performed; (d) no litigation
23
shall have been instituted or threatened to prohibit any of the transactions
contemplated by the Asset Purchase Agreement; (e) all consents and approvals
shall have been received; (f) Buyers shall have procured all permits and
licenses necessary for its operation of the Sellers' Businesses; (g) Buyers
shall have completed and be satisfied with the results of their legal,
environmental and financial due diligence of the assets, businesses and
operations of the Sellers; and (h) Buyers shall have been provided executed
copies of all debt assumption documents required by creditors of Assumed
Liabilities, among other things.
Conditions to Sellers' Obligations. The obligations of Sellers to consummate
the transactions contemplated by the Asset Purchase Agreement are subject to the
fulfillment or written waiver by Sellers of various conditions including (a) the
representations and warranties of Buyers contained in the Asset Purchase
Agreement shall be true and correct on and as of the Closing Date with the same
effect as though such representations and warranties have been made on and as of
such date; (b) all of the covenants and agreements of the Buyers and MasTec to
be performed pursuant to the terms of the Asset Purchase Agreement shall have
been duly complied with or performed; (c) no action or proceedings shall have
been instituted or threatened before a court or other government body or by any
public authority to restrain or prohibit any of the transactions contemplated
hereby; and (d) all consents and approvals, if any, necessary or desirable to
permit the consummation of the transactions contemplated by this Agreement shall
have been received, among other things.
Noncompetition and Use of Name. The Sellers agree not to engage in or be
connected in any manner with any business of the type and character engaged in
and competitive with Sellers' businesses, to persuade any existing or potential
customer not to do business with Buyers, to solicit the business of any current
customer or client of Sellers, to persuade or attempt to persuade any current
employee to be employed by anyone other than Buyers, or to disclose any
confidential or proprietary information. Further, the Sellers and their
affiliates are precluded from using the names "Harrison-Wright Company,
Incorporated" or "Utility Precast, Inc." or any deceptively similar names.
Guarantee Agreement. In conjunction with the execution of the Asset Purchase
Agreement, MasTec shall execute an agreement (the "Guarantee Agreement") under
the terms of which MasTec will guarantee the obligations of the Buyers to
indemnify the Sellers for any liability arising out of (a) any breach or
inaccuracy of the Buyers' representations or warranties in the Asset Purchase
Agreement, (b) any breach by the Buyers of any covenant or agreement contained
in the Asset Purchase Agreement, (c) any violations of the Buyers or MasTec of
any federal or state securities law relating in any way to the issuance or
delivery of the Purchase Price Shares or subsequent sale of the Purchase Price
Shares, or (d) noncompliance with any applicable bulk sales laws.
Closing Date. The Sellers and the Buyers contemplate that the Asset Purchase
Agreement and all agreements, delivered or other actions required or
contemplated by the terms therein, will be executed and carried out on November
21, 1996.
24
The Company's Reasons for the H-W Acquisition
MasTec's Board of Directors believes that the H-W Acquisition represents an
attractive consolidation opportunity in the fragmented telecommunications
infrastructure construction industry and will enable the Company to strengthen
its competitive position in the local markets served by the Sellers, which have
operations in North Carolina and Georgia. The H-W Acquisition is a good fit for
MasTec, which already has operations in Charlotte and Greensboro, North
Carolina, as well as in Atlanta, Georgia. The H-W Acquisition is also strategic
from a client servicing perspective; the Acquired Assets include two master
contracts between Harrison-Wright and BellSouth, one of MasTec's largest
customers.
The Company believes it can improve the Sellers' 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.
Accounting Treatment
It is intended that the H-W Acquisition will be accounted for under the
purchase method of accounting.
Federal Income Tax Consequences
Assuming that the Purchase Price Shares, if any, received by the Sellers are
sold within the Liquidation Period, the sale of the Acquired Assets by the
Sellers would be a taxable event to Sellers for which corporate income taxes
would be incurred and the Buyers will hold the Acquired Assets at a purchase
price basis. In addition, liquidating distributions to each Harrison-Wright
Shareholder would be taxable to that shareholder to the extent the distributions
exceed the shareholder's basis in the stock.
HARRISON-WRIGHT, UPI AND EACH HARRISON-WRIGHT SHAREHOLDER SHOULD CONSULT WITH
HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF THE
TRANSACTIONS DESCRIBED HEREIN, INCLUDING THE APPLICABILITY AND EXTENT OF ANY
RELEVANT STATE, LOCAL OR FOREIGN TAX LAWS.
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
25
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.
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
26
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 competition and enables local and long distance carriers and
cable television operators to enter
27
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
28
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.
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
29
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 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
30
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 wiring; First Union,
for example, used approximately 30 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 and inside wiring services 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 typically 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
31
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.
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.
32
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 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 Florida
Power & Light Company, 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
33
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 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.
34
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 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.
35
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 shareholders 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 shareholders 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.
36
The Company is involved in a lawsuit filed in November 1995 by BellSouth
arising from certain work performed by a subcontractor of the Company in 1993.
The amount claimed against the Company in this lawsuit approximates $900,000.
The Company believes that the allegations asserted by BellSouth in its lawsuit
are without merit and intends to defend it vigorously. On September 27, 1996,
the Company settled a previously disclosed lawsuit by Gilpin County for
$115,000.
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.
SELECTED FINANCIAL INFORMATION
The following tables present summary selected and pro forma financial data
of the Company as of the dates and for the periods indicated. This data is
derived from the audited Consolidated Financial Statements for the five years
ended December 31, 1995, and from the unaudited Condensed Consolidated
Financial Statements for the six months ended June 30, 1996 and 1995. The
Consolidated Financial Statements for the three years ended December 31, 1995
and the unaudited Condensed Consolidated Financial Statements for the six months
ended June 30, 1996 and 1995 appear elsewhere in this Prospectus Supplement
(collectively, the "Financial Statements"). The 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.
Summary unaudited pro forma financial data 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 data 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.
37
The unaudited data set forth below includes, in the opinion of management,
all material adjustments, consisting only of normal recurring accruals,
necessary for a fair presentation.
Summary Selected Consolidated Financial Data
(In thousands, except per share amounts)
Six Months Ended
June 30,
Year Ended December 31, (Unaudited)
--------------------------------------------------- --------------------------
1991 1992 1993 1994 1995 1995 1996
(1) (1) (1) (2) (8)
Income statement data:
Revenue $31,588 $34,136 $44,683 $111,294 $174,583 $73,797 $171,181
Operating income 5,463 8,313 $ 5,474 $ 9,881 $ 17,827 $10,533 $ 17,861
------- ------- ------- -------- -------- ------- --------
Interest expense, net of
interest and dividend
income (3) (198) (174) (182) 2,118 1,605 1,199 3,036
Special charges (4) 0 0 0 0 23,086 0 0
Other (expense) income, net 85 209 (81) 1,009 2,028 1,659 415
Equity (losses) in earnings of
unconsolidated companies
and minority interest (446) (416) 1,177 247 (139) 25 979
Provision (benefit) for
income taxes (5) 1,992 3,113 2,539 3,211 (1,835) 4,119 6,151
------- ------- ------- -------- -------- ------- --------
Income (loss) from
continuing operations $ 3,308 $ 5,167 $ 4,213 $ 5,808 $ (3,140) $ 6,899 $ 10,068
======= ======= ======= ======== ======== ======= ========
Net income (loss) $ 3,308 $ 5,167 $ 4,213 $ 6,633 $ (609) $ 8,813 $ 10,081
======= ======= ======= ======== ======== ======= ========
Average shares outstanding (6) 10,250 10,250 10,250 16,077 16,046 16,168 16,312
======= ======= ======= ======== ======== ======= ========
Earnings (loss) per share
from continuing operations $0.32 $0.50 $0.41 $0.36 $(0.20) $0.43 $0.62
======= ======= ======= ======== ======== ======= ========
At June
30, 1996
Balance sheet data: --------
Property and equipment, net 2,406 $ 3,656 $ 4,632 $ 40,102 $ 44,571 $ 55,485
Total assets 11,733 23,443 21,325 $142,452 $170,163 $418,616
Total long-term debt 371 855 3,579 $ 35,956 $ 44,226 $ 79,729
Stockholders' equity 9,436 15,690 10,943 $ 50,874 $ 50,504 $ 72,251
38
Selected Pro Forma Consolidated Financial Data
(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 (7) 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 (3) 19,263 9,282 9,502
Interest and dividend income (3) 4,342 1,623 2,820
Special charges (4) 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
======== ======== ========
- ------------------------------------------------
(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) 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.
(4) Consists of writedowns of certain real estate and other investments.
39
(5) Church & Tower was not subject to income taxes because it was an S
corporation and, consequently, income from continuing operations for 1991,
1992 and 1993 and the results of operations prior to the Burnup Acquisition
have been adjusted to reflect a pro forma provision for income taxes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a discussion of the Burnup Acquisition.
(6) 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.
(7) Consists of severance costs relating to workforce reductions at Sintel.
(8) Includes the results of Sintel for the two months ended June 30, 1996.
40
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 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 award certain
minimum levels of work to Sintel over the next three years. See "Business -
General."
41
The Sintel Acquisition gives the Company a significant international
presence and more than doubles the size of the Company in terms of revenue and
total assets. In Argentina, Chile and Peru, the Company operates through joint
ventures in which it holds interests ranging from 38% 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."
Recent Developments
The Company's revenue for the third quarter of 1996, which ended
September 30,1996, was $142.4 million, as compared to revenue generated in the
third quarter of 1995 of $46.6 million. The Company reported income from
continuing operations for the third quarter of 1996 of $9.4 million, or $0.55
per share, as compared with $2.6 million, excluding special charges, or $0.16
per share, in the comparable quarter of 1995.
The Company's revenue for the nine months ended September 30, 1996 was
$313.6 million and its income from continuing operations was $19.4 million. The
Company's revenue for the nine months ended September 30, 1995 was $120.4
million and its adjusted income from continuing operations, excluding special
charges, for the same period was $9.5 million.
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
42
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.
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
43
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
15.0%, 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,
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, 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.
44
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.
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 15.0% 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.
45
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 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 7.8% 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 expense decreased as a percentage of
revenue from 19.2% to 16.3% in the two six month periods. Sintel's revenue
represents approximately 60.4% of the Company's pro forma revenue for the six
months ended June 30, 1995 and approximately 47.6% 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.
46
1996 1995
Revenue 100.0% 100.0%
Costs of revenue, excluding depreciation 73.6% 73.7%
Special charges- 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
$186.3 million in 1995 to $254.9 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 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
47
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.
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.
48
Year ended December 31,
1995 1994 1993
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 3.0 % 2.4 % 3.2 %
Special charge- real estate and investments
write-downs 13.2 % 0.0 % 0.0 %
(Loss) income from continuing operations (1.8)% 5.2 %/(1)/ 9.4 %/(1)/
/(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 $113.9 million and $76.2 million or 65% and 68% of total revenue 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.
49
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 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 $1.3 million 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 $5.0 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 $10.0 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
50
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 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
51
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 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, $9.2 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 Consolidated Financial
Statements.
52
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 on 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 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.
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.
53
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 and 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
Carmen M. Sabater 32 Corporate Controller
Nancy J. Damon 46 Corporate Secretary
Jose Luis Ucieda 54 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 and Coinmach Laundry
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
54
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.
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.
55
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.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table summarizes all compensation awarded to, earned by or
paid to (a) the Company's Chief Executive Officer, and (b) the four other most
highly compensated executive officers of the Company whose total salary and
bonus exceeded $100,000 (of which there were only three) (together, the "Named
Executive Officers") for services rendered in all capacities to the Company and
its subsidiaries for the Company's last fiscal year.
56
Annual Compensation
------------------------------------------------------
Long Term
Compensation
Awards
Other annual Underlying
Salary Bonus Compensation Options/SARS
Name and Principal Position Year ($) ($) (2) #
- --------------------------- ---- ---------- ------- --------------------------- -------------------------
Jorge L. Mas, Chairman of
the Board and President 1995 311,000 0 -- 0
of Church & Tower of 1994 (1) 250,000 350,000 0
Florida, Inc.
Jorge Mas, President and 1995 322,000 0 -- 60,000
Chief Executive Officer 1994 (1) 230,000 200,000 0
Ismael Perera 1995 144,000 0 -- 40,000
Senior Vice 1994 (1) 108,000 50,000 20,000
President/Operations
Carlos A. Valdes 1995 124,000 0 -- 40,000
Senior Vice President 1994 (1) 84,100 50,000 20,000
(1) The annual compensation shown is for the period from March 11, 1994, the
date of the Burnup Acquisition, through December 31, 1994. None of the
Named Executive Officers was employed by the Company prior to March 11,
1994.
(2) The Named Executive Officers also received certain perquisites and personal
benefits that did not exceed applicable reporting thresholds.
Option Grants
The following table provides information with respect to stock options to
purchase Common Stock granted to the Named Executive Officers during the year
ended December 31, 1995 pursuant to the Stock Incentive Plan:
57
Individual Grants
Potential Realizable Value
At Assumed Annual Rate of
Percent of Total Stock price Appreciation
Number of Shares Options Granted for Option Term (3)
Name Underlying Options to Employees in Exercise Price Expiration
Granted Fiscal Year (1) ($/sh) (2) Date 5% 10%
- --------------- -------------------------------------------------------------------------------- --------------------------
- -
Jorge L. Mas 0 0 0 0
Jorge Mas 60,000 23% 13.375 2/3/05 $504,688 $1,184,360
Ismael Perera 40,000 23% 13.375 2/3/05 $336,459 789,577
Carlos A. Valdes 40,000 23% 13.375 2/3/05 $336,459 789,577
(1) Based on options to purchase an aggregate of 172,000 shares of Common Stock
granted to employees during 1995.
(2) All options were granted at an exercise price equal to fair market value
based on the mean between the bid and asked prices of the Company's Common
Stock on the date of grant.
(3) Potential gains are not of exercise price, but before taxes associated with
exercise. These amounts represent certain assumed rates of appreciation
only, based on Securities and Exchange Commission rules, and do not
represent the Company's estimate or projection of the price of the
Company's stock in the future. Actual gains, if any, on stock option
exercises depend upon the actual future performance of the Company's Common
Stock and the continued employment of the option holders throughout the
vesting period. Accordingly, the potential realizable values set forth in
this table may not be achieved or may be exceeded.
Aggregate Option Exercises and Year-End Option Values
The following table sets forth information with respect to each exercise of
stock options during the fiscal year ended December 31, 1995 by the Named
Executive Officers and the value at December 31, 1995 of unexercised stock
options held by the Named Executive Officers.
58
Number of Shares
Underlying Unexercised Value of Unexercised
Shares Options at In-the-Money Options
Acquired December 31, 1995 at December 31, 1995 (1)
On Value
Exercise Realized (#) ($)
(#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
------------- ------------- ------------------------- -------------------------
Jorge L. Mas 0 0 0 0 0 0
Jorge Mas 0 0 0 60,000 0 0
Ismael Perera 0 0 4,000 56,000 $21,240 $84,960
Carlos A. Valdes 0 0 4,000 56,000 $21,240 $84,960
(1) Market value of shares underlying in-the-money options at December 31, 1995
(based on the product of $13.25 pershare, the closing price of the
Company's Common Stock on the Nasdaq National Market on December 31, 1995,
loss the exercise price of $7.94 per share, times the number of in-the-
money options as of that date).
Compensation Committee Interlocks and Insider Participation
The members of the Compensation and Stock Option Committee are Eliot C.
Abbott, Samuel C. Hathorn, Jr., and William A. Morse, none of whom is a former
or current officer or employee of the Company or any of its subsidiaries. Mr.
Abbott was a stockholder in the law firm of Carlos & Abbott, P.A. and is a
partner in the law firm of Kelley Drye & Warren. During fiscal year 1995, the
Company retained Carlos & Abbott, P.A. with regard to variety of legal matters
and paid such firm approximately $114,000 for legal services.
Compensation of Directors
Directors of the Company who are not employees of the Company or of any
subsidiary are paid an annual retainer of $15,000 and a meeting fee of $600 for
each meeting of the Board of Directors and $400 for each committee meeting
attended, regardless of the number of committees on which they serve. In
addition, pursuant to the Non-Employee Directors Plan, Messrs. Abbott and
Sorzano annually receive options to purchase 15,000 shares of Common Stock at an
exercise price equal to the fair market value of the Common Stock on the date of
grant.
Report of the Compensation and Stock Option Committee
The Compensation and Stock Option Committee of the Board of Directors (the
"Compensation Committee") is responsible for establishing and administering the
policies for the
59
Report of the Compensation and Stock Option Committee
The Compensation and Stock Option Committee of the Board of Directors (the
"Compensation Committee") is responsible for establishing and administering the
policies for the Company's compensation program and for approving the
compensation levels of the executive officers of the Company, including its
Chief Executive Officer. The Compensation Committee also reviews with the Chief
Executive Officer guidelines for salaries and aggregate bonus awards applicable
to the Company's employees other than its executive officers. The Compensation
Committee is composed of Eliot C. Abbott, Samuel C. Hathorn, Jr. and William A.
Morse, all of whom are nonemployee directors of the Company.
Statement of Philosophy of Executive Compensation. The compensation
program of the Company is designed to (a) provide base compensation reasonably
comparable to that offered by other leading companies to their executive
officers so as to attract and retain talented executives; (b) motivate executive
officers to achieve the strategic goals set by the Company by linking an
officer's incentive compensation to the performance of the Company and
applicable business units, as well as to individual performance; and (c) align
the interests of its executives with the long-term interests of the Company's
stockholders through the award of stock options and other stock-related
programs. To implement this philosophy, the Company offers its executive
officers compensation packages that include a mix of salary, incentive bonus
awards, and stock options.
In determining the level and form of executive compensation to be paid or
awarded, the Compensation Committee relies primarily on an assessment of the
Company's overall performance in light of its strategic objectives rather than
on any single quantitative or qualitative measure of performance. The
Compensation Committee considered the following factors in establishing 1995
compensation:
. A substantial increase in revenue in comparison to prior years.
. A significant strengthening and expansion of the Company's core
telecommunications construction business into new and existing markets
and with new and existing customers.
. The diversification of the Company's core business through strategic
acquisitions and investments.
. The continued divestiture of non-core assets to concentrate resources on
the Company's core business.
. The substantial completion of the integration of Church & Tower and
Burnup & Sims following the Burnup Acquisition as well as an increase
in overall efficiency among the Company's business units.
60
Salary. The base salary of executive officers is determined initially by
analyzing and evaluating the responsibilities of the position and comparing the
proposed base salary with that of officers in comparable positions in other
companies. Adjustments are determined by objective factors such as the
Company's performance and the individual's contribution to that performance and
subjective considerations such as additional responsibilities taken on by the
executive. Although the Compensation Committee believes that the Company made
substantial progress in 1995 as indicated above, the benefits of strategic
actions during the year have not yet been fully realized in the financial
results of the Company. Accordingly, no increase in base salary for 1995
performance was recommended by the Compensation Committee for the executive
officers of the Company, including the Named Executive Officers identified under
the caption "Executive Compensation - Summary Compensation Table" below.
Incentive Bonus Awards. In addition to paying a base salary, the Company
awards incentive bonuses as a component of overall compensation. Bonus awards
are made after considering the performance of the executive officer's area of
responsibility or the operating unit under his control, if any, and the
financial performance of the Company. The Compensation Committee did not
recommend the award of bonuses to the Company's executive officers, including
the Named Executive Officers, for 1995.
Stock Incentive Plan. Long-term incentive compensation for executives
consists of stockbased awards made under the Company's Stock Incentive Plan.
The Stock Incentive Plan provides for the granting of options to purchase Common
Stock to key employees at exercise prices equal to the fair market value on the
date of grant. The Compensation Committee believes that the use of stock
options reinforces the Committee's philosophy that management compensation
should be clearly linked to stockholder value. The Compensation Committee
awards options to key employees, including executive officers, based on current
performance, anticipated future contribution based on such performance, and
ability to materially impact the Company's financial results. In 1995, the
Compensation Committee granted stock options under the Stock Incentive Plan to
the Company's executive officers, including the Named Executive Officers,
primarily based on 1994 results. In addition, based on the indicators described
above and to further link his compensation to stockholder value, the
Compensation Committee in 1996 recommended the award to Jorge Mas, the Company's
President and Chief Executive Officer, of options to purchase 50,000 shares of
the Company's Common Stock at an exercise price equal to the fair market value
of the stock on the date of grant.
CEO Compensation. In setting the salary and incentive compensation for
Jorge Mas, the Company's Chief Executive Officer, the Compensation Committee
reviewed the Company's financial performance in 1995 with respect to revenue,
net income and income per share (before special charges) compared to the
performance of other companies in its industry and the Company's prior
performance, as well as the other factors described above. Based on its review
of this information, the Compensation Committee decided not to recommend an
increase in salary or a bonus award for the Chief Executive Officer for 1995
performance. The Compensation Committee did award Mr. Mas stock options for
1995 performance to further link his compensation to the performance of the
Common Stock of the Company.
61
Performance Graph
The following graph compares the cumulative total stockholder return on the
Company's Common Stock from December 31, 1990 through December 31, 1995 with the
cumulative total return of the S & P 500 Stock Index and a Company-constructed
index of two peer companies consisting of Dycom Industries, Inc. and L.Z. Myers
Company (the "Peer Index). The graph assumes that the value of the investment
in the Common Stock was $100 on December 31, 1990 and that all dividends were
reinvented. This data does not take into consideration what the cumulative
stockholder return on the Common Stock would have been had the Burnup
Acquisition happened at an earlier date and is not necessarily indicative of
future results.
[LINE GRAPH APPEARS HERE]
62
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of November 5, 1996, information with
respect to the beneficial ownership of the Company's Common Stock by (a) each
person known to the Company to beneficially own more than 5% of the outstanding
shares of the Company's Common Stock, (b) each director of the Company and each
executive officer, and (c) 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. The consummation
of the transactions contemplated by the Asset Purchase Agreement will not affect
the amount and will not materially affect the percentage holdings of any
director, executive officer or affiliate of the Company or all directors and
officers of the Company as a group.
Number of Shares Percent of Class
Eliot C. Abbott 7,000 (1) *
Nancy J. Damon 200 (1) *
Samuel C. Hathorn, Jr. 5,200 (2) *
Edwin D. Johnson 4,500 *
Arthur B. Laffer 40,000 (1) *
Jorge L. Mas 5,308,965 (3) 31%
Jorge Mas 3,911,970(1)(4) 23%
Ismael Perera 18,492 (1) *
Ubiratan Simoes Rezende - -
Carmen M. Sabater 3,000 (1) *
Jose M. Sariego 2,000 (1) *
Jose S. Sorzano 4,500 (1) *
Carlos A. Valdes 9,259,307 (1) *
All executive officers and
directors as a group (13 persons) 9,259,307 (1)(5) 54%
FMR Corp.
82 Devonshire Street
Boston, MA 02109 1,700,800 10%
- -----------------------------
(1) The amounts shown include shares covered by options exercisable within 60
days of November 5, 1996 as follows: Eliot C. Abbott 8,000 shares; Nancy J.
Damon 200 shares; Arthur B. Laffer 40,000 shares; Jorge Mas 12,000 shares;
Ismael Perera 16,000 shares; Carmen M. Sabater 3,000 shares; Jose M.
Sariego 2,000 shares; Jose S. Sorzano 4,500 shares and Carlos A. Valdes
12,000 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 58,965 shares owned of record by the Mas Family Foundation, Inc., a
Florida not-for-profit corporation (the "Family Foundation"). The sole
general partner
63
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.
(4) Includes 3,844,000 shares owned of record by Jorge Mas Holding I Limited
Partnership, a Texas limited partnership ("Jorge Mas Holdings"), 58,965
shares owned of record by the Family Foundation, 12,000 shares covered by
options exercisable within 60 days of November 5, 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 58,985 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.
64
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 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"). As of November 5, 1996, there are
approximately 16,767,645 shares of Common Stock issued and outstanding. No
shares of Preferred Stock are outstanding. As of November 5, 1996, there were
approximately 5,012 holders of record of the Common Stock and no holders of
record of the Company's Preferred Stock, par value $1.00 per share.
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 "--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. 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 redemptive 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.
65
Preferred Stock
The Company's Restated Certificate of Incorporation (the "Certificate"),
which is filed as an exhibit to the Registration Statement of which this
Prospectus constitutes a part, 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. See "Risk Factors--Anti Takeover Provisions."
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 he plan will be tendered in a tender or exchange offer)
or unless 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 eighty
percent (80%) of the voting power of all
66
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 a 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
(i) 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 (ii) 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
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 consent
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."
67
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.
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.
LEGAL MATTERS
The validity of the shares of the Common Stock offered hereby has been
passed upon for the Company by Fried, Frank, Harris, Shriver & Jacobson, 1001
Pennsylvania Avenue, N.W., Washington, D.C. 20004.
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 Supplement 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
included in this Prospectus
68
Supplement have been audited by Arthur Andersen, independent public accountants,
as stated in its report with respect thereto.
69
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFERING MADE HEREBY, 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 A SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SHARES OF COMMON STOCK OFFERED
HEREBY OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SHARES TO
ANY PERSON, OR THE SOLICITATION OF A PROXY FROM ANY PERSON, IN ANY JURISDICTION
IN WHICH SUCH OFFER, SOLICITATION OF AN OFFER OR PROXY SOLICITATION IS UNLAWFUL.
THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
TABLE OF CONTENTS
Page
Available Information 2
Summary 3
Risk Factors 13
Book Value and Other Per Share Data 17
Market Price Data 18
Regulatory Requirements 18
The Special Meeting of Harrison-Wright Shareholders 19
Terms of the Transaction 20
Business 25
Selected Financial Information 37
Management's Discussion and Analysis of Financial Condition 41
and Results of Operations
Management 53
Executive Compensation 56
Principal Stockholders 63
Certain Relationships and Related Transactions 64
Selection of Auditors 64
Description of Capital Stock 65
Dividend Policy 68
Legal Matters 68
Experts 68
70
INDEX TO MASTEC, INC. 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
Noted to Condensed Consolidated Financial Statements - Unaudited F-12
Consolidated Financial Statements for the three years ended
December 31, 1995
Report of Independent Accountants F-20
Consolidated Statements of Income for the three years ended
December 31, 1995 F-21
Consolidated Balance Sheets as of December 31, 1995 and 1994 F-23
Consolidated Statement of Stockholders' Equity for the three
years ended December 31, 1995 F-25
Consolidated Statements of Cash Flows for the three years ended
December 31, 1995 F-26
Notes to Consolidated Financial Statements F-31
F-1
MASTEC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
Three Months Ended Six Months 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 Ended Six Months 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
;PAGE>
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
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 slae 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 liabilitites 293 853
-------------- ------------
Net cash provided by operating activities 41,669 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 stockholders 0 1,800
Capital expenditures (2,808) (7,170)
Investment in unsolidated 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 stockholders 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 CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
1. CONSOLIDATED 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 accruals which are, in the opinion of management, necessary and 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 of 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.
F-12
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.
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
Telecommunicacion, 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
F-13
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)
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.
F-14
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 8.5% 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.
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.
F-15
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 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 operations $ (53) $ 462
=============== ================
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 loss on disposal 3,607 3,775
F-16
----------------- ------------------
$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.
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
F-17
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.
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-
F-18
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-19
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 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-20
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 applicable income taxes) 2,493 0 0
---------------- ---------------- ----------------
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-21
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-22
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-23
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-24
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
& Tower transferred to
capital surplus 11,165 (11,165) 0
Equity acquired in reverse
acquisition 16,185 1,618 122,969 (92,232) 21,355
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-25
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
investments 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 revenue (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 235 227 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-26
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
Proceed from Revolver 21,625 0 0
Financing costs (516) 0 0
Proceed form 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
Distribution to shareholders 0 0 (8,500)
Net proceed from common stock issued from
treasury 238 0 0
-------- ------- ------
Net cash provided by (used in) financing
activites 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-27
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-28
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 allowances of $1,482 $18,274
Inventories and other current assets 7,524
Investments 9,000
Property 40,685
Real estate investments and other assets 32,645
--------
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 assets 389
Property 1,270
Real estate investments and other assets 550
--------
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 stockholders $1,851
Cash paid for acquisition 1,000
--------
Purchase price $2,851
========
F-29
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-30
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 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.)
F-31
The Combined Financial Statements for the years ended December 31, 1993 include
the accounts of Church & Tower of Florida, 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.)
Revenue recognition
Revenue and related costs for short-term construction projects, which include
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.
F-32
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 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.
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
F-33
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.
F-34
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 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.
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)
F-35
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 $1,917,00. 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 its security interest in 40% of the outstanding
and issued shares of the common stock of an Ecuadorian company that owns 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 away clearance business. The stockholder of ULM received $1.75 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
F-36
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,
F-37
including the conversion to a taxable corporation. The unaudited pro forma
results presented below reflect reclassification of discontinued operations.
F-38
(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
======== =========
F-39
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 realized 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 charge of $3.2 million charge
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
========== ==========
F-40
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 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
F-41
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.
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.
F-42
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.
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.
F-43
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
============ ============
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 carryforward 543 422
Accrual for disposal of discontinued operations 1,503 0
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:
F-44
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.
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.
F-45
11. BUSINESS SEGMENTS
Business segment information is summarized as follows (in thousands)
1995 1994 1993
Revenue:
Telecommunication construction services $172,010 $110,609 $ 34,010
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 service $ 14,969 $ 11,291 $ 9,351
General construction services 1,410 140 0
Telecommunications operations (1,241) 0 0
Corporate (19,974) (2,659) (6,042)
------- ------- --------
Total $ (4,836) $ 8,772 $ 5,575
======= ======= ========
Indentifiable assets:
Telecommunication construction service 92,082 64,668 17,405
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 services 6,454 4,329 609
Telecommunication operations 2 0 0
Corporate and discontinued operations 457 110 0
-------- -------- --------
Total 6,913 4,439 609
======== ======== ========
Capital expenditures:
Telecommunication construction services 20,431 5,901 2,036
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
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
F-46
recorded $106,000 and $169,000 as amounts due form 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 $11,500,00. 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 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 common stock of NBC owned by 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
F-47
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 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 1993 approximately $566,000
in provision 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
F-48
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 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
Provisions 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-50
17. QUARTERLY FINANCIAL DATA (Unaudited)
1995(1): First Second Third Fourth
Quarter Quarter Quarter Quarter Total
(2) (3)
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 $2,452 4,447 $(7,438) $(2,601) $(3,140)
Income (loss) from
discontinued operation
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 for sale. (See Note 5.)
F-51
(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.)
(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-52
INDEX TO FINANCIAL STATEMENTS OF SISTEMAS E INSTALACIONES DE TELECOMUNICACION,
S.A.
Item 7. Consolidated Financial Statements and Exhibits Page
Consolidated Financial Statements of Business Acquired
in Spanish Pesetas
Report of Independent Accountants F-54
Consolidated Balance Sheets as of December 31, 1995 and 1994 F-55
Consolidated Statements of Operations for the three years ended
December 31, 1995 F-59
Consolidated Statements of Cash Flows for the three years ended
December 31, 1995 F-62
Notes to the Consolidated Financial Statements F-63
F-53
AUDITORS' REPORT ON FINANCIAL STATEMENTS
To the Shareholders
of Sintel, S.A.:
We have audited the accompanying consolidated balance sheets of
SINTEL, S.A. AND SUBSIDIARIES as of December 31, 1995, and 1994,
the related consolidated statements of income, and changes in
shareholders' equity for each of the three years in the period
ended December 31, 1995, and the cash flows for each of the two
years in the period ended December 31, 1995 all expressed in
Spanish Pesetas. These financial statements are 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 general 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 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 financial position
of Sintel, S.A. and subsidiaries as of December 31, 1994 and
1995, and the results of their operations for each of the three
years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles in the United States.
/s/ Arthur Andersen
- --------------------
Madrid, Spain
February 26, 1996
Page 3 of 49
Sintel, S.A. and Subsidiaries
Balance sheets as of December 31, 1995 and 1994
Currency - Thousands of Pesetas Consolidated Group
ASSETS 1995 1994
A) DUE FROM SHAREHOLDERS FOR UNCALLED CAPITAL - 42,126
B) LONG TERM ASSETS 5,698,912 6,131,970
I. Intangible assets 111,107 3,927
------------ ------------
Lease hold investments 98,951 -
Other intangible assets 39,940 8,764
Accumulated amortization (27,784) (4,837)
II. Fixed assets (Note 6) 2,204,842 2,516,120
------------ ------------
Land and buildings 722,251 690,625
Technical installations and machinery 888,181 998,091
Furniture 442,829 422,443
Computer hardware 559,352 817,619
Tools 1,065,920 997,039
Vehicles 1,364,289 1,360,075
Meter-reading equipment 1,407,954 1,492,365
Accumulated depreciation (4,245,934) (4,262,137)
III Investments (Note 7) 3,382,963 3,611,923
------------ ------------
Holdings carried by the equity method (Note 5) 238,929 412,532
Other investments 9,932 256,289
Loans to Telefonica Group companies (Note 18) 2,035,445 2,134,122
Other loans 827,472 672,233
Prepaid taxes (Note 15) 839,493 661,468
Long-term deposits and financial guarantees 36,569 57,580
Allowances (604,877) (582,301)
C) DEFERRED EXPENSES 121,435 31,196
Page 4 of 49
Sintel, S.A. and Subsidiaries
Balance sheets as of December 31, 1995 and 1994
Currency - Thousands of Pesetas Consolidated Group
ASSETS 1995 1994
D) CURRENT ASSETS 33,856,022 33,083,281
I. Inventories (Note 8) 3,956,706 4,205,446
------------ ------------
Inventories 3,156,339 3,063,187
Advances 851,522 1,200,751
Allowances (51,155) (58,492)
II. Accounts receivable (Note 9) 28,314,418 25,330,437
------------ ------------
Customer receivables 3,585,674 8,538,227
Receivable from Group companies,
Telefonica (Note 18) 21,269,306 16,116,345
Receivable from associated companies,
Telefonica Group (Note 18) 3,040,219 -
Receivable from associated companies,
Sintel Group (Note 18) 3,391 17,326
Sundry accounts receivable 423,664 715,592
Employee receivables 209,904 211,794
Taxes receivables (Note 15) 359,860 512,689
Allowances for doubtful accounts (577,600) (781,536)
III Short-term investments 1,062,594 2,955,358
------------ ------------
Loans to Telefonica group companies (Note 18) 407,513 2,675,833
Loans to Sintel group and associated
companies (Note 18) 90,734 310,548
Other loans 535,543 268,285
Short-term deposits and guarantees provided 28,804 8,126
Allowances (Note 18) - (307,434)
IV. Cash 395,334 286,853
V. Prepaids expenses 126,970 305,187
------------ ------------
TOTAL ASSETS (A+B+C+D) 39,676,369 39,288,573
============ ============
The accompanying Notes 1 to 20 are an integral part of these consolidated
balance sheets.
Page 5 of 49
Sintel, S.A. and Subsidiaries
Balance sheets as of December 31, 1995 and 1994
Currency - Thousands of Pesetas Consolidated Group
SHAREHOLDERS' EQUITY AND LIABILITIES 1995 1994
A) SHAREHOLDERS' EQUITY (Note 10) 2,243,876 2,438,208
I. Share capital 3,100,000 1,100,000
II. Other reserves 260,046 1,745,187
------------ ------------
Unrestricted reserves 4,062,334 4,253,434
Restricted reserves 321,190 321,190
Prior years' losses (4,123,478) (2,829,437)
III Reserves at companies consolidated by the global
integration method 883,427 534,973
IV. Reserves at companies carried by the
equity method 11,313 (185,732)
V. Translation differences (27,401) 19,997
------------ ------------
Companies consolidated by the global
integration method (23,527) 22,184
Companies carried by the equity method (3,874) (2,187)
VI. Loss (1,983,509) (776,217)
------------ ------------
Consolidated loss (1,829,823) (442,725)
Income attributted to minority interests (153,686) (333,492)
B. MINORITY INTERESTS (Note 11) 1,131,681 971,076
C. DEFERRED INCOME 1,409 106,873
D. ACCRUED LIABILITIES (Note 12) 2,795,839 2,483,412
E. LONG-TERM DEBT 9,600,464 13,008,857
I. Bonds (Note 13) - 2,021,874
II. Payable to banks (Note 14) 175,762 -
III Payable to Telefonica group and
associated companies (Notes 14 and 18) 7,909,237 10,209,194
Payable to Sintel group and
associated companies (Notes 14 and 18) - 65,339
IV. Other long-term payables 1,515,101 712,450
------------ ------------
Accrued taxes payable (Note 15) 1,454,290 712,450
Other accounts payable 60,811 -
V. Uncalled capital payments payable 364 -
Page 6 of 49
Sintel, S.A. and Subsidiaries
Balance sheets as of December 31, 1995 and 1994
Currency - Thousands of Pesetas Consolidated Group
SHAREHOLDERS' EQUITY AND LIABILITIES 1995 1994
F. CURRENT LIABILITIES 23,659,864 20,280,147
I. Bonds (Note 13) 2,044,231 22,500
II. Payable to banks 3,911,900 4,462,908
------------ ------------
Loans and other debts (Note 14) 3,757,136 4,331,825
Interest payable 154,764 131,083
III Payable to Telefonica and Sintel group and
associated companies 913,582 459,179
------------ ------------
Payable to Telefonica group companies (Note 18) 459,075 221,223
Payable to Sintel group companies (Note 18) - 13,711
Payable to Telefonica associated companies 451,584 224,199
Payable to Sintel associated companies 2,923 46
IV. Trade accounts payable 14,274,828 12,459,101
------------ ------------
Billings in excess of cost (Note 18) 2,033,540 1,946,795
Payable for purchases or services 5,758,161 6,400,638
Notes payable 6,483,127 4,111,668
V. Other nontrade payables 2,515,323 2,876,459
------------ ------------
Accrued taxes payable (Note 15) 1,498,196 1,906,920
Compensation payable 872,825 854,217
Other accounts payable 144,302 115,322
G. ACCRUED LIABILITIES (Note 18) 243,236 -
------------ ------------
TOTAL SHAREHOLDERS' INVESTMENT AND
LIABILITIES (A+B+C+D+E+F+G) 39,676,369 39,288,573
============ ============
The accompanying Notes 1 to 20 are an integral part of these consolidated
balance sheets.
Page 7 of 49
Sintel, S.A. and Subsidiaries
Consolidated statements of operations
for the years ended December 31, 1995, 1994 and 1993
Currency - Thousands of Spanish Pesetas Consolidated Group
DEBITS 1995 1994 1993
EXPENSES
Reduction in inventories - 1,642,983 1,051,534
Procurements 22,959,908 19,857,220 22,552,133
----------------------------------
Purchases from Telefonica Group companies (Note 18) 89,296 3,625 7,131
Purchases 2,774,693 1,606,735 2,545,221
Variation in raw materials and other supplies (62,293) 16,899 2,167
Work performed by Telefonica group companies (Note 18) 2,157 66,258 -
Work performed by other companies 20,156,055 18,163,703 19,997,614
Personnel expenses (Note 18) 20,206,569 16,931,124 19,971,548
Period depreciation and amortization 612,246 642,159 620,895
----------------------------------
Intangible assets 21,204 1,688 1,496
Tangible fixed assets 566,770 639,395 608,024
Deferred charges 24,272 1,076 11,375
Variation in operating provisions 2,912 169,245 45,412
----------------------------------
Variation in inventory provisions (6,380) (1,427) 983
Variation in other operating provisions 9,292 170,672 44,429
Other operating expenses 4,311,377 4,072,481 3,285,822
----------------------------------
Outside services from Telefonica group companies (Note 18) 606,110 108,147 702
Outside services 3,465,938 2,932,172 1,766,965
Taxes other than income tax 166,248 494,887 294,367
Other current operating expenses 73,081 537,275 1,223,788
I. OPERATING INCOME - 438,310 -
Other financial expenses on debts to Telefonica group companies (Note 18) 948,027 984,935 360,250
Other financial expenses on debts 1,227,185 791,447 1,822,685
Variation in financial investment provisions - - -
Exchange losses 302,251 411,275 25,054
II. FINANCIAL INCOME - - -
----------------------------------
Share in losses of companies carried by the equity method - - 11,243
----------------------------------
Page 8 of 49
Sintel, S.A. and Subsidiaries
Consolidated statements of operations
for the years ended December 31, 1995, 1994 and 1993
Currency - Thousands of Spanish Pesetas Consolidated Group
1995 1994 1993
III INCOME FROM ORDINARY ACTIVITIES - - -
----------------------------------
Losses on sale fixed assets 98,307 50,395 -
----------------------------------
Extraordinary expenses and losses (Note 18) 281,218 173,466 586,673
----------------------------------
IV. EXTRAORDINARY INCOME - - -
----------------------------------
V. INCOME BEFORE TAXES - - -
----------------------------------
Corporate income tax (821,125) (252,527) (214,210)
----------------------------------
VI. CONSOLIDATED INCOME - - -
----------------------------------
Income attributed to minority interests - - -
----------------------------------
VII.INCOME FOR THE YEAR - - -
================================
The accompanying Notes 1 to 20 are an integral part of these consolidated
statements of operations.
Page 9 of 49
Sintel, S.A. and Dependent Companies
Consolidated statements of operations
for the years ended December 31, 1995, 1994 and 1993
Currency - Thousands of Spanish Pesetas Consolidated Group
CREDITS 1995 1994 1993
REVENUE
Total net sales 47,031,888 43,455,710 46,676,818
------------ ------------ ------------
Net sales to Telefonica group companies (Note 18) 30,841,221 22,798,268 39,056,673
Net sales and services rendered 16,190,667 20,657,442 7,620,145
Increase in inventories 202,330 - -
Other operating revenues 110,598 297,812 294,054
------------ ------------ ------------
Sundry and other current operating revenues 75,597 243,340 268,483
Subsidies 35,001 54,472 25,571
I. OPERATING LOSS 748,196 - 556,472
Revenues from other securities and loans 267,699 578,754 516,418
------------ ------------ ------------
Telefonica group companies (Note 18) 30,408 214,743 208,148
Other companies 215,696 363,486 306,484
Other interest and similar revenues 21,595 525 1,786
Exchange gains 30,802 326,488 400,357
II. FINANCIAL LOSS 2,178,962 1,282,415 1,291,214
Share in income of companies carried by the equity method 281,947 372,454 -
III LOSS ON ORDINARY ACTIVITIES 2,645,211 471,651 1,858,929
Gains on fixed asset disposals 28,957 260 2,062
Extraordinary revenues (Note 18) 344,831 - 49,092
IV. EXTRAORDINARY LOSS 5,737 223,601 535,519
V. LOSS BEFORE TAXES 2,650,948 695,252 2,394,448
VI. CONSOLIDATED LOSS 1,829,823 442,725 2,180,238
Income attributed to minority interests (Note 11) 153,686 333,492 532,260
------------ ------------ ------------
VII LOSS FOR THE YEAR 1,983,509 776,217 2,712,498
============ ============ ============
The accompanying Notes 1 to 20 are an integral part of these consolidated
statements of operations.
Page 10 of 49
Sintel, S.A. and Subsidiaries
Consolidated statements of cash flow
for the years ended December 31, 1995, 1994 and 1993
Currency - Thousands of Spanish Pesetas Consolidated Group
1995 1994 1993
Cash flows from operating activities:
Net loss (1,983,609) (776,217) (2,712,498)
Adjustments to reconcile net loss to cash (used)
provided by operating activities:
Depreciation and amortization 587,974 641,083 609,520
Movements in financial investments provisions 22,576 0 (1,113)
Minority interest 66,182 378,172 592,904
Loss (gain) on sale of assets 69,350 50,135 (2,062)
Changes in assets and liabilities net of effect of
acquisitions and divestitures:
Accounts recivable-net and unbilled revenue (2,983,981) 2,442,149 6,210,468
Inventories 248,740 629,742 911,222
Short-term investments 1,892,764 (36,333) (446,892)
Prepaids 178,217 (144,277) (88,249)
Bonds 2,021,731 (140) (193,090)
Payable to banks (551,008) (890,328) (8,224,120)
Payable to group and associated companies 454,403 (474,080) (424,181)
Trade accounts payable 1,815,727 (480,060) (2,476,627)
Other nontrade payables (361,136) (1,043,393) (606,754)
Accrued liabilities 243,236 0 (286)
----------- ------------ ------------
Net cash (used) provided by operating activities 1,721,166 296,453 (6,851,758)
----------- ------------ ------------
Cash flows from investing activities:
Due from shareholders for uncalled capital 42,126 (42,126) 0
Intangible assets (128,384) (875) 0
Cash paid for acquisitions of fixed assets (471,125) (523,000) (341,762)
Proceeds from sale of fixed assets 146,283 14,540 5,349
Cash paid for investments (2,018,391) (1,477,204) (1,901,000)
Proceeds from sale of investments 2,224,775 380,626 598,638
Deferred expenses (90,239) (31,196) 23,640
Deferred income (105,464) (216,152) (192,433)
Accrued liabilities 312,427 (452,375) 797,544
Long term debt (3,408,393) 1,661,568 8,334,599
Share capital 2,000,000 0 0
Start up cost (23,000) 0 0
Sintelar 1994 adjustment. (47,744) 0 0
Translation differences (47,398) (45,626) 0
Absorption of SAC losses 0 (145,811) 0
Others 1,842 2,325 122,955
----------- ------------ ------------
Net cash provided by investing activities (1,612,685) (875,306) 7,447,530
Net increase in cash and cash equivalents 108,481 (578,853) 595,772
Cash beginning of period 286,853 865,706 269,934
----------- ------------ ------------
Cash end of period 395,334 286,853 865,706
=========== ============ ============
The accompanying Notes 1 to 20 are an integral part of these consolidated
statements of cash flow. Page 11 of 49
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUBSIDIARIES AND ASSOCIATED COMPANIES
SISTEMAS E INSTALACIONES DE TELECOMUNICACION, S.A. ("SINTEL, S.A." or the
"Company"), was incorporated on February 8, 1950 under the name of LIENA, S.A.
and adopted its present name, on May 2, 1975. Its registered offices are at
calle Arte 21, Madrid.
Sintel, S.A. engages mainly in the design and performance of projects and
operations of all kinds related to telecommunication and electricity networks
and systems.
The detail of the Company's subsidiaries and affiliates is as follows:
Consolidation
Line of Business Method % of Ownership
SUBSIDIARIES 1995 1994
Sintelar Telecommunication instalations(1) Consolidated 50% 50%
Sintel Venezuela Telecommunication instalations(2) Consolidated 99.99% 99.99%
Sintel Peru Telecommunication instalations(3) Consolidated 38% 38%
Cotronic Telecommunication instalations(4) Consolidated 51% 49%
Incosa Telecommunication instalations(5) Consolidated 51.1% 49%
AFFILIATED COMPANIES
Sietel Telecommunication instalations(6) Equity method 50% 50%
Sintel-Abengoa
Servicios. 2.000 Telecommunication instalations(7) Equity method 50% 50%
Sinaben Multimedia Multimedia teleco. network(8) Equity method 50% --
Inalca Telecommunication instalations(9) Equity method -- 44%
Sistemas Avanzados
de Control Telecommunication instalation(10) Equity method -- 42.12%
The registered offices of the foregoing companies are the following:
Sintelar: C/Carlos Pellegrini 1163. BUENOS AIRES (ARGENTINA)
Sietel: C/ Mac-Iver 125 piso 12. SANTIAGO DE CHILE (CHILE)
Sintel-Abengoa, Servicios 2000: C/ Infante D. Carlos 16, 2 D, SEVILLA (SPAIN).
Sintel Venezuela: 2 Avda. Campo Alegre, Quinta n 11 CARACAS (VENEZUELA)
Sintel Peru: Avda. Jose Pardo, 601 LIMA (PERU).
Sinaben Multimedia: c/ Arte, 21, MADRID (SPAIN).
Cotronic: C/ Competa 6, Edificio Milton 10-A, MALAGA (SPAIN).
Incosa: Poligono de Pocomaco, parcela A-2 Nave I, LA CORUNA (SPAIN).
Inalca: C/ Ramon y Cajal s/n. LA CAVA DELTEBRE, (TARRAGONA) (SPAIN).
Sistemas Avanzados de Control: C/ Estudio 3, ARAVACA (MADRID) (SPAIN).
Page 12 of 49
(1) and (3) Consolidated since Telefonica de Espana, S.A. has an indirect
holding in the company and, therefore, effective control is exercised
by virtue of holding a majority of the voting rights in the Board of
Directors.
(2), (4) and (5) Consolidated since Sintel has a majority of the voting rights.
(6), (7), (8),
(9) and (10) Carried by the equity method since Sintel exercises significant
management influence.
The data in the foregoing tables were furnished by the Group companies and
their net worth position is disclosed in their audited financial statements,
except for Sintel Abengoa, Servicios 2.000 A.I.E. and Sinaben Multimedia, which
did not fall within the minimum statutory audit requirements as of December 31,
1995 and 1994.
In view of the political and economic situation in Venezuela, the
Venezuelan government has intervened to control the outflow of foreign
currencies. This situation, together with the devaluation of the bolivar, gave
rise to a significant loss in the translation at year-end exchange rates of
Sintel Venezuela's foreign currency balances with the Parent Company Sintel S.A.
Management of the Company considers that the situation will be remedied in the
short run.
The Company's sole shareholder is Telefonica de Espana, S.A. Consequently,
as required by (Spanish corporation law) section 23 of the Second Additional
Provision of Limited Liability Companies Law 2/1995, which makes the legal
system stipulated for sole-shareholder limited liability companies applicable to
sole-shareholder corporations, the Company:
Registered the status and identity of the shareholder of the sole-shareholder
company in the Mercantile Register.
Keeps an updated register-book of any contracts entered into with the sole
shareholder, which is periodically legalized in the Mercantile Register.
The contracts between Sintel, S.A. and Telefonica de Espana, S.A.
("Telefonica")in 1995 were mainly of two kinds: comprehensive service contracts
and individual project or service contracts, which are awarded by public call
for tenders. The detail, by type, of the comprehensive service contracts is as
follows:
Contract Expiration Economic Conditions
- - Lines and Cables 12/31/98 - Price per certified scale point,
variable based on province
- May be terminated by either party
in September 1997
- - Wiring system and trenches 12/31/97 - Price per certified scale point,
variable based on province
- - Single line 12/31/96 - Price per certified scale point,
variable based on province
- - Multi-line 04/30/96 - Price per certified scale point
The transactions with Telefonica in 1995 and 1994 are detailed in Note 18.2.
Page 13 of 49
NOTE 2. PROPOSED ALLOCATION OF THE PARENT COMPANY'S LOSS
The Company's directors will propose at the Shareholders' Meeting that the
1995 loss be allocated to "Prior Years' Losses".
The 1994 loss was allocated to "Prior Years' Losses".
NOTE 3. BASIS OF PRESENTATION OF THE FINANCIAL STATEMENTS
A) The accompanying consolidated financial statements were prepared from the
accounting records of Sintel and of its Subsidiaries (see Note 1), whose
respective financial statements were prepared by the directors of each
company in accordance with the Spanish National Chart of Accounts as
approved by Royal Decree dated December 20, 1990 and Royal Decree 1815/1991
and, accordingly, they give a true and fair view of the net worth,
financial position and results of the Sintel Group. The accompanying
consolidated financial statements as of December 31, 1995, were prepared by
the directors of Sintel, S.A., according to the structure of with the
Spanish National Chart of Accounts and were adapted to US GAAP.
B) Accounting principles
The consolidated financial statements were prepared in accordance with the
accounting principles of prudence, going concern, cost, accrual basis,
revenue and expense matching, no offset, consistency and materiality. The
income from projects is recognized as explained in Note 4 since it is a
more appropriate way to present a true and fair view of the net worth,
financial position and results of the Sintel group.
C) Consolidation principles
The companies at which there is effective control in their representation
and decision-making bodies were consolidated by the global integration
method; those in which there is significant influence but not ownership of
a majority of the voting rights were consolidated by the equity method
All significant accounts and transactions between consolidated companies
were eliminated in consolidation.
The equity of minority interests in stockholders' equity and results of the
consolidation of affiliates is presented under the "Minority Interests" and
"Income Attributed to Minority Interests" captions in the consolidated
balance sheet and consolidated statement of operation, respectively (see
Note 11).
The effect of inclusion, by the equity method, of the holdings in
associated companies in the consolidated balance sheets is reflected under
the "Reserves at Companies Carried by the Equity Method" and "Share in the
Income/Losses of Companies Carried by the Equity Method" captions, as
appropriate.
Page 14 of 49
The accompanying consolidated financial statements do not include the tax
effect of the incorporation of the subsidiaries' reserves to the Sintel
consolidated annual accounts, due to the fact that the reserves have not
been transferred and will not be distributed at the end of the period, and
will be used as a financing source of the subsidiaries to reduce their
indebtness.
D) Comparative information
The following companies were included in consolidation for the first time
in 1995 and 1994:
Company Registered Offices
1995 :
Group and multigroup companies
SINABEN MULTIMEDIA A.I.E. C/ ARTE, 21 MADRID (SPAIN)
1994 :
Group and multigroup companies
SINTEL VENEZUELA 22. AVDA. CAMPO ALEGRE QUINTA
No. 11 CARACAS (VENEZUELA)
SINTEL PERU AVDA. JOSE PARDO, 601 LIMA (PERU)
Also, the following companies were excluded from consolidation in 1995 as a
result of sale:
Company Registered Offices
1995 :
Associated companies:
INALCA, S.A. C/ RAMON Y CAJAL, S/N LA CAVA
DELTEBRE (TARRAGONA) (SPAIN)
SISTEMAS AVANZADOS DE CONTROL C/ ESTUDIO, 3, ARAVACA (MADRID)
The companies excluded from consolidation in 1995 contributed in 1994
losses of approximately Ptas. 255,727,000 to the "Companies Carried by the
Equity Method" caption and approximately Ptas. 96,406,000 of results.
Page 15 of 49
NOTE 4. VALUATION STANDARDS
The valuation criteria used by the Company were as follows:
A) Standardization of items.
The financial statements of the individual companies have been
formulated following homogeneous accounting principles. For those
companies where different principles have been used, the corresponding
adjustment was done in the process of consolidation, in order to
present the annual consolidated accounts on a homogeneus basis.
B) Adjustment of balance sheets of foreign companies.
The items in the balance sheet and income statement of foreign companies
are adjusted, before being translated to pesetas, for the effects of the
changes in prices, in accordance with the rules applicable for these
purposes in the country where the foreign company is located.
C) Translation methods (year-end exchange rates)
The financial statements of the foreign Group companies were translated
to pesetas at the exchange rates ruling at year-end (December 31, 1995
and 1994), except for:
1. Capital stock, which was translated at historical exchange rates.
2. Reserves, which were translated at the average exchange rates in
the years in which they arose.
3. Income statement balances, which were translated at the average
exchange rates for the year.
The exchange difference arising from application of this method is
included under the "Shareholder's Equity - Translation Differences"
caption in the accompanying consolidated balance sheets, net of the
portion relating to minority interests, which is presented under the
"Minority Interests" caption of the accompanying consolidated balance
sheets.
D) Tangible fixed assets
Tangible fixed assets are recorded at cost. Expenditures for
repairs and maintenance are charged to expenses as incurred.
Expenditures for betterment's and major improvements are capitalized.
The Companies depreciate its tangible fixed assets by the
straight-line method at rates based on the following years of
estimated useful life:
Years of Estimated
ASSET Useful Life
Buildings and other structures (brand new assets) 50
Buildings and other structures (second hand assets) 25
Machinery 7
Tools 3
Vehicles 7
Furniture 10
Computer hardware 4
Meter-reading equipment 10
Installations 14
Page 16 of 49
E) Other loans granted
The balance of the "Financial Investments - Other Loans" caption
relates basically to Sintelar's long-term receivables from its
customer Telecom.
F) Inventories
Inventories (raw materials and other supplies) are valued at the
lower of average cost or market. "Work-in-Process" and "Completed
Work" are carried at cost of the allocated items (mainly direct labor
and outsourced services)
Obsolete, defective and slow-moving inventories have been reduced
to net realizable value.
G) Subsidies
Operating subsidies are credited to the statement of operations in the
year in which they are granted. The subsidies granted in 1995 and 1994
relate basically to social security allowances for training courses.
H) Liability for pensions
In 1990 the Parent Company Sintel, S.A. reached an agreement with
its employees in connection with the pension commitments established
by the collective labor agreement and the internal regulations. Under
this agreement, a pension plan was set up at Gestion de Prevision y
Pensiones, S.A. (Argentaria). The Company undertook to make annual
contributions of 2.384% of the fixed compensation (2% for employees
who joined the Company after November 4, 1990).
The liability registered by the Company as of December 31, 1990, to
cover all the liabilities incurred in this regard at that date,
amounted to approximately Ptas. 2,133,521,000, based on the
calculations by independent actuaries, using individual capitalization
techniques and an assumed interest of 6%. Under the financial
rebalancing plan set up with Gestion de Prevision y Pensiones, S.A.
(Argentaria), approximately Ptas. 470,000,000 were contributed to this
Company in 1990, and the remaining amounts incurred at that date and
the related interest were to be paid over 33 years, as agreed in the
plan.
Contributions to the fund in 1995 amounted to approximately Ptas.
81,684,000 (approximately Ptas. 78,542,000 in 1994), in accordance
with the financial rebalancing plan mentioned above, and approximately
Ptas. 53,875,000, to cover the unamortized amounts for past services
of employees who left the Company due to retirement, disability or
death in 1995.
Additionally, Ptas. 106,838,000 have been recorded to cover the
financial expenses due to the amounts pending to be paid to Gestion de
Prevision y Pensiones, S.A. for the past services.
Approximately Ptas. 178,813,000 were paid in 1995 (Ptas.
190,349,000 in 1994) and recorded under "Personnel Expenses" relating
to current obligations for the year.
Page 17 of 49
I) Other provisions for contingencies and expenses
This relates to the estimated amount required for probable or certain
third-party liability arising from litigation in progress or from
outstanding indemnity payments or obligations of undetermined amount,
and guarantees provided by the Company. This provision is recorded
when the contingency or obligation giving rise to the indemnity or
payment arises.
J) Extraordinary long-service bonus
Under the collective labor agreement in force, the Parent Company
Sintel, S.A. is required to pay an extraordinary bonus equal to one
month's current salary to employees reaching 25 years of uninterrupted
service at the Company. As of December 31, 1995, the Company had
recorded a provision of approximately Ptas. 245,196,000 for the
liability incurred in this connection through that date, which is
included under the "Accrued liabilities long term" caption on the
accompanying balance sheet. As of December 31, 1994, the Company had
recorded a provision of approximately Ptas. 230,657,000 in this
connection.
K) Corporate income tax
The expense for corporate income tax of each year is calculated
on the basis of book income before taxes, increased or decreased, as
appropriate, by the permanent differences from taxable income, net of
tax relief and tax credits. The corporate income tax expense was
recorded taking into account, where applicable, the resolutions
adopted by Telefonica based on the ICAC resolution dated April 30,
1992, establishing the criteria for the recording of corporate income
tax at companies which file consolidated tax returns.
Prepaid taxes are only recognized in assets insofar as their
realization in the future is reasonably assured. The tax arising from
the income obtained from sales to Telefonica de Espana, S.A. by the
companies consolidated for tax purposes and pending collection from
third parties is deferred for tax purposes by the Group. The effect of
this deferral, arising from the aforementioned Telefonica
transactions, is recorded under the "Investments - Loans to Telefonica
Group Companies" and "Other Long-Term Payables- Accrued Taxes Payable"
captions.
L) Foreign currency transactions
Foreign currency balances are translated to pesetas at the
exchange rates ruling at the balance sheet date. Exchange losses are
charged to period income. Exchange gains are credited to income when
they arise. At December, 31 1995, 1994 and 1993 no significant
exchange gains are pending to be recorded.
M) Recognition of revenue and expenses
Revenue and expenses are recognized on an accrual basis. In accordance with
the accounting principle of prudence, the Company only records realized
income at year-end, whereas foreseeable contingencies and losses,
including possible losses, are recorded as soon as they become known.
Page 18 of 49
Revenues from projects taking over one year are valued by adding to
the cost incurred the expected profit margin, which is calculated on
the basis of the percentage of completion of the project
proportionally between the estimated cost and the contractual selling
price. If the difference between the resulting value and the billings
made is positive, it is recorded in the "Customer Receivables -
Unissued Billings" account under the "Accounts Receivable - Customer
Receivables" and "Accounts Receivable - Receivable from Group
Companies" captions. If the difference is negative, the excess
billings are recorded under in the "Customer Advances" account under
the "Trade Accounts Payable- billings in excess of costs" caption.
The result on the scaled projects of the Telecommunication Networks
division is estimated on the basis of the monthly percentage of
completion and the sale price agreed upon with Telefonica de Espana,
S.A. (under general agreements). The completed work not yet billed to
Telefonica is included under the "Receivable from Group Companies -
Receivable from Group Companies for Accrued Billings" caption.
The "Customer Receivables - Unissued Billings" caption also includes
the balances, valued at selling price, of services rendered and
pending final billing. If losses are expected, the related provisions
are recorded for their full amount.
N) Termination indemnities
Under current labor regulations, Sintel, S.A. is required to make
indemnity payments to employees terminated under certain conditions.
As of December 31, 1995, management of Sintel, S.A. had reached an
agreement with the workers' representatives in connection with the
early retirement of 35 employees in the period 1996 through 1999. A
provision of approximately Ptas. 529,524,000 was recorded in 1995 in
this connection, under the caption "Personnel expenses" in the
accompanying statement of operations.
NOTE 5.- HOLDINGS IN COMPANIES CARRIED BY THE EQUITY METHOD
The movements in 1995 in this caption in the accompanying consolidated
balance sheets were as follows:
In thousands of pesetas
Balance Transfer to Attribution of Share in Balance
at Consolidated Dividends Losses to Translation Income for at
12/31/94 Additions Companies Sales Suppl 95 Interim 95 Shareholders Differences the year 12/31/95
Contronic 44,043 0 (44,043) 0 0 0 0 0 0 0
Incosa 71,997 0 (71,997) 0 0 0 0 0 0 0
S.A.C. 107,686 0 0 (107,686) 0 0 0 0 0 0
Servicios 2.000 0 0 0 0 0 0 4,768 0 (6,103) (3,604)
Sietel 191,075 0 0 0 (180,253) (54,007) 0 (3,331) 287,743 241,227
AIE Sinaben 0 1,000 0 0 0 0 0 0 306 1,306
- ------------------------------------------------------------------------------------------------------------------------------------
Total 412,532 1,000 (116,040) (107,686) (180,253) (54,007) 4,768 (3,331) 281,946 238,929
====================================================================================================================================
Page 19 of 49
NOTE 6. TANGIBLE FIXED ASSETS
The movements in 1995 in fixed asset accounts and in the related
accumulated depreciation were as follows:
A) VARIATIONS IN FIXED ASSETS (COST)
In thousands of pesetas
Increase Exchange
Balance Retire- (Decrease) Rate Balance
at Additions ments by Variation at
12/31/94 Transfer 12/31/95
Land and buildings 690,625 25,255 - 6,371 - 722,251
Technical
installations
and machinery 998,091 70,532 (147,291) (23,637) (9,514) 888,181
Furniture 422,443 14,236 (1,500) 15,741 (8,091) 442,829
Computer hardware 817,619 59,413 (329,326) 12,786 (1,140) 559,352
Tools 997,039 72,680 (30,788) 31,357 (4,368) 1,065,920
Vehicles 1,360,075 21,414 (70,780) 72,975 (19,395) 1,364,289
Meter-reading
equipment 1,492,365 207,595 (305,940) 13,941 (7) 1,407,954
- ------------------------------------------------------------------------------
Total 6,778,257 471,125 (885,625) 129,534 (42,515) 6,450,776
==============================================================================
B) MOVEMENTS IN ACCUMULATED DEPRECIATION
In thousands of pesetas
Balance Increase Exchange Balance
at Amounts (Decrease) Rate at
12/31/94 Provisions Used by Variation 12/31/95
Transfer
Land and buildings 86,782 10,461 - 1,146 - 98,389
Technical
installations
and machinery 500,103 99,377 (83,214) (7,296) (4,375) 504,595
Furniture 250,876 41,224 (896) 5,949 (2,249) 294,904
Computer hardware 663,490 43,803 (273,346) 5,393 (1,454) 437,886
Tools 891,808 65,415 (26,829) 22,531 (2,456) 950,469
Vehicles 945,965 143,644 (27,314) 53,975 (6,772) 1,109,498
Meter-reading
equipment 923,113 162,846 (298,458) 68,935 (6,243) 850,193
- ------------------------------------------------------------------------------
Total 4,262,137 566,770 (710,057) 150,633 (23,549) 4,245,934
==============================================================================
In 1995 Sintel, S.A. reorganized its work centers. As a result, as of
December 31, 1995, assets with a cost value of approximately Ptas. 677,655,000
and accumulated depreciation of approximately Ptas. 92,174,000 were not directly
assigned to operations. The depreciation of these assets charged to the "Period
Depreciation and Amortization - Tangible Fixed Assets" caption in 1995 amounted
to approximately Ptas. 9,568,000.
Page 20 of 49
Company's management plan to rent or sale these assets to third parties.
The items which were fully depreciated as of December 31, 1995 and 1994,
were as follows:
In thousands of pesetas
1995 1994
Technical installations and machinery 100,260 142,673
Furniture 96,083 96,274
Computer hardware 328,352 385,425
Tools 835,551 840,954
Vehicles 435,953 440,841
Meter-reading equipment 357,749 378,782
---------- ----------
Total 2,153,948 2,284,949
Projected investments (including financial investments) for 1996 at Sintel,
S.A. amount to approximately Ptas. 310,000,000.
The Parent Company and the Group have taken out insurance policies to cover
the possible risks to which their tangible fixed assets are subject.
NOTE 7.- FINANCIAL INVESTMENTS
The movements in 1995 in "Financial Investments" accounts and in the related
provisions were as follows:
A) VARIATIONS IN GROSS FINANCIAL INVESTMENTS :
In thousands of pesetas
Balance Exchange Balance
at at
12/31/94 Investments Divestments Transfer Adjustment 12/31/95
Holdings carried
by the equity
method 412,532 293,817 (467,420) - - 238,929
Other holdings 256,289 152 (60) (246,449) - 9,932
Loans to group
companies 2,134,122 1,340,961 (1,420,578) (19,060) - 2,035,445
Other loans 672,233 164,099 (186,529) 256,656 (78,987) 827,472
Tax prepayments 661,468 202,925 (24,900) - - 839,493
Deposits and
guarantees 57,580 16,437 (27,241) (10,207) - 36,569
- -------------------------------------------------------------------------------
Total 4,194,224 2,018,391 (2,126,728) (19,060) (78,987) 3,987,840
===============================================================================
The transfer of approximately Ptas. 246,449,000 in 1995 from "Other
Holdings" was due to the fact that the long-term loans from Sintelar to the
temporary joint ventures in which it participates were transferred in 1995 to
the "Other Loans" caption.
Page 21 of 49
The 1995 divestments in the "Loans to Group Companies" caption amounting to
Ptas. 1,420,578,000 relate to collections made in 1995 under the supplementary
contract with Telefonica de Espana, S.A. (Ptas. 200,940,000) and in connection
with collections arising from this Company due to the long-term tax credit
(Ptas. 1,219,638,000).
The detail, by type of transaction, of the long-term loans to group
companies is as follows:
In thousands of pesetas.
1995 1994
Receivable from Telefonica for long-term
tax credit 581,155 1,216,644
Receivable from Telefonica for long-term
internal transactions 1,454,290 694,484
Receivable from Telefonica for long-term
consolidated taxation - 3,094
Receivable from Telefonica under
supplementary contract - 220,000
--------- ---------
TOTAL 2,035,445 2,134,222
========= =========
B) MOVEMENTS IN FINANCIAL INVESTMENT PROVISIONS :
In thousands of pesetas
Balance Amounts Balance
at at
12/31/94 Provisions Used Transfers 12/31/95
Prepaid taxes (Note 15) 582,232 - - - 582,232
(Nota 15)
Other companies 69 22,576 - - 22,645
- ------------------------------------------------------------------------------
Total 582.301 22,576 - - 604,877
==============================================================================
The provisions relate to those recorded by Sintelar.
NOTE 8. INVENTORIES
The breakdown of the balances of the Group's "Inventories" caption as of
December 31, 1995 and 1994, is as follows:
In thousands of pesetas
1995 1994
Raw materials and other supplies 305,782 412,781
Work-in-process 2,360,648 2,226,440
Completed work 489,909 423,966
Allowance (51,155) (58,492)
Advances to suppliers 851,522 1,200,751
---------- ----------
TOTAL 3,956,706 4,205,446
========== ==========
Page 22 of 49
NOTE 9. ACCOUNTS RECEIVABLE
The balances as of December 31, 1995 and 1994, are as follows:
In thousands of pesetas
1995 1994
Customer receivables 3,585,674 8,538,227
------------ ------------
Customer receivables 3,509,301 5,294,665
Customer receivables for accrued billings 76,373 3,243,562
Receivable from Group companies,Telefonica 21,269,306 16,116,345
------------ ------------
Receivable from Group companies (Note 18) 20,810,257 15,742,644
Receivable from Group companies
for accrued billings (Note 18) 459,049 373,701
Receivable from associated companies,
Telefonica Group (Note 18) 3,040,219 -
Receivable from associated companies,
Sintel Group (Note 18) 3,391 17,326
Sundry accounts receivable 423,664 715,592
Employee receivables 209,904 211,794
Tax receivables 359,860 512,689
Allowances for doubtful accounts (577,600) (781,536)
----------- -----------
TOTAL 28,314,418 25,330,437
Page 23 of 49
NOTE 10. SHAREHOLDER'S EQUITY
The movements in equity accounts in 1995 and 1994 were as follows:
In thousands of pesetas
Allocation of Loss
----------------------------------
Other Distribution Transfer Transfer
Reserves of Dividends due to due to
of the Reserves at within Changes Sales Balance
Balance at Other Controlling Consolidated Gross the Loss for in of at
12/31/94 Variations Company Companies Dividends Group the Year Holdings Holdings 12/31/95
Subscribed capital
stock 1,100,000 2,000,000 - - - - - - - 3,100,000
Unrestricted reserve 4,253,434 - - - - - - - (191,100) 4,062,334
Legal reserve 220,000 - - - - - - - - 220,000
Restricted reserve 101,190 - - - - - - - - 101,190
Prior years' losses (2,829,437) (23,000) (1,315,222) - (158,490) 202,671 - - - (4,123,478)
Reserves at companies
consolidated by the
global method 534,973 (47,744) - 356,300 - (22,417) - 62,315 - 883,427
Reserves at
companies carried by
the equity method (185,732) 3,124 256,838 162,764 (78,407) (180,254) - (62,315) - 11,313
Translation
differences in
consolidation 19,997 (47,398) - - - - - - - (27,401)
Loss for the year (776,217) - 776,217 - - - (1,983,509) - - (1,983,509)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL 2,438,208 1,884,982 (282,167) 519,064 (236,897) - (1,983,509) - (95,805) 2,243,876
===================================================================================================================================
Page 24 of 49
Allocation of Loss
----------------------------------
Other Distribution Transfer Transfer
Reserves of Dividends due to due to
of the Reserves at within Changes Sales Balance
Balance at Other Controlling Consolidated Gross the Loss for in of at
12/31/93 Variations Company. Companies Dividends Group the Year Holdings Holdings 12/31/94
Subscribed capital
stock 1,100,000 - - - - - - - - 1,100,000
Unrestricted reserve 4,061,243 1,091 191,100 - - - - - - 4,253,434
Legal reserve 220,000 - - - - - - - - 220,000
Restricted reserve 101,190 - - - - - - - - 101,190
Prior years' losses 337,251 - (2,987,927) - (337,251) 158,490 - - - (2,829,437)
Reserves at companies
consolidated by the
global method 1,479 1,143 90 532,261 - - - - - 534,973
Reserves at
companies carried by
the equity method 229,340 (145,811) 36,306 (11,245) (158,490) - - - - (185,732)
Translation
differences in
consolidation 19,997 (47,398) - - - - - - - 19,997
Loss for the year (2,712,498) - 2,712,498 - - - (776,217) - - (776,217)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL 3,403,628 (189,203) (47,933) 521,016 (473,083) - (776,217) - - 2,438,208
===================================================================================================================================
As of December 31, 1995, the Company's capital stock consisted of 3,100,000
fully subscribed and paid registered shares of Ptas. 1,000 par value each. As of
December 31, 1994, the capital stock consisted of 1,100,000 fully subscribed and
paid registered shares of Ptas. 1,000 par value each. The capital increase
carried out in 1995 is in the process of registration in the Commercial
Register.
The companies and individuals outside the Group or related to Sintel, S.A.
through common shareholders with an ownership interest of 10% or more in any
Group company are as follows:
December 31, 1995
Shareholders Investee Percentage of
Ownership
T. Internacional Sintelar 25
C.H.S. Sintelar 25
T. Internacional Sintel Peru 25
Grana y Montero Sintel Peru 37
Antonio Soto Incosa 16.3
Jose Doval Incosa 16.3
Antonio Di Lello Cotronic 26
Gines Ramis Cotronic 12.5
Julio J. Rodriguez Cotronic 10.5
Iecsa-Sideco Sietel 50
Abengoa Servicios 2.000 50
Abengoa Sinaben M. 50
Page 25 of 49
Under the Corporations Law, as amended, 10% of income for each year must be
transferred to the legal reserve until the balance of this reserve reaches at
least 20% of capital stock.
The legal reserve can be used to increase capital provided that the
remaining reserve balance does not fall below 10% of the increased capital stock
amount.
Except as mentioned above, until the legal reserve exceeds 20% of capital
stock, it can only be used to offset losses, provided that sufficient other
reserves are not available for this purpose.
The breakdown of the reserves, and loss for the year relating to the Group
of consolidated companies, and translation differences is as follows at
December 31, 1995:
In thousands of pesetas
Reserves At Reserves at
Companies Companies
Consolidated Carried by Income
By The the (Loss) Translation
Global Method Equity Method for the Year Differences
Sintel - - (2,328,070) -
Sintelar 857,314 - (81,875) (36,799)
Sietel - 11,313 287,743 (3,874)
Sintel Venezuela (40,944) (28,899) 13,315
Sintel Peru (11,948) - 103,055 (43)
Servicios 2.000 (6,102) -
Cotronic 29,908 - 29,407 -
Incosa 49,097 - 40,926 -
Inalca - - - -
S.A.C. - - - -
Sinaben - - 306 -
- -----------------------------------------------------------------------------
TOTAL 883,427 11,313 (1,983,509) (27,401)
=============================================================================
The variations in the number of shares and in their par value are as follows:
Thousands of Shares
Number of shares registered 12/31/93 12/31/94 12/31/95
Beginning balance 1,100 1,100 1,100
New shares issued - - 2,000
------- ------- -------
Ending balance 1,100 1,100 3,100
In pesetas
12/31/93 12/31/94 12/31/95
Par value of the shares at the
end of the year 1,000 1,000 1,000
Page 26 of 49
NOTE 11. MINORITY INTERESTS
The movements in 1995 in this caption in the accompanying consolidated
balance sheets were as follows (in thousands of Pesetas):
Balance (Loss) Change Balance
at Income for in Translation Other at
12/31/94 the Year Holding Differences Variations 12/31/95
Sintelar 878,595 (81,875) - (51,367) (1,551) 743,802
Sintel Peru 92,481 168,143 - (4,742) (29,844) 226,038
Cotronic - 28,254 39,688 - - 67,942
Incosa - 39,164 54,735 - - 93,899
- -------------------------------------------------------------------------------
Total 971,076 153,686 94,423 (56,109) (31,395) 1,131,681
===============================================================================
The breakdown of the balance of the "Minority Interests" caption as of
December 31, 1995, is as follows (in thousands of Pesetas):
Translation (Loss) Income
Capital Stock Reserves Differences for the Year Total
Sintelar 5,163 857,314 (36,800) (81,875) 743,802
Sintel Peru 77,459 (19,495) (69) 168,143 226,038
Cotronic 4,900 34,788 - 28,254 67,942
Incosa 4,890 49,845 - 39,164 93,899
- ----------------------------------------------------------------------------
TOTAL 92,412 922,452 (36,869) 153,686 1,131,681
============================================================================
NOTE 12. ACCRUED LIABILITIES
The breakdown of the balance of this caption as of December 31, 1995 and
1994, is as follows:
In Thousands of Pesetas
Amounts
1994 Provisions Used 1995
For third-party liability 292,548 91,087 (64,402) 319,233
For early retirements - 379,496 - 379,496
For asset/liability
position contingencies 179,572 - (79,572) 100,000
Liability for pensions 1,780,634 106,838 (135,558) 1,751,914
Extraordinary long-
service bonus 230,658 18,996 (4,458) 245,196
- ------------------------------------------------------------------------------
Total 2,483,412 596,417 (283,990) 2,795,839
==============================================================================
Page 27 of 49
NOTE 13. BONDS OUTSTANDING
The detail of the debentures outstanding as of December 31, 1995, and of the
main features thereof is as follows (in thousands of Pesetas):
Issue Par Effective
Date % Value Amount Redemption
05/31/89 12.25 2,000,000 2,021,874 1996
The accrued interest payable amounted to approximately Ptas. 22,357,000 in
1995 and Ptas. 22,500,000 in 1994. Therefore, the balance outstanding amounted
to approximately Ptas. 2,044,231,000 in 1995.
NOTE 14. PAYABLE TO BANKS ENTITIES AND PAYABLE TO GROUP AND ASSOCIATED COMPANIES
14.1 These accounts are classified in the balance sheet by maturity. The
balances as of December 31, 1995 and 1994, are as follows (in thousands of
Pesetas):
a) Long-term
1995 1994
Loans from Telefonica Group (Telfisa) 7,909,237 10,209,194
Long-term debt to Sintel Group - 65,339
------------ ------------
Total Payable to Group and Associated
Companies 7,909,237 10,274,533
============ ============
These balances relate to the financing received from Telfisa (a Telefonica
Group Company), by virtue of the long-term financing contract entered into in
1993, at market rates with interest ranging from 8.87% to 10.22%.
The loan from Telfisa matures on November 2, 1996. However, the Company
records it at long-term since there is an agreement to automatically renew it at
maturity.
Page 28 of 49
The detail of the balance of the long-term "Payable to Banks" caption as of
December 31, 1995, which amounted to approximately Ptas. 175,762,000, is as
follows:
In Thousands of Pesetas
Principal
Outstanding Unused
Bank Maturity Limit or Balance Balance
Used
INCOSA :
Banco de Galicia 05/18/97 25,000 24,739 261
Banco de Galicia 05/18/97 135,000 77,600 57,400
Bankinter Indefinite 50,000 45,744 4,256
COTRONIC :
Loan from Unicaja 01/16/99 73,000 27,679
--------- --------- --------
Total 283,000 175,762 61,917
========= ========= ========
b) Short-term
In Thousands of Pesetas
1995 1994
Loans received by:
Sintel 2,410,841 4,331,825
Sintelar 905,513 -
Cotronic 151,038 -
Incosa 221,322 -
Sintel Peru 68,422 -
----------- -----------
3,757,136 4,331,825
=========== ===========
Page 29 of 49
c) Credit and discount lines
As of December 31, 1995, the Sintel Group had the following credit and
discount lines, with the limits and unused amounts detailed below:
Credit In Thousands of Pesetas
facilities
Principal
Outstanding
Maturity Limit Or Balance Unused
Used Balance
SINTEL :
Atlantico 01/05/96 1,000,000 260,385 739,615
Andalucia 01/18/96 500,000 458,981 41,019
Bankinter 06/06/96 2,500,000 554,223 1,945,777
Barclays 06/10/96 1,000,000 695,756 304,244
Popular Espanol 06/22/96 500,000 450,973 49,027
Urquijo - - (9,477) 9,477
INCOSA :
Credit Lyonnais 10/19/96 25,000 (7,522) 32,522
B.B.V. 09/12/96 35,000 32,486 2,514
Banco Gallego 01/05/96 15,000 3,724 11,276
Banco Simeon 10/18/96 25,000 24,331 669
Bankinter 11/07/96 25,000 23,715 1,285
Credit Lyonnais 10/19/96 85,000 71,669 13,331
B.B.V. 09/15/96 150,000 46,546 103,454
Banco Gallego 01/30/96 35,000 5,709 29,291
Banco Simeon 10/18/96 50,000 19,928 30,072
Slibail Iberica, S.A. 07/16/96 - 736 -
(Leasing) - - - -
COTRONIC:
Loan from Unicaja - - 9,231 -
Banco Herrero 02-04-96 50,000 42,875 7,125
Banco Atlantico 10-06-96 100,000 98,932 1,068
SINTELAR:
Citibank 07-25-96 449,358 449,358 -
Bansud 07-14-96 456,155 456,155 -
SINTEL PERU :
Extebandes Indefinite 242,820 68,422 174,398
----------- ----------- -----------
Total 7,243,333 3,757,136 3,496,164
=========== =========== ===========
The average annual interest on these credit facilities was 10.13% in 1995
(8.70% in 1994) for the Parent Company.
The financial expenses accrued and payable by the Sintel Group as of
December 31, 1995, amounted to approximately Ptas. 441,963,000, of which Ptas.
154,764,000 related to interest payable to credit entities and Ptas. 287,199,000
to interest payable to Telefonica group companies, and are included under the
short-term "Payable to Telefonica Group Companies" caption.
Page 30 of 49
As of December 31, 1994, these financial expenses amounted to approximately
Ptas. 347,798,000, of which Ptas. 131,083,000 related to interest payable to
credit entities and Ptas. 216,624,000 to interest payable to group companies,
and are included under the short-term "Payable to Telefonica Group and
Associated Companies" caption.
NOTE 15. ACCRUED TAXES PAYABLE, TAX RECEIVABLES AND PREPAID TAXES
The breakdown of these captions as of December 31, 1995 and 1994 is as follows:
In Thousands of Pesetas
1995 1994
Long-term accrued taxes payable and other :
Deferred taxes on intragroup transactions 1,454,290 712,450
----------- ---------
Total long-term accrued taxes payable 1,454,290 712,450
=========== =========
In Thousands of Pesetas
1995 1994
Short-term accrued taxes payable and other :
Personal income tax withholdings 228,381 211,685
VAT payable 681,891 941,359
Withholdings from income from financial capital
and other 143,277 307,660
Accrued social security taxes 313,604 362,650
Taxes payable abroad 127,869 72,690
Other government entities 838 3,748
Canary Islands general indirect tax 2,336 7,128
---------- ----------
Total short-term accrued taxes payable 1,498,196 1,906,920
========== ==========
In Thousands of Pesetas
1995 1994
Tax prepayments and other long-term items :
Prepaid taxes 839,493 661,468
Allowances (582,232) (582,232)
--------- ---------
Total prepaid taxes net 257,261 79,236
========= =========
In Thousands of Pesetas
1995 1994
Short-term tax receivables and other:
Prepaid taxes on intragroup transactions 10,041 10,041
Social security receivables 11,461 9,465
Sundry tax receivables (international) 338,209 493,183
Tax withholdings and prepayments 149 -
--------- --------
Total short-term tax receivables 359,860 512,689
========= ========
Page 31 of 49
NOTE 16. TAX MATTERS
By Ministerial Order dated July 27, 1993, the Directorate-General of Taxes
authorized Telefonica de Espana, S.A. to extend its consolidated taxation status
for corporate income tax purposes for 1993, 1994 and 1995, as group number
24/90, which includes the Parent Company Sintel, S.A. from 1990. This
authorization is conditional upon compliance with the requirements stipulated by
current legislation (Royal Decree 15/1977 and Law 18/1982).
As a result of application of the consolidated taxation system, the
individual credits and debits of Sintel, S.A. for corporate income tax purposes
are included in Telefonica de Espana, S.A.
The Parent Company has the following years open for review by the tax
inspection authorities for the main taxes applicable to it :
Tax Years
Corporate income tax 1993 and subsequent years
Local taxes 1991 and subsequent years
Personal income tax withholdings 1993 and subsequent years
VAT 1993 and subsequent years
Transfer tax 1990 and subsequent years
Withholdings from income from movable capital 1993 and subsequent years
The remaining consolidated Group companies have the last five years open
for review by the tax inspection authorities for all taxes applicable to them.
NOTE 17. GUARANTEE COMMITMENTS TO THIRD PARTIES AND OTHER CONTINGENT LIABILITIES
Sintel, S.A. and the Group have provided guarantees for third parties to
finance entities, government agencies, etc., basically to back project
completion, as follows :
Thousands of Pesetas
12/31/95 12/31/94
Group companies 89,830 233,068
Associated and multigroup companies 1,407,316 70,366
Other guarantees 1,387,451 4,613,681
The SIEMENS-SINTEL-PAGE joint venture and the SINTEHMAGREB joint venture
have provided guarantees to customers for project completion amounting to
approximately Ptas. 1,239,271,000 and Ptas. 437,348,000, respectively. The
Parent Company is jointly and severally liable for the guarantees provided in
proportion to its holdings (27.3% and 50.0%, respectively).
Management of the consolidated companies considers that the unforeseen
liabilities, if any, as of December 31, 1995, which might arise from the
guarantees provided would not be material.
Page 32 of 49
NOTE 18. REVENUES AND EXPENSES
18.1 The breakdown of the Consolidated Group's ordinary net sales is as follows:
In Thousands of Pesetas
Geographical market 1995 1994 1993
Spain 31,469,416 28,669,295
Venezuela 379,935 110,827
Argentina 12,477,556 14,536,616
Peru 2,704,981 138,972
---------------------------------------
Total 47,031,888 43,455,710 46,676,818
=======================================
Page 33 of 49
18.2 Transactions with Group companies
The transactions carried out in 1994 and 1995 with Telefonica de Espana,
S.A., the Telefonica Group companies and the Company's investees, and the
balances as of December 31, 1995 and 1994, are as follows:
1995
In Thousands of Pesetas
Receivables
from Group Short-Term Long-Term Notes
Work-in- Receivables Companies Short-Term Long-Term Payables Payables Payable
Process and from for Loans to Loans to to to Billings to
Completed Group Accrued Group Group Group Group in excess Group
Work Companies Billings Companies Companies Companies Companies of cost Companies
TELEFONICA 923,453 8,244,311 (75,858) 407,513 2,035,455 140,120 - 1,281,829 -
----------- ----------- -------- --------- ---------- --------- ---------- ----------- -------
TELEFONICA GROUP
DEPENDENT COMPANIES: 314,561 12,565,946 534,907 - - 318,955 7,909,237 26,058 1,307
----------- ----------- -------- --------- ---------- --------- ---------- ----------- -------
CABITEL - - - - - 13 - - -
ESTRATEGIAS TELEFONICAS - 33 - - - - - 28 -
MAPTEL - - - - - - - - -
TELFISA - 10,022,668 - - - 287,199 7,909,237 - -
T. SERV. MOV. 253,598 1,685,520 476,595 - - - - 25,382 909
T.S.I.P. 46,990 124,235 2,254 - - 1,651 - - -
T.S.S. - - - - - 29,953 - - 398
T.S.A.I. 118 282 - - - - - 165 -
TELEFONICA INTERN. DE ESPANA 85 533 - - - - - 459 -
TELEFONICA SISTEMAS, S.A. 13,755 884 - - - 139 - - -
CPT PERU - 730,036 56,058 - - - - - -
PLAYA DE MADRID - 257 - - - - - - -
TELEF. MULTIMEDIA - 1,470 - - - - - - -
MENSATEL 15 28 - - - - - 24 -
TELEFONICA GROUP
ASSOCIATED COMPANIES: - 3,040,219 - - - - - - -
----------- ----------- -------- --------- ---------- --------- ---------- ----------- -------
TELEFONICA ARGENTINA - 3,040,219 - - - - - - -
SINTEL GROUP
DEPENDENT COMPANIES: 15,382 - - - - - - - -
----------- ----------- -------- --------- ---------- --------- ---------- ----------- -------
SINTEL - PERU 4,100 - - - - - - - -
SINTELAR 11,282 - - - - - - - -
SINTEL GROUP
ASSOCIATED COMPANIES: 505 3,391 - 90,734 - - - - -
----------- ----------- -------- --------- ---------- --------- ---------- ----------- -------
SINABEN 505 3,391 - - - - - - -
SIETEL - - - 90,734 - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------
Total 1,253,901 23,853,867 459,049 498,247 2,035,445 459,075 7,909,237 1,307,887 1,307
==================================================================================================================================
Page 34 of 49
1995
In Thousands of Pesetas
Expenses Revenues
Work Outside Interest Other Current Financial
Purchases Performed Services Payable on Sales Operaing Revenues
from by from Debt to to Revenues from
Group Group Group Group Group from Group Group
Companies Companies Companies Companies Companies Companies Companies
TELEFONICA 363 55 337,735 12,379 25,408,523 - 30,408
----------- ----------- -------- --------- ----------- --------- ---------
TELEFONICA GROUP
SUBSIDIARIES: 88,933 2,102 268,375 935,648 5,432,698 9,688 -
----------- ----------- -------- --------- ----------- --------- ---------
TELEFONICA INTERNACIONAL - - 952 - 1,598 - -
ANTARES - - 166,866 - - - -
PLEYADE INDUSTRIAL - - 84,126 - - - -
CABITEL - 749 - - - - -
ESTRATEGIAS TELEF. - - - - 1,369 - -
MAPTEL - - - - 5,613 - -
CPT - PERU - - - - 3,131,062 - -
PLAYA MADRID - - 13,033 - 221 - -
MENSATEL - - 2,824 - - - -
ST & HILO - - 154 - - - -
T.S.I.P. 1,624 - - - 186,015 - -
T.S.A.I. - - 420 - 78 - -
TELEFONICA SISTEMAS, S.A. 240 - - - 7,590 - -
TELFISA - - - 935,648 - - -
TELYCO, S.A. 1,301 440 - - - - -
TSM - - - - 2,099,021 - -
TSS 85,768 685 - - - - -
TSC - 228 - - - - -
TS- MULTIMEDIA - - - - 131 9,688 -
- -------------------------------------------------------------------------------------------------------------
Total 89,296 2,157 606,110 948,027 30,841,221 9,688 30,408
=============================================================================================================
Page 35 of 49
1994
In Thousands of Pesetas
Receivables
from Group Short-Term Long-Term Notes
Work-in- Receivables Companies Short-Term Long-Term Payables Payables Payable
Process and from for Loans to Loans to to to Billings to
Completed Group Accrued Group Group Group Group in excess Group
Work Companies Billings Companies Companies Companies Companies of cost Companies
TELEFONICA 1,107,137 9,064,060 366,715 2,675,053 2,134,122 3,176 - 1,453,400 -
----------- ----------- -------- --------- ---------- --------- ---------- ----------- -------
TELEFONICA GROUP
DEPENDENT COMPANIES: 38,180 6,678,584 6,986 780 - 218,047 10,209,194 5,418 9,494
----------- ----------- -------- --------- ---------- --------- ---------- ----------- -------
CABITEL - - - - - 762 - - -
ESTRATEGIAS TELEFONICAS - 538 - - - - - - -
MAPTEL - 19,626 - - - - - 5,418 5,559
TELFISA - 6,248,862 - - - 216,624 10,209,194 - -
T. SERV. MOV.(TS-1) 8,710 69,874 - - - - - - -
T.S.I.P. 10,654 334,696 6,986 - - - - - -
T.S.S. - - - - - - - - 3,250
T.S.A.I. - - - - - - - - 77
TELEFON.INTER. DE ESPANA, S.A. - - - - - - - - 547
TELEFONICA SISTEMAS, S.A. 18,816 4,988 - 780 - 203 - - -
TELYCO - - - - - 458 - - 61
SINTEL GROUP
DEPENDENT COMPANIES: - - - 3,114 - 13,711 65,339 - -
SINTELAR - - - - - 813 - - -
SINTEL VENEZUELA - - - - - - 65,339 - -
SINTEL PERU - - - 3,114 - 12,898 - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Total 1,145,317 15,742,644 373,701 2,678,947 2,134,122 234,934 10,274,533 1,458,818 9,494
===================================================================================================================================
In Thousands of Pesetas
Assets Liabilities
Receivable from Short-Term Provisions
Receivable Associated Loans to Payable for
from Companies Advances Associated for Short-Term
Associated for Accrued to Companies Purchases Financial
Companies Billings Suppliers or services Investments
SINTEL GROUP
ASSOCIATED COMPANIES:
COTRONIC, S.A. - - 57,810 - 171,028 -
INALCA, S.A. 14,429 2,851 2,315 - 15,165 -
INCOSA, S.A. - - 75,113 - 208,610 -
SIST. AVANZAD. DE CONTROL, S.A. - - 2,129 307,434 20,217 307,434
SERVICIOS 2.000 A.I.E. 46 - - - - -
- ------------------------------------------------------------------------------------------------------------
Total 14,475 2,851 137,367 307,434 415,020 307,434
============================================================================================================
Page 36 of 49
1994
In Thousands of Pesetas
Expenses Revenues
Work Outside Interest Other Current Financial
Purchases Performed Services Payable on Operating Sales Revenues
from by from Debt to Expenses to from
Group Group Group Group Group Group Group
Companies Companies Companies Companies Companies Companies Companies
TELEFONICA - - - 117,058 323,581 22,037,213 214,743
----------- ----------- -------- --------- ---------- ----------- ---------
TELEFONICA SUBSIDIARIES: 3,625 66,258 108,147 867,877 149,839 761,055 -
----------- ----------- -------- --------- ---------- ----------- ---------
TELEFONICA INTERNACIONAL - - 4,758 - - - -
ANTARES - - - - 120,199 - -
PLEYADE INDUSTRIAL - - 94,510 - - - -
CABITEL - 1,091 - - - - -
ESTRATEGIAS TELEF. - - - - - 817 -
MAPTEL - - - - - 76,185 -
PLAYA MADRID - - - - 29,640 - -
MENSATEL - - 607 - - - -
ST & HILO - - 207 - - - -
T.S.I.P. - - - - - 496,424 -
T.S.A.I. - - 67 - - - -
TELEFONICA SISTEMAS, S.A. - 65,098 7,945 - - 51,954 -
TELFISA - - - 867,877 - - -
TELYCO, S.A. 741 - 53 - - - -
TSM 58 - - - - 131,779 -
TSS 2,826 - - - - 3,896 -
TSC - 69 - - - - -
- ------------------------------------------------------------------------------------------------------------
Total 3,625 66,258 108,147 984,935 473,420 22,798,268 214,743
============================================================================================================
In Thousands of Pesetas
Expenses Revenues
Purchases and Sales and Services
Outside Services Rendered
TELEFONICA GROUP ASSOCIATED COMPANIES: 1,097 447
--------- ---------
ERITEL 450 447
TELECOM. VALLES 647 -
SINTEL GROUP ASSOCIATED COMPANIES: 721,299 34,997
--------- ---------
COTRONIC, S.A. 337,798 -
INALCA, S.A. 28,771 27,111
INCOSA, S.A. 302,229 7,886
SISTEMAS AVANZADOS DE CONTROL, S.A. 52,501 -
--------- ---------
Total 722,396 35,444
========= =========
No bad debt allowance has been recorded in the accompanying balance sheets
as of December 31, 1995 and 1994, for accounts receivable from Group companies.
Page 37 of 49
18.3 Labor force
The detail of the Sintel Group's average number of employees in 1995 and
1994 and of the personnel expenses is as follows:
1995 1994
Managers and graduates 442 448
Nongraduate technicians 699 632
Clerical staff, messengers, etc. 410 407
Manual workers 2,586 2,426
-------- -------
Total 4,137 3,913
======== =======
In Thousands of Pesetas
Personnel expenses 1995 1994 1993
Wages and salaries 11,241,251 12,317,539 12,899,024
Employee welfare expenses 3,305,196 3,375,652 3,609,402
Other personnel expenses 1,830,190 649,684 700,122
------------ ------------ ------------
16,376,637 16,342,875 17,208,548
Lump-sum payment 2,844,651 588,249 2,763,000
Annuity 156,157 - -
------------ ------------ ------------
Termination indemnities 3,000,808 588,249 2,763,000
Relocations 221,925 - -
Processing of terminations for
permanent disability (Medicalia) 77,675 - -
Provision for early retirements 529,524 - -
------------ ------------ ------------
Restructuring cost 3,829,932 588,249 2,763,000
------------ ------------ ------------
Total 20,206,569 16,931,124 19,971,548
============ ============ ============
18.4 The breakdown of the balances of "Extraordinary Expenses and Losses" and
"Extraordinary Revenues" is as follows:
In Thousand of Pesetas
Extraordinary expenses 1995 1994 1993
Tax assessments 58,350 - -
Spanish Employment Institute
(INEM) courses - 11,906 -
Other extraordinary expenses 222,868 161,560 -
------------ ------------ ------------
Total 281,218 173,466 586,673
============ ============ ============
In Thousands of Pesetas
Extraordinary revenues 1995 1994 1993
Refund from insurance company 44,518 - -
Provisions released 92,000 - 10,336
Other extraordinary revenues 208,313 - 38,756
------------ ------------ ------------
Total 344,831 - 49,092
============ ============ ============
Page 38 of 49
The Parent Company continued the labor force restructuring process which
gave rise to the termination with indemnity payments of 413 employees in
1995, at a cost of Ptas. 2,844,651,000, and to the termination of 18
employees with future pension plan commitments amounting to Ptas.
156,157,000.
Also, as of December 31, 1995, management of the Parent Company reached an
agreement with the workers' representatives for the early retirement of 35
employees in 1996 through 1999. A provision of approximately Ptas.
529,524,000 was recorded in 1995 in this connection, of which Ptas.
379,496,000 were included under the "Accrued liabilities - Long term"
caption (see Note 12) and Ptas. 150,028,000 under the "Accruel liabilities
- Short term" caption, based on maturity.
There were 91 terminations with indemnity payments at the Parent Company in
1994, the cost of which amounted to approximately Ptas. 588,249,000.
18.5 Individual company result
The contribution of each consolidated company to the loss for 1995 and 1994
is as follows:
Thousands of Pesetas
1995
Consolidated Income (Loss) Total (Loss)
(Loss) Income Attributed to Income for the
Minority Year
Interests
Sintel (2,337,636) - (2,337,636)
Sintelar (163,750) 81,875 (81,875)
Sietel 287,743 - 287,743
Servicios 2.000 (6,102) - (6,102)
Sintel Venezuela (19,333) - (19,333)
Sintel Peru 271,198 (168,143) 103,055
Cotronic 57,661 (28,254) 29,407
Incosa 80,090 (39,164) 40,926
Sinaben Multimedia 306 - 306
----------- ---------- -----------
Total (1,829,823) (153,686) (1,983,509)
=========== ========== ===========
NOTE 19. OTHER INFORMATION
19.1 Directors' remuneration
The overall remuneration paid to the directors of Sintel, S.A. for
discharging their functions at the various Group and associated companies
amounted to approximately Ptas. 25,972,000 in 1995 and Ptas. 22,359,000 in 1994.
One of the directors of the Parent Company has availed himself, as an
employee of SINTEL, S.A., of the pension plan for SINTEL employees, under the
same conditions as those applicable to other employees. The pension plan
contributions (annual cost) for this director amounted to Ptas. 386,666 in 1995
and Ptas. 383,399 in 1994.
The Parent Company granted no loans to the Board members and provided no
guarantees for them.
Page 39 of 49
19.2 Future prospects
As a result of the extraordinary losses arising from the labor force
restructuring, the Parent Company incurred significant losses in 1995, although
income was obtained from ordinary activities.
Management forecasts for 1996 sustained sales which, together with the
effects of the 1995 restructuring, would enable the Parent Company to return to
a profit-making situation.
However, the Parent Company's business activities and operations largely
depend on its future financial capacity, backed by the financing received
through Telfisa (see Note 14), and on the sales to its major customer and sole
shareholder, Telefonica de Espana, S.A. (see Note 18.2).
NOTE 20. ADDITIONAL INFORMATION
The Sintel Group's consolidated loss for the years ended December 31, 1995,
1994 and 1993, is as follows according with the US GAAP format:
In Thousands of Pesetas
1995 1994 1993
Net sales 47,031,888 43,455,710 46,676,608
Cost of sales (36,743,602) (35,274,388) (38,415,697)
------------ ------------ ------------
GROSS INCOME 10,288,286 8,181,322 8,260,911
General administrative and selling
expenses (7,466,198) (7,452,575) (6,587,120)
Restructuring cost (3,829,932) (588,249) (2,894,000)
------------ ------------ ------------
OPERATING (LOSS) INCOME (1,007,844) 140,498 (1,220,209)
Other revenues (extraordinary and
other) 484,386 298,072 322,440
Other expenses (extraordinary and
other) (230,475) (223,861) (17,872)
------------ ------------ ------------
(LOSS) INCOME BEFORE INTEREST AND
TAXES (753,933) 214,709 (915,641)
Financial revenues 580,448 1,105,130 902,692
Financial expenses (2,477,463) (2,015,091) (2,733,509)
------------ ------------ ------------
INCOME BEFORE TAXES (2,650,948) (695,252) (2,746,458)
Corporate income tax 821,125 252,527 566,213
Income attributed to minority
interests (153,686) (333,492) (532,253)
------------ ------------ ------------
LOSS FOR THE YEAR (1,983,509) (776,217) (2,712,498)
============ ============ ============
Page 40 of 49
Annex A
PROSPECTUS DATED AUGUST 5, 1996
500,000 SHARES
MASTEC, INC.
Common Stock
This Prospectus relates to the issuance from time to time by MasTec,
Inc., a Delaware corporation (the "Company"), of shares of the Company's
common stock, $.10 par value (the "Common Stock"), in an aggregate amount of up
to 500,000 shares, upon terms to be determined at the time of such offering. The
Common Stock may be offered in such amounts, at such prices and on such terms to
be set forth in a supplement to this prospectus (a "Supplement").
The Common Stock is to be offered directly by the Company in connection
with the acquisition of the assets of, or ownership interests in, certain
entities engaged in the same or similar lines of business as the Company or any
of its subsidiaries. The specific terms under which the Common Stock is being
offered in connection with the delivery of this Prospectus will be set forth in
the applicable Prospectus Supplement and will include the specific number of
shares of Common Stock and the issuance price per share. The Common Stock may
not be offered through this Prospectus without delivery of the applicable
Prospectus Supplement.
-----------------------------
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.
-----------------------------
The date of this Prospectus is August 5, 1996.
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 17 Street, N.W., Washington,
D.C. 20006.
This Prospectus constitutes part of a Registration Statement on Form S-4
(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.
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 Report on Form 10-Q for the quarter ended March
31, 1996;
The Company's Current Report on Form 8-K dated April 30, 1996;
The Company's Proxy Statement for its 1996 Annual Meeting of
Stockholders dated May 16, 1996; and
The Company's Current Report on Form 8-K/A dated July 15, 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, shall be
deemed to be incorporated by
2
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 herein 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. Capitalized terms not otherwise defined herein shall
have the meanings assigned to them in the Company's Annual Report on Form 10-K
for the year ended December 31, 1995, incorporated herein by reference.
This Prospectus incorporates documents by reference which are not
presented herein or delivered herewith. These documents are available upon
request from MasTec, Inc., 3155 N.W. 77th Avenue, Suite 135, Miami, Florida
33122-1205, telephone (305) 599-1800, Attention: Nancy J. Damon, Corporate
Secretary.
3
THE COMPANY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, incorporated
by reference in this Prospectus.
MasTec, Inc. (together with its subsidiaries and affiliates, "MasTec" or
the "Company") is one of the world's largest 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 telecommunication service companies such as local exchange
carriers, long-distance carriers, competitive access providers, cable
television operators and cellular 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 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") under multi-year contracts
similar to those in the U.S. Telefonica has commited to minimum levels of work
under these contracts totaling approximately $200 million (at current exchange
rates) per year in 1996, 1997 and 1998.
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, cable television operators such as Time Warner, Inc.,
Continental Cablevision, Inc. and Media One, and wireless communications
providers such as PCS Primesco and Sprint Spectrum L.P. Inside wiring services
are being provided to large corporate customers such as First Union National
Bank ("First Union"), IBM, Medaphis, Smith Barney, Inc. and Dean Witter
Reynolds, Inc. and to universities and government agencies. The Company also
provides infrastructure services to public utilities and the traffic control and
highway safety industry, and provides general construction and project
management services to state and local governments.
4
The telecommunications industry which the Company services 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 Community and privatization and
regulatory initiatives in South and Central 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.
The Company believes that these industry trends will create increased
demand for telecommunications infrastructure in four ways.
. Increased customer for bandwidth will compel services
providers to upgrade 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 in previously monopolistic markets
will ultimately require their own infrastructure.
. Deployment of more powerful multi-media 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 anticipated general 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 telecommunication infrastructure
projects.
The Company also plans to continue to make strategic acquisitions. In
April 1996, MasTec acquired Sistemas e Instalaciones de Telecommunications,
S.A. ("Sintel"), the largest telecommunications infrastructure contractor in
Spain, from Telefonica, the sole provider of public switched telephony in Spain
(the "Sintel Acquisition"). The Sintel Acquisition has positioned the Company
to take advantage of increased competition coming to 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 and to
acquire additional management talent for future growth.
5
The principal executive offices of the Company are located at 3155 N.W.
77th Avenue, Miami, Florida, 33122-1205, telephone (305) 599-1800.
6
SELECTED FINANCIAL INFORMATION
The following table presents selected consolidated financial information
of the Company and selected combined financial information of the CT Group as of
the dates and for each of the periods indicated. The selected financial data
set forth below should be read in conjunction with the Consolidated Financial
Statements or the Combined Financial Statements, as the case may be, the notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in the Company's Annual Report on Form 10-K
incorporated herein by reference.
Year Ended December 31,
1995 1994 1993 1992 1992
(1-2) (3) (3) (3)
(In thousands, except per share amounts)
Income statement data:
Revenue $174,583 $111,294 $44,683 $34,136 $31,558
Costs of revenue 130,762 83,952 28,729 22,163 22,970
---------- ---------- --------- --------- ---------
Gross profit 43,821 27,342 15,954 11,973 8,618
General and administrative
expenses 19,081 13,022 9,871 3,298 2,796
Depreciation and amortization 6,913 4,439 609 371 359
---------- ---------- --------- --------- ---------
Operating Income 17,827 9,881 5,474 8,313 5,463
Interest expense (4) 4,954 3,587 133 33 29
Interest and dividend income (5) 3,349 1,469 315 207 227
Special charge-real estate and
investments write-downs 23,086 0 0 0 0
Other income (expense), net 2,028 1,009 (81) 209 85
(Losses) equity in earnings of
unconsolidated companies and
minority interest (139) 247 1,177 (416) (446)
(Benefit) provision for income
taxes (6) (1,835) 3,211 2,539 3,113 1,992
---------- ---------- --------- --------- ---------
(Loss) income from continuing
operations (6) $(3,140) $5,808 $4,213 $5,167 $3,308
========== ========== ========= ========= =========
Average shares outstanding 16,046 16,077 10,250 10,250 10,250
(7) (7) (7)
(Loss) primary earnings per
share from continuing
operations $(0.20) $0.36 $0.41 $0.50 $0.32
Balance sheet data:
Property and equipment, net $44,571 $40,102 $4,632 $3,656 $2,406
Total assets 170,163 142,452 21,325 23,443 11,733
Total long-term debt 44,226 35,956 3,579 855 371
Stockholders' equity (8) 50,504 50,874 10,943 15,690 9,436
7
- --------------------------------------
(1) Includes the results of the CT Group for the full year 1994, the results
of Burnup & Sims from March 31, 1994 through the end of 1994, and the
results of DTI from June 22, 1994 through the end of 1994.
(2) The 1994 results of operations have been reclassified to reflect the
discontinuation of certain non-core operations of the Company. Net
assets of discontinued operations at December 31, 1995, have been
segregated in the consolidated balance sheet. See Note 16 to the
Consolidated Financial Statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Overview-
Discontinued Operations" included in the Company's Annual Report of Form
10-K for the year ended December 31, 1995, incorporated herein by
reference.
(3) Includes the results and financial condition of the CT Group only. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Overview--The Acquisition" included in the Company's
Annual Report on From 10-K for the year ended December 31, 1995,
incorporated herein by reference.
(4) Included is interest due to stockholders from outstanding notes to
$135,000 for the year ended December 31, 1995 and $223,000 for the year
ended December 31, 1994.
(5) Included is interest accrued from notes from stockholders amounting to
$289,000 for the year ended December 31, 1995, and $304,000 for the year
ended December 31, 1994.
(6) The CT Group was not subject to income taxes because it was an S
corporation and, as a consequence, income from continuing operations has
been adjusted to reflect a pro forma provision for income taxes.
(7) Reflects the shares of common stock of the Company received by the
former shareholders of the CT Group pursuant to the acquisition by the
Company of Burnup and Sims and not the outstanding shares of common
stock of the CT Group.
(8) See Note 12 to the Consolidated Financial Statements, included in the
Company's Annual Report on Form 10-K for the year ended December 31,
1995, incorporated herein by reference, regarding distributions made to
the CT Group shareholders in connection with the acquisition by the
Company of Burnup & Sims.
8
RISK FACTORS
An investment in the shares of Common Stock offered hereby 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 of Common Stock.
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 telecommunication
infrastructure services to certain key customers. Approximately 88% of Sintel's
revenue was derived from services performed for Telefonica and it 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 the RBOCs with which it currently does business for a significant
portion of its revenue. There are a number of factors that could adversely
affect Telefonica or the RBOCs 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 Burnup Acquisition, the Sintel
Acquisition and the acquisition of other companies. 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 business
or obtain financing for such acquisitions on satisfactory terms. The
9
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 increase in demand for
telecommunications services, which may not materialize. The Company's
anticipated growth may 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 suffered significant net losses. In
1994, Sintel's current management implemented a restructuring plan to return
Sintel to profitability. As a result of the restructuring plan, Sintel recorded
a 38 billion peseta (approximately $30.1 million) charge in 1995 due primarily
to reductions in personnel. Absent this restructuring charge, Sintel would
have realized net income in 1995. The balance of the restructuring plan is
being implemented in 1996 and contemplates additional cost savings to achieve
positive operating results in 1996 and beyond. There can be no assurance that
the restructuring plan 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
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 concluded
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 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.
10
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, which 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 independent third parties 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 persons who possess
technical expertise and adequate financing 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 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.
11
The Company also faces competition from the in-house service
organizations of RBOCs, which employ some of the same types of services as those
provided by the Company. Although a significant portion of these services is
currently outsourced, there can be no assurance that existing or prospective
customers of the Company will continue to outsource telecommunication
infrastructure services in the future.
Technological Changes
The telecommunication industry is subject to rapid technological
changes. Wireline systems which are 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. Should the use of such technoogies increase, it could, over the long
term, have an adverse effect on the Company's wireline operations.
Controlling Shareholders
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, beneficially own more than 50% of the outstanding shares of common
stock of the Company. Accordingly, they have the 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, oculd 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 133,000 shares are
currently issued and exercisable. 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, or market sales of shares sold in offerings pursuant to this
Prospectus 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. Sales of
substantial amounts of Common Stock in the public market could adversely affect
the prevailing market price of Common Stock.
Anti-Takeover Provisions
The Company's certificate of incorporation and bylaws and certain provisions of
the Delaware General Corporation Law (the "DGLC") may make it difficult in some
respects to effect a change in control of the Company and replace incumbent
management The existence of
12
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.
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, assuming all
registered shares are offered, there will be approximately 17,300,000 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 "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. 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 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 redemptive 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"),
which is filed as an exhibit to the Registration Statement of which this
Prospectus constitutes a part, 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
13
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. See "Risk Factors--Anti-Takeover Provisions."
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) or unless 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 eighty
percent (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 a 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 (i) 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 (ii) 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
14
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
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 consent
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.
15
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.
16
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFERING MADE HEREBY, 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 A SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SHARES OF COMMON STOCK OFFERED
HEREBY OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SHARES TO
ANY PERSON, OR THE SOLICITATION OF A PROXY FROM ANY PERSON, IN ANY JURISDICTION
IN WHICH SUCH OFFER, SOLICITATION OF AN OFFER OR PROXY SOLICITATION IS UNLAWFUL.
THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
TABLE OF CONTENTS
Page
Available Information 2
Incorporation of Certain Documents by Reference 2
The Company 4
Selected Financial Information 7
Risk Factors 9
Description of Capital Stock 13
[MASTEC, INC. LOGO APPEARS HERE]
17
Annex B
DRAFT
11/5/96
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT (the "Agreement") dated as of November __,
1996, between HARRISON-WRIGHT COMPANY, INCORPORATED, a North Carolina
corporation ("H-W"), and UTILITY PRECAST, INC., a North Carolina corporation
("UPI") (H-W and UPI are each referred to herein as a "Seller" and collectively
as the "Sellers"), H-W ACQUISITION I CO., INC., a Delaware corporation ("H-W
I"), H-W ACQUISITION II CO., INC., a Delaware corporation ("H-W II") and H-W
ACQUISITION III CO., INC., a Delaware corporation ("H-W III") (H-W I, H-W II,
and H-W III are each referred to herein as a "Buyer" and collectively as the
"Buyers").
RECITALS
--------
A. H-W owns and leases certain properties, assets and rights used in the
operation of H-W's telecommunications construction, installation and maintenance
business ("H-W's Business").
B. UPI owns and leases certain properties, assets and rights used in the
operation of UPI's pre-cast concrete manufacturing business ("UPI's Business"
and together with H-W's Business, the "Sellers' Businesses").
C. Sellers desire to sell to Buyers, and Buyers desire to purchase from
Sellers, all of the properties, assets and rights of Sellers used in the
operation of Sellers' Businesses, subject to the terms and conditions of this
Agreement.
Accordingly, and in consideration of the mutual promises contained in this
Agreement, the parties agree as follows:
ARTICLE 1
---------
PURCHASE OF ASSETS
------------------
1.1 Purchase of Assets. Subject to the other terms and conditions of this
------------------
Agreement and except as set forth on Schedule 1.1, Sellers shall sell and
------------
transfer to Buyers, and Buyers shall purchase from Sellers, at the Closing (as
defined in Section 7.1), all the properties, assets and rights that each Seller
owns and that are used or are held or intended for use in the conduct or
operation of Sellers' Businesses (the "Acquired Assets"), including without
limitation all of the Sellers' right, title and interest in and to (a) the names
"Harrison-Wright Company, Incorporated" and "Utility Precast, Inc." and all
variations thereof, (b) the two master contracts between H-W and BellSouth
Telecommunications, Inc. ("BellSouth") covering the Wilmington and Lumberton,
North Carolina and Augusta, Georgia areas (collectively, the "BellSouth
Contracts"), (c) the other contracts and contract rights set forth on Schedule
--------
1.1(c) (the "Assumed Contracts"), (d) the Sellers' rights under the leases set
- ------
forth on Schedule 1.1(d) (the "Assumed Leases"), (e) the real property described
---------------
on Schedule 1.1(e) (the "Real Property"), which includes an approximate 36-acre
---------------
parcel located in Charlotte, North Carolina used by UPI in UPI's Business and a
0.318 acre parcel located on Church Street in Charlotte, North Carolina used by
H-W as its corporate headquarters, together with all right, title and interest
of Sellers in all easements, air rights, rights of way, licenses, appurtenances
and all other rights and benefits belonging to, running with or in any way
related to the Real Property, (f) all improvements and fixtures located on the
Real Property (the "Improvements"), and (g) all (A) equipment, vehicles
(including all trucks, trailers and automobiles), inventory, work in process,
parts, tools, supplies, materials, fuel, furniture, furnishings and all other
tangible personal property used in connection with the Sellers' Businesses,
including all equipment and vehicles with an original cost in excess of $5,000
which are identified on Schedule 1.1(g), (B) patents, trademarks, trade names,
---------------
trade secrets, copyrights, know-how and other intangible personal property
relating to the ownership, development, use, operation, leasing and management
of the Sellers' Businesses, including the goodwill pertaining thereto, (C)
warranties, representations, guaranties, contract rights and miscellaneous
rights pertaining to the Sellers' Businesses, (D) books, records, computer
programs, data bases, and other information pertaining to the Sellers'
Businesses, (E) cash, accounts receivable, notes receivable (including all
receivables consisting of loans from stockholders), investments, all prepaid
expenses, advances, rent, assets, taxes and deposits, and all retainage and (F)
other rights, assets and benefits accruing or inuring to the benefit of the
Sellers' Businesses, including without limitation all of the life insurance
policies and related cash surrender values (the "Stockholder Policies") on the
lives of certain stockholders of Sellers described on Schedule 2.21
-------------
(collectively, the "Personal Property"). Buyers shall instruct Sellers at the
Closing as to which of the Acquired Assets shall be transferred to each Buyer.
1.2 Payment for Acquired Assets.
---------------------------
(a) As payment in full for the Acquired Assets and subject to the
terms of Section 1.2(b), Buyers shall (i) deliver to Sellers (in the respective
amounts identified on
Exhibit 1.2(d)), at Closing either immediately available funds in the amount of
- --------------
$6,834,767.39 (reduced by the amount deliverable to the Escrow Agent pursuant to
Section 1.2(b)) or, at Buyers' option, validly issued, fully paid, non-
assessable, unrestricted shares of common stock, $0.10 par value, of MasTec,
Inc. ("MasTec Common Stock"), the number of which shall be determined as set
forth below and (ii) assume the Assumed Liabilities (as defined in Section
1.3(a)) (collectively, (i) and (ii) are referred to herein as the "Purchase
Price"). If Buyers elect to deliver MasTec Common Stock to Sellers pursuant to
subsection 1.2(a)(i), Buyers shall deliver to Sellers in the aggregate that
whole number of shares of MasTec Common Stock equal to the Purchase Price Shares
(as defined below), reduced by the portion of the Purchase Price Shares which
shall be delivered to the Escrow Agent in accordance with the terms of Section
1.2(b) hereof. The "Purchase Price Shares" shall mean that whole number (rounded
to the next highest number) of shares of MasTec Common Stock equal to (x)
$6,834,767.39, divided by (y) the Closing Price. The "Closing Price" shall mean
the closing sale price for one (1) share of MasTec Common Stock on the NASDAQ
National Market System as reported on the NASDAQ composite tape for the trading
day immediately preceding the Closing on which trading of MasTec Common Stock
has occurred.
(b) If MasTec Common Stock is delivered to Sellers pursuant to Section
1.2(a)(i), that number of the Purchase Price Shares which has a value in the
aggregate (based on the Closing Price) of $590,500 (the "Escrowed Amount") shall
be delivered by Buyers at Closing to First Union National Bank, N.A. (the
"Escrow Agent"), which shall hold such shares and deposit any net cash proceeds
from any sales of such shares in escrow (the "Escrow") pursuant to the terms of
the Escrow Agreement in the form of Exhibit 1.2(b) (the "Escrow Agreement"). If
--------------
immediately available funds rather than MasTec Common Stock are delivered
pursuant to Section 1.2(a)(i), then $590,500 in immediately available funds
shall constitute the Escrowed Amount hereunder and shall be deposited by Buyers
in the Escrow and held by the Escrow Agent pursuant to the terms of the Escrow
Agreement.
(c) If Buyers deliver MasTec Common Stock to Sellers pursuant to
Section 1.2(a)(i) and if Sellers elect to sell the Purchase Price Shares or any
portion thereof in the open market, Sellers shall issue the instruction letter
attached hereto as Exhibit 1.2(c) to Sellers' broker (Sellers' delivery of this
letter shall constitute Sellers' only obligation under this Section 1.2(c) and
Sellers shall not be liable for their broker's compliance or non-compliance with
such letter). If Sellers' elect to distribute the Purchase Price Shares to
their respective stockholders, Sellers shall cause their respective stockholders
to be bound by the covenants set forth in the previous sentence. If Sellers'
elect to sell any Purchase Price Shares in the open market during the period
beginning with the Closing Date and expiring upon the expiration of the 15th
trading day following the Closing Date on which the trading of MasTec Common
Stock can occur (this particular 15 trading day period shall be referred to
herein as the "Liquidation Period"), Sellers shall deliver the Purchase Price
Shares they elect to sell to their broker as soon as practicable following the
Closing, with the sale of all of the Purchase Price Shares they elect to sell to
be completed within the Liquidation Period. In such circumstance, if the broker
is unable to sell all of the Purchase Price Shares the Sellers elected to sell
(as indicated in Sellers' instruction letter to their broker) within the
Liquidation Period, Buyers shall cause MasTec, Inc., a Delaware corporation
("MasTec") to redeem all of the remaining Purchase Price Shares which Sellers'
broker did not sell despite Sellers' instruction to do so during the Liquidation
Period at the purchase price per share equal to the Closing Price, with such
redemption to be completed on the date immediately following the last day of the
Liquidation Period. Buyers guarantee to Sellers that Sellers shall receive cash
proceeds from the sale of any Purchase Price Shares sold during the Liquidation
Period, net of any brokerage commissions or other directly related expenses of
sale incurred by Sellers with respect thereto, in an amount per share not less
than the Closing Price (the "Guaranteed Minimum") determined on an aggregate
basis for all sales during the Liquidation Period. Buyers agree to pay all
brokerage commissions or other directly related expenses of sale incurred by
Sellers in connection with any sales of the Purchase Price Shares which occur
during the Liquidation Period. If Sellers do not realize net sale proceeds per
share (determined on an aggregate basis for all sales during the Liquidation
Period) at least in the amount of the Guaranteed Minimum, then, Buyers, upon the
expiration of the Liquidation Period, shall promptly pay to Sellers the amount
by which the aggregate net sales proceeds from the sales of Purchase Price
Shares during the Liquidation Period is less than the amount of the Guaranteed
Minimum multiplied by the number of Purchase Price Shares sold during the
Liquidation Period. Sellers shall provide documentation from their broker
containing all relevant information with respect to any sales of the Purchase
Price Shares during the Liquidation Period. If Sellers realize net sales
proceeds per share (determined on an aggregate basis for all sales during the
Liquidation Period) in excess of the Guaranteed Minimum, then, Sellers, upon the
expiration of the Liquidation Period, shall promptly pay to Buyers the amount by
which the aggregate net sales proceeds from the sales of Purchase Price Shares
during the Liquidation Period exceeds the amount of the Guaranteed Minimum
multiplied by the number of Purchase Price Shares sold during the Liquidation
Period (the "Excess Amount"). All payments under this Section 1.2(c) shall be
in immediately available funds to the payee's bank account (which shall be
identified in a written notice from the payee). If Sellers fail to pay the
Excess Amount, Buyers may make a claim therefor against the Escrowed Amount.
Nothing herein shall obligate Sellers to dispose of the Purchase Price Shares
during the Liquidation Period or at any time thereafter.
(d) The Purchase Price shall be allocated as set forth on Exhibit 1.2(d)
--------------
attached hereto, and Buyers and Sellers agree to use such allocation in
preparing their respective Internal Revenue Service Forms 8594 and all other
reports to, and tax returns filed with, all governmental entities (including the
Internal Revenue Service). Each of the parties hereto agrees to provide the
other parties with a copy of the Form 8594 filed by such party in connection
with the transaction contemplated hereby within 10 days of the filing of such
Form.
1.3 Assumption of Liabilities.
-------------------------
(a) At the Closing, Sellers shall assign to Buyers, and Buyers shall
assume and agree to pay, perform and discharge only the following liabilities
(collectively referred to herein as the "Assumed Liabilities"): (i) all
Sellers' liabilities which are reflected on the Closing Date Balance Sheet (as
defined in Section 1.4(a)), (ii) the liabilities or obligations expressly
identified on Schedule 1.3 and (iii) the taxes, fees and expenses identified in
------------
Section 4.9. Anything in this Agreement to the contrary notwithstanding, (x)
Buyers shall not assume any liability for, or pay, perform or discharge any
debts, obligations or liabilities of Sellers except as specifically set forth in
this Section 1.3(a), and (y) the Assumed Liabilities shall not include any
liability for (1) Sellers' professional service fees or retainers incurred by
Sellers in connection with the preparation for and negotiation of the
transactions contemplated by this Agreement, (2) Sellers' income taxes (incurred
as a result of the sale of the Acquired Assets to Buyers or otherwise), (3)
incentive compensation payments which Sellers have agreed to pay to any
individuals (including Messrs. Paris, McDonald, Marshall and McClelland) in the
event of a successful closing of the transactions contemplated hereby, and (4)
any liability associated with the Deferred Compensation Plan (as defined in
Section 4.6(h) hereof) or the administration or termination thereof. Sellers
shall continue to be obligated to pay, perform and discharge all of their
respective liabilities other than the Assumed Liabilities.
(b) Notwithstanding the assumption by Buyers of the Assumed Liabilities,
nothing in this Agreement shall require Buyers to pay, perform or discharge any
of the Assumed Liabilities so long as Buyers are in good faith contesting or
asserting any defense or offset thereto, and Sellers shall cooperate with and
provide reasonable assistance to Buyers in so contesting and defending such
claims.
1.4 Closing Date Balance Sheet; Purchase Price Adjustment.
-----------------------------------------------------
(a) Within 90 days following the Closing Date, Sellers or their
accountants, shall compile, at Sellers' expense, a consolidated balance sheet of
H-W (together with UPI) as of the Closing Date (the "Closing Date Balance
Sheet") in a manner consistent with Collins & Boike, P.A.'s compilation of the
Balance Sheet (as defined in Section 2.3). The Closing Date Balance Sheet shall
include only the Acquired Assets (which will not include any loans to Sellers'
stockholders), the Assumed Liabilities and a calculation of Closing Date
Adjusted Net Equity (as defined in Section 1.4(b) below) on the basis thereof.
Sellers shall deliver the Closing Date Balance Sheet to Buyers promptly upon
their receipt thereof along with reasonable supporting documentation therefor.
For a period of 30 days following the delivery of the Closing Date Balance Sheet
to Buyers (the "Review Period"), Buyers and their representatives may review the
calculation of the Closing Date Balance Sheet and the supporting documentation.
If Buyers wish to dispute the Closing Date Balance Sheet, they shall so notify
Sellers in writing of each disputed
item and the basis for the dispute no later than the expiration of the Review
Period. If Buyers submit no notice of dispute by the end of the Review Period,
the Sellers' calculation of the Closing Date Balance Sheet shall be binding and
conclusive. If the Closing Date Balance Sheet calculation is disputed in writing
by Buyers within the Review Period and the parties are unable through good faith
negotiation to resolve any such dispute prior to the expiration of one hundred
twenty (120) days following the Closing Date, the parties shall promptly submit
the items in dispute for resolution to the Charlotte office of a national
accounting firm agreed upon by the parties (the "Accounting Firm"). The
Accounting Firm shall, prior to the expiration of one hundred eighty (180) days
following the Closing Date, based solely on a review of the work papers and
other supporting documentation for the Closing Date Balance Sheet and not by
independent review, render a written report to the parties resolving the
disputed items and providing the resultant recalculation, if any, of the Closing
Date Balance Sheet. Such report and calculation of the Closing Date Balance
Sheet by the Accounting Firm shall be binding and conclusive on the parties. In
resolving any disputed item, the Accounting Firm may not assign a value to such
item greater than the greatest value for such item claimed by either party or
less than the smallest value for such item claimed by either party. The
responsibility for payment of the fees and disbursements of the Accounting Firm
shall be borne (a) by Buyers in the proportion that the aggregate dollar amount
of such disputed items so submitted that are unsuccessfully disputed by Buyers
(as finally determined by the Accounting Firm) bears to the aggregate dollar
amount of all items so submitted and (b) by Sellers in the proportion that the
aggregate dollar amount of such disputed items so submitted that are
successfully disputed by Buyers (as finally determined by the Accounting Firm)
bears to the aggregate dollar amount of all items so submitted.
(b) If the Net Equity Decrease, if any, exceeds the Operating Loss
Allowance, then the Purchase Price shall be adjusted downward on a dollar-for-
dollar basis in an amount equal to the difference between the Net Equity
Decrease and the Operating Loss Allowance, and Sellers shall indemnify Buyers
for such difference pursuant to Section 8.2, which indemnity obligation shall be
set-off against the Escrowed Amount pursuant to the Escrow Agreement. For
purposes of this Section 1.4(b):
(i) "Net Equity Decrease" mans the dollar amount of the decrease,
if any, of the Closing Date Adjusted Net Equity from the July 31 Adjusted Net
Equity.
(ii) "Closing Date Adjusted Net Equity" means Sellers' stock-
holders' equity as reflected on the Closing Date Balance Sheet (which shall not
include the book value of the assets set forth on Schedule 1.1) increased by the
------------
amount of the preferred stock dividends paid by Sellers since June 30, 1996.
(iii) "July 31 Adjusted Net Equity" means Sellers' stockholders'
equity as reflected on the Balance Sheet (as defined in Section 2.3)
reduced by the book value of the assets set forth on Schedule 1.1.
------------
(iv) "Operating Loss Allowance" means the dollar amount of the
operating losses (but not in excess of $400,000 minus Sellers' operating losses
for July, 1996 as reflected in the Financial Statements, as defined in Section
2.3) incurred by Sellers during the period from
August 1, 1996 through the Closing Date (including without limitation, losses
caused by write-offs of uncollectible notes or accounts receivable).
ARTICLE 2
---------
SELLERS' REPRESENTATIONS AND WARRANTIES
---------------------------------------
Sellers, jointly and severally, hereby represent and warrant to Buyers as
follows:
2.1 Organization, Qualification and Authority. (a) Each Seller is a
-----------------------------------------
corporation duly organized, validly existing, and in good standing under the
laws of the State of North Carolina, and has the corporate power and authority
to own its properties and to carry on its business as it is now being conducted.
Each Seller is authorized to do business in every state or other jurisdiction in
which the character or location of the properties owned or leased by such Seller
or the nature of the business conducted by such Seller makes such qualification
necessary. Each Seller has the corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated on the
part of such Seller hereby. The execution and delivery by each Seller of this
Agreement and the consummation by each Seller of the transactions contemplated
herein have been duly authorized by its Board of Directors and stockholders. No
other corporate action on the part of either Seller or any action of any kind by
any other person or entity is necessary to authorize the execution and delivery
of this Agreement by such Seller or the consummation by such Seller of the
transactions contemplated herein, except for the consents described in Section
2.2. This Agreement has been duly executed and delivered by each Seller and is
a valid, binding and enforceable agreement of such Seller.
(b) H-W owns all of the issued and outstanding capital stock of UPI
and UPI is the sole subsidiary of H-W. Except as expressly set forth in the
previous sentence, neither H-W nor UPI has an interest as a stockholder,
partner, member, joint venturer or other equity ownership interest in any other
person or entity.
2.2 Absence of Conflict. Except for the consent of BellSouth to the assign-
-------------------
ment of the BellSouth Contracts (if such consent has not been obtained) and
except as described in Schedule 2.2, the execution and delivery of this
------------
Agreement and the performance and compliance with its terms by Sellers do not
and will not conflict with, or result in the breach of, any of the terms,
conditions or provisions of, or constitute or with the passing of time or the
giving of notice, or both, will constitute a default under, or result in the
creation of any liens, charges, mortgages, pledges, rights, claims,
restrictions, options or other encumbrances or limitations of any kind ("Liens")
upon the Acquired Assets pursuant to either Seller's bylaws or Articles of
Incorporation or any agreement, trust, indenture, mortgage, pledge, assignment
or any other instrument or any law, rule, regulation, judgment, order or decree
to which either Seller or its assets may be a party or may be bound.
2.3 Financial Statements. Attached as Exhibit 2.3 is the consolidated
-------------------- -----------
unaudited balance sheet of H-W (including UPI) as of July 31, 1996 and the
related statement of income for the seven months then ended, as compiled by the
certified public accounting firm of Collins & Boike, P.A. (collectively, the
"Financial Statements"). Except as set forth on Schedule 2.3, the Financial
------------
Statements have been prepared in accordance with generally accepted accounting
principles. The consolidated unaudited balance sheet of H-W (including UPI)
dated as of July 31, 1996 (the "Balance Sheet") fairly presents the financial
condition of Sellers as of the date thereof and reflects all claims against and
all debts and liabilities of Sellers, fixed or contingent, as of the date
thereof, and the related statement of income fairly presents the results of the
operations of Sellers and the changes in their financial position for the period
indicated, all in accordance with generally accepted accounting principles
except as set forth on Schedule 2.3. Sellers have no outstanding claims,
------------
liabilities, obligations or indebtedness of any nature (whether accrued,
absolute, contingent or otherwise) ("Liabilities"), except as set forth in the
Balance Sheet, other than Liabilities (a) incurred subsequent to July 31, 1996
(the "Balance Sheet Date") in the ordinary course of business not involving
borrowings by either Seller or (b) expressly identified on Schedule 1.3. The
------------
Financial Statements contain adequate reserves for all reasonably anticipated
claims relating to matters with respect to which either Seller is self-insured
(including workers compensation).
2.4 No Changes Since Balance Sheet Date.
-----------------------------------
(a) Since the Balance Sheet Date, except as expressly contemplated by
this Agreement or as described on Schedule 2.4(a), neither Seller has (i)
---------------
experienced a material adverse change in the assets or liabilities (including
the Acquired Assets), or in the business or condition, financial or otherwise,
or in the results of operations or prospects, of such Seller, (ii) permitted any
of its assets (including the Acquired Assets) to be subjected to any Lien (other
than Permitted Liens, as defined in Section 2.5), (iii) sold, transferred or
otherwise disposed of any assets (including any Acquired Assets) except in the
ordinary course of business, (iv) made any capital expenditure or commitment
therefor, (v) redeemed, purchased or otherwise acquired any shares of its
capital stock, (vi) granted or issued any option, warrant or other right to
purchase, acquire or exchange any shares of its capital stock or any of the
Acquired Assets, (vii) made any distribution, bonus or profit sharing
distribution or similar payments except as required by law, (viii) increased its
indebtedness for borrowed money, except current borrowings from banks in the
ordinary course of business, or made any loan or guarantee to any person or
entity, (ix) granted any increase in the rate of wages, salaries, bonuses or
other remuneration of any employee or other representative, except in the
ordinary course of business, (x) canceled or waived any claims or rights of
substantial value, (xi) made any change in any method of accounting or auditing
practice, or created or increased the amount of any reserves, (xii) otherwise
conducted its business or entered into any transaction, except in the usual and
ordinary manner and in the ordinary course of business, (xiii) declared or paid
any dividend or made any distribution on any shares of its capital stock, or
(xiv) agreed, whether or not in writing, to do any of the foregoing. No fact or
condition exists or, to Sellers' knowledge, is contemplated or threatened that
might cause any of the foregoing representations to be untrue in the future.
(b) Notwithstanding the foregoing, no material adverse change shall be
deemed to have occurred for purposes of Section 2.4(a)(i) unless there has been
an adjustment in the Purchase Price pursuant to Section 1.4(b), which adjustment
shall be the sole remedy for any such breach of Section 2.4(a)(i).
2.5 Title to Assets. Except as set forth on Schedule 2.5 and except for
--------------- ------------
properties and assets reflected in the Balance Sheet or acquired since the
Balance Sheet Date that have been sold or otherwise disposed of for value in the
ordinary course of business, each Seller has good, valid and marketable title to
(a) all of its properties and assets (real and personal, tangible and
intangible), including, without limitation, all of the Acquired Assets and all
of the properties and assets reflected in the Balance Sheet, except as indicated
in the notes thereto, and (b) all of the properties and assets purchased by such
Seller since the Balance Sheet Date; in the case of both (a) and (b) above
subject to no Lien except for (i) Liens reflected in the Balance Sheet or
incurred in the ordinary course of business since the Balance Sheet Date, (ii)
Liens consisting of zoning or planning restrictions, easements, permits and
other restrictions or limitations on the use of real property or irregularities
in title thereto which do not materially detract from the value of, or impair
the use of, such property by such Seller in the operation of its business, (iii)
Liens for current taxes, assessments or governmental charges or levies on
property not yet due and delinquent and (iv) Liens described on Schedule 2.5
------------
(Liens of the type described in clauses (i) through (iv) are referred to herein
as the "Permitted Liens").
2.6 Real Property.
-------------
(a) Schedule 2.6 sets forth a complete and accurate description of all
------------
of the Real Property and interests therein owned by Sellers. Each Seller has
good and marketable title in fee simple to all the Real Property owned by it,
free and clear of all Liens except for Permitted Liens. Sellers represent that
they shall convey good and marketable title to the Real Property to Buyers at
the Closing free and clear of all Liens except for Permitted Liens.
(b) Except as set forth on Schedule 2.6(b), all of the buildings,
---------------
structures, improvements and appurtenances situated on the Real Property
(including the Improvements) are in good operating condition and in a state of
good maintenance and repair, ordinary wear and tear excepted, and are adequate
and suitable for the operation of the Sellers' Businesses in the ordinary
course. None of such buildings, structures or appurtenances (or any equipment
therein), nor the use, operation or maintenance thereof, violates any
restrictive covenant or any provision of any federal, state, local or foreign
law, ordinance, rule or regulation, or encroaches on any property owned by
others. No condemnation proceeding is pending or, to Sellers' knowledge,
threatened which would preclude or impair the use of any such property by the
Sellers. The Real Property is zoned by the appropriate governmental authorities
to allow for the current use thereof by Sellers.
2.7 Leases. Schedule 2.7 sets forth a complete and accurate description of
------- ------------
all leases of real or personal properties to which either Seller is a party,
whether as lessee or lessor, including the Assumed Leases (the "Leases"). Each
Lease is in full force and effect; all rents and additional rents due to date on
each such Lease have been paid; and there exists no event of default or event,
occurrence, condition or act or failure to act (including the purchase of the
Acquired Assets or
the assumption of the Assumed Leases hereunder) that, with the giving of notice,
the lapse of time or the happening of any further event or condition, would
become a default under such Lease. Neither Seller has violated any of the terms
or conditions under any such Lease in any material respect, and, to Sellers'
knowledge, all of the covenants to be performed by any other party under any
such Lease have been fully performed. The properties leased by either Seller are
in good operating condition and in a state of good maintenance and repair,
ordinary wear and tear excepted, and are adequate and suitable for the operation
of the Sellers' Businesses in the ordinary course.
2.8 Material Contracts. Schedule 2.8 sets forth a complete and correct list of
------------------- ------------
each material agreement, contract, instrument, letter of credit, performance
bond, performance guaranty, product or service warranty, commitment or
understanding, whether written or oral, to which either Seller is a party or by
which either is bound. Except as set forth on Schedule 2.8, neither Seller has
------------
or is bound by (a) any agreement, contract or commitment relating to the
employment of any person by such Seller, or any bonus, deferred compensation,
pension, profit sharing, stock option, employee stock purchase, retirement or
other employee benefit plan, (b) any agreement, contract or commitment relating
to capital expenditures, (c) any loan or advance to, or investment in, any
person or entity or any agreement, contract or commitment relating to the making
of any such loan, advance or investment, (d) any guarantee or other contingent
liability in respect of any indebtedness or obligation of any person or entity
(other than the endorsement of negotiable instruments for collection in the
ordinary course of business), (e) any management, consulting or any other
similar type contract, (f) any agreement, contract or commitment limiting the
ability of such Seller or any subsidiary to engage in any line of business or to
compete with any person, (g) any agreement, contract or commitment that involves
consideration of $25,000 or more, (h) any agreement, contract or commitment that
is not cancelable without penalty within 30 days, or (i) any agreement, contract
or commitment that might reasonably be expected to have an adverse impact on the
business, operations or prospects of the Seller. Each contract or agreement set
forth on Schedule 2.8 (or required to be set forth on Schedule 2.8), including
------------- ------------
the BellSouth Contracts and each Assumed Contract, is in full force and effect
and there exists no default or event of default or event, occurrence, condition
or act or failure to act (including the purchase of the Acquired Assets or the
assumption of the BellSouth Contracts or the Assumed Contracts under this
Agreement) which, with the giving of notice, the lapse of time or the happening
of any other event or condition, would become a default or event of default
thereunder. Neither Seller has violated any of the terms or conditions of any
contract or agreement set forth on Schedule 2.8 (or required to be set forth on
------------
Schedule 2.8), including the BellSouth Contracts or the Assumed Contracts, in
- -------------
any material respect, and, to Sellers' knowledge, all of the terms and
conditions to be performed by any other party thereto have been fully performed.
Except as set forth in Schedule 2.8, with regard to each of the BellSouth
------------
Contracts and the Assumed Contracts, to Sellers' knowledge none will be subject
to termination by any other party thereto, or otherwise materially and adversely
affected, by reason of the consummation of the transactions described in this
Agreement, and no consent by any third party is required in order to assign any
such agreement to Buyers. All of the agreements, contracts and commitments
identified on Schedule 2.8 are with independent third parties which are
------------
unrelated to or unaffiliated with Sellers or their respective directors,
officers or stockholders and have been negotiated in good faith and at arms-
length.
2.9 Restrictive Documents. Neither Seller is subject to, or a party to, any
----------------------
charter, by-law, mortgage, lien, lease, license, permit, agreement, contract,
instrument, law, rule, ordinance, regulation, order, judgment or decree, or any
other restriction of any kind or character, that (a) materially and adversely
affects, or that might reasonably be expected to materially and adversely
affect, the business, operations, condition or prospects of such Seller or any
of its assets or properties, or (b) that would prevent consummation of the
transactions contemplated by this Agreement, or the continued operation of the
Sellers' Businesses after the date hereof or the Closing Date on substantially
the same basis as previously operated, or (c) would restrict the ability of such
Seller to acquire any property or conduct business in any area.
2.10 Litigation. Except as set forth on Schedule 2.10, there is no action,
---------- -------------
suit, arbitration, investigation or any other proceeding, at law or in equity,
pending or, to Sellers' knowledge, threatened, against or affecting either
Seller or any of its properties or rights, including the Acquired Assets, that
could materially and adversely affect the right or ability of such Seller to
carry on its business as now conducted, or which could materially and adversely
affect the condition, whether financial or otherwise, or properties of such
Seller, and neither Seller knows of any valid basis for any such proceeding.
Except as set forth and described in Schedule 2.10, there is no judgment, order,
-------------
writ, injunction, decree (specifically including, but not limited to, a consent
decree) or other similar command of any court or federal, state, local or
foreign municipal or other governmental department, commission, board, bureau,
agency or instrumentality that relates to either Seller or its properties
presently in effect, entered against or served upon such Seller.
2.11 Taxes. Except as set forth on Schedule 2.11, each Seller has filed or
----- -------------
caused to be filed, within the times and within the manner prescribed by law,
all federal, state, local and foreign tax returns and tax reports which are
required to be filed by, or with respect to, such Seller. Such returns and
reports reflect accurately all liability for taxes of such Seller for the
periods covered thereby. All federal, state, local and foreign income, profits,
franchise, sales, use, occupancy, excise, customs, withholding and other taxes
and assessments (including interest and penalties) payable by, or due from, each
Seller have been fully paid or adequately disclosed and fully provided for in
the books and financial statements of such Seller. No examination of any tax
return of either Seller or other tax audit is currently in progress or to
Sellers' knowledge is planned. There are no outstanding agreements or waivers
extending the statutory period of limitation applicable to any tax return of
either Seller. To Sellers' knowledge, none of the stockholders of either Seller
has any tax liability that could result in any Lien being imposed on the
Acquired Assets.
2.12 Intellectual Properties. Except as set forth on Schedule 2.12, each
------------------------ -------------
Seller owns all right, title and interest in the Intellectual Property (as
defined below) owned or used by such Seller in its business including, without
limitation, exclusive rights to use and license the same. Each item of
Intellectual Property has been duly registered with, filed in, or issued by the
appropriate domestic or foreign governmental agency, to the extent required, and
each such registration, filing and issuance remains in full force and effect. No
claim adverse to the interests of either Seller in the Intellectual Property has
been made in litigation or otherwise, and no such claim has been asserted or, to
Sellers' knowledge, threatened, no basis exists for any such claim, and no
person or entity has infringed or otherwise violated either Seller's right in
any of the Intellectual Property. No litigation is pending wherein either Seller
is accused of infringing or otherwise violating the Intellectual Property right
of another, or of breaching a contract conveying rights under Intellectual
Property, and no such claim has been asserted or threatened against either
Seller, nor are there any facts that would give rise to such a claim. For
purposes of this Section 2.12, "Intellectual Property" means domestic and
foreign patents, patent applications, registered and unregistered trade marks,
trade names and service marks and applications, registered and unregistered
copyrights and applications, computer programs, data bases, trade secrets and
other proprietary information, and includes, without limitation, the names
"Harrison-Wright Company, Incorporated" and "Utility Precast, Inc." and all
variations thereof.
2.13 Sufficiency and Condition of Acquired Assets. The Acquired Assets
--------------------------------------------
include all of the properties, assets, rights and interests of each Seller
material to the conduct and operations of the Sellers' Businesses, and include
all properties, assets, rights and interests necessary for the continued
operation by Buyers of the Sellers' Businesses in the ordinary course and in the
manner they were operated prior to the date of this Agreement. All tangible
personal property other than inventories included in the Personal Property is in
good operating condition and repair, ordinary wear and tear excepted.
2.14 Compliance with Applicable Laws. Except as set forth in Schedule 2.14,
------------------------------- -------------
there is no existing violation of or nonconformity with, and neither Seller
has been charged with, received any notice of or, to Sellers' knowledge, are
under investigation with respect to, any alleged material violation of or
nonconformity with any federal, state, local or foreign law, ordinance, code,
statute, regulation, notice, decree, order, ruling, rule or authority ("Laws"),
relating to, or any restriction, condition, covenant, commitment, contract or
agreement ("Restriction") concerning, the Sellers' Businesses or any of the
Acquired Assets, and there are no waivers or exemptions relating to any Acquired
Assets to be acquired by Buyers with respect to any Laws or Restrictions.
2.15 Options. Except as set forth on Schedule 2.15, neither Seller has
------- -------------
made any other agreement for the sale or other disposition of, or given any
other person or entity any present or future option to purchase or otherwise
acquire, all or any of the Acquired Assets or the capital stock of either
Seller.
2.16 Accounts Receivable and Payable. The amount of all accounts receivable,
-------------------------------
unbilled invoices and other debts due or recorded in the records and books of
account of each Seller as being due to such Seller at the Closing Date (less the
amount of any provision or reserve therefor made in the respective records and
books of account of such Seller) will be good and collectible in full in the
ordinary course of business and in any event not later than 180 days after the
Closing Date (except for retainages and employee travel advances identified on
the Closing Date Balance Sheet as to which no such time limit shall apply); and
none of such accounts receivable or other debts is, or at the Closing Date will
be, subject to any counterclaim or set-off except to the extent of any such
provision or reserve. There has been no material adverse change since the
Balance Sheet Date in the amount of accounts receivable or other debts due
either Seller or the allowances with respect thereto, or in the amount of
accounts payable or other debt of either Seller, from that reflected in the
Balance Sheet.
2.17 Employment Relations. (a) Each Seller is in compliance with all federal,
---------------------
state or other applicable Laws, domestic or foreign, respecting employment and
employment practices, terms and conditions of employment and wages and hours,
including Laws respecting discrimination in employment, and has not and is not
engaged in any unfair labor practice and no unfair labor practice complaint
against either Seller is pending before the National Labor Relations Board or
similar governmental authority; (b) there is no labor strike, dispute, slowdown
or stoppage or union organizing activity actually pending or, to Sellers'
knowledge, threatened against or involving either Seller; (c) no grievance that
might have an adverse effect upon either Seller or the conduct of its business
exists, no arbitration proceeding arising out of or under any collective
bargaining agreement is pending and no claim therefor has been asserted; (d) no
collective bargaining agreement covering any of the employees of either Seller
exists or is currently being negotiated by either Seller and (e) neither Seller
has experienced any material labor difficulty during the last five years.
Neither Seller has ever been a party to any collective bargaining agreement or
other labor contract and there has never been any application for certification
of a collective bargaining unit in respect of any of the employees of either of
the Sellers.
2.18 Employee Benefit Plans.
----------------------
(a) Set forth on Schedule 2.18 is an accurate and complete list of all
-------------
employee benefit plans, programs, policies or arrangements ("Employee Benefit
Plans") (i) within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended, and the rules and regulations thereunder
("ERISA"), whether or not any such Employee Benefit Plans are otherwise exempt
from the provisions of ERISA, established, maintained or contributed to (or with
respect to which an obligation to contribute has been undertaken) by either
Seller (including, for this purpose and for the purpose of all of the
representations in this Section 2.18, all employers (whether or not
incorporated) that by reason of common control are treated together with either
Seller as a single employer within the meaning of Section 414 of the Internal
Revenue Code of 1986, as amended, and the rules and regulations thereunder (the
"Code")) since September 2, 1974 and (ii) any other Employee Benefit Plans
established, maintained or contributed to by either Seller; included in the
definition of Employee Benefit Plans are, without limitation, the Deferred
Compensation Plan and the post-retirement medical benefit arrangement (the
"Retiree Medical Coverage"). Schedules 4.6(e), (f) and (h) contain complete and
---------------- --- ---
correct copies of all documents constituting the Employee Benefit Plans
described therein and neither Seller has made any representations or entered
into any written or verbal agreements or understandings with respect to such
plans except as expressly set forth therein. Except as set forth on Schedule
--------
2.18(a), each Employee Benefit Plan expressly reserves the right to Sellers to
- -------
amend or terminate such plan and there is no provision in any Employee Benefit
Plan or in any other related agreement that would preclude Sellers or any
successors thereto from amending or terminating such plans.
(b) Except as set forth on Schedule 2.18(b), each of the Employee
----------------
Benefit Plans has been operated and administered and complies in all material
respects to the Code and ERISA. Neither Seller maintains or contributes to, nor
has either Seller maintained or contributed to (i) during the immediately
preceding seven years any "employee pension benefit plan" within the meaning of
Section 3(2) of ERISA that is subject to the minimum funding standards of
Section 412 of the Code or the provisions of Title IV of ERISA or any "multi-
employer plan" within the meaning of Section 3(37) of ERISA or (ii) at any time
any "employee pension benefit plan" or "multi-employer plan" for or under which
there is any current, continuing or future liability. No Employee Benefit Plan
has incurred an accumulated funding deficiency within the meaning of Section 412
of the Code, or has applied for or obtained a waiver from the Internal Revenue
Service of any minimum funding requirement under the Code. Neither Seller has
incurred any liability to the Pension Benefit Guaranty Corporation ("PBGC") in
connection with any Employee Benefit Plan covering any employees or former
employees of either Seller, or ceased operations at any facility or withdrawn
from any such plan in a manner that could subject it to liability under ERISA,
and knows of no facts or circumstances that might give rise to any liability of
Seller or any of its subsidiaries to the PBGC under ERISA that could reasonably
be anticipated to result in any claims being made against Buyers by the PBGC.
Neither Seller has incurred any withdrawal liability (including any contingent
or secondary withdrawal liability) within the meaning of ERISA, to any Employee
Benefit Plan that is a "multi-employer plan" (as such term is defined in Section
3(37) of ERISA).
(c) Each Employee Benefit Plan that is a "Group Health Plan" (as such
term is defined in the Code) has been administered and operated in all respects
in substantial compliance with the coverage continuation provisions of Section
4980B of the Code and Section 601 et seq. of ERISA ("COBRA") and neither Seller
is subject to any material liability or claims, including, but not limited to,
additional contributions, fines, penalties or loss of tax deduction, as a result
of such administration and operation. Except for the Retiree Medical Coverage,
neither Seller maintains or has maintained or contributed to any Employee
Benefit Plan (whether qualified or nonqualified within the meaning of Section
401(a) of the Code) providing for retiree health and/or life benefits and having
unfunded liabilities and no promise has been made nor any liability incurred by
the Company for post-retirement benefits except as specifically so indicated on
Schedules 2.18 and 4.6(f). Neither Seller maintains any Employee Benefit Plan
- -------------------------
which is an "employee welfare benefit plan" (as such term is defined in ERISA)
that has provided any benefit that is a "disqualified benefit" (as such term is
defined in the Code) for which an excise tax would be imposed.
(d) Full payment has been made of all amounts that either Seller is
required, under applicable law or under any Employee Benefit Plan or any
agreement relating to any Employee Benefit Plan to which either Seller is a
party, to have paid as contributions thereto as of the last day of the most
recent fiscal year of such Employee Benefit Plan ended prior to the date hereof.
Each Seller has made adequate provision for reserves to meet contributions that
have not been made because they are not yet due under the terms of any Employee
Benefit Plan or related agreements. Benefits under all Employee Benefit Plans
are as represented and have not been increased subsequent to the date as of
which documents have been provided.
(e) Status of any Nonqualified Employee Benefit Plans. Sellers have
-------------------------------------------------
furnished to Buyers complete financial information regarding the present and
future liabilities of any and all deferred compensation, salary continuation,
split-dollar or other Employee Benefit Plans which are not qualified under
Section 401 of the Code. Sellers have furnished to Buyers copies of any and all
insurance policies or other assets held by Sellers, directly or indirectly, in
connection with such nonqualified plans (including any policies or assets which
are not formally designated as being held in connection with such plans, but
were purchased to provide informally assets to be used in the future in
connection with such plans).
(f) Except as set forth on Schedule 2.18(f), each Employee Benefit
---------------------------------------
Plan intended to be qualified under Section 401(a) of the Code has been
determined to be so qualified by the Internal Revenue Service and nothing has
occurred since the date of each last such determination which resulted or is
likely to result in the revocation of such determination. Each Seller has
adopted on a timely basis all amendments to Employee Benefit Plans which are
required by the Tax Reform Act of 1986 and if necessary, has complied with the
requirements for obtaining "anti-cutback" relief provided under Internal Revenue
Service Notice 88-131 (or any subsequent Internal Revenue Service Notices with
respect thereto) with respect to such Employee Benefit Plans.
(g) No "reportable event" (as such term is defined in ERISA) for which
the 30-day notice requirement has not been waived by the PBGC has occurred with
respect to any Employee Benefit Plan and neither Seller nor any of their
respective directors, officers or employees to the extent they or any of them
are fiduciaries with respect to any such Plan has engaged in any transaction
with respect to any Employee Benefit Plan or breached any of their
responsibilities or obligations imposed upon fiduciaries under Title I of ERISA
which would subject it to a material tax, penalty or liability for prohibited
transactions under ERISA or the Code or would result in any claim being made
under or by or on behalf of any such Plan by any party with standing to make
such claim.
(h) Except as set forth in Schedule 2.18(h), the execution of and
----------------
consummation of the transactions contemplated by this Agreement do not
constitute a triggering event under any Employee Benefit Plan, policy,
arrangement, statement, commitment or agreement, whether or not legally
enforceable, which (either alone or upon the occurrence of any additional or
subsequent event) will or may result in any payment (whether of severance pay or
otherwise), acceleration, vesting or increase in benefits to any employee or
former employee or director of either Seller or any of their respective
subsidiaries.
2.19 Environmental Laws and Regulations. Except as set forth on Schedule
---------------------------------- --------
2.19, (a) neither Seller has at any time generated, used, treated or stored
- ----
Hazardous Materials on, or transported Hazardous Materials to or from, any
Seller Property or any property adjoining or adjacent to any Seller Property
and, to Sellers' knowledge, no party other than Sellers has taken any such
actions on any Seller Property, (b) neither Seller has at any time released or
disposed of Hazardous Materials on any Seller Property or any property adjoining
or adjacent to any Seller Property, and, to Sellers' knowledge, no party other
than Sellers has taken any such actions on any Seller Property, (c) neither
Seller has transported or arranged for the transportation of any Hazardous
Materials to any site other than any Seller Property, (d) each Seller is in
compliance in all material respects with all Environmental Laws and the
requirements of any permits issued under such Environmental Laws with respect to
any Seller Property, (e) there are no past, pending or, to Sellers' knowledge,
threatened Environmental Claims against either Seller or any Seller Property,
(f) there are no facts or circumstances, conditions or occurrences regarding any
Seller Property that could reasonably be anticipated (A) to form the basis of an
Environmental Claim against either Seller or any Seller Property or (B) to cause
such Seller Property to be subject to any restrictions on its ownership,
occupancy, use or transferability under any Environmental Law, and (g) there are
not now and, to Sellers' knowledge, never have been any underground storage
tanks located on any Seller Property.
For purposes of this Agreement, the following terms shall have the following
meanings: (A) "Seller Property" means any real property and improvements owned,
leased, used, operated or occupied by either Seller; (B) "Hazardous Materials"
means (i) any petroleum or petroleum products or by-products, radioactive
materials, asbestos in any form that is or could become friable, urea
formaldehyde foam insulation, transformers or other equipment that contain
dielectric fluid containing levels of polychlorinated biphenyl, and radon gas;
(ii) any chemicals, materials or substances defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous wastes," "restricted hazardous wastes," "toxic substances,"
"toxic pollutants," "pollutant" or "contaminant" or words of similar
import, under any applicable Environmental Law; and (iii) any other chemical,
material or substance, exposure to which is prohibited, limited or regulated by
any governmental authority; (C) "Environmental Law" means any federal, state,
local or foreign statute, law, rule, regulation, ordinance, code, policy or rule
of common law in effect and in each case as amended as of the date hereof and
the Closing Date, and any judicial or administrative interpretation thereof as
of the date hereof and the Closing Date, including any judicial or
administrative order, consent decree or judgment, relating to the environment,
health, safety or Hazardous Materials, including without limitation the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended; the Resource Conservation and Recovery Act, as amended; the Federal
Water Pollution Control Act, as amended; the Toxic Substances Control Act; the
Clean Air Act; the Safe Drinking Water Act; and any comparable state, local or
foreign Environmental Laws and the regulations implementing such acts; (D)
"Environmental Claims" means any and all administrative, regulatory or judicial
actions, suits, liabilities, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigations or proceedings relating in any way to
any Environmental Law (for purposes of this subclause (D), "Claims") or any
permit issued under any such Environmental Law, including without limitation (i)
any and all Claims by governmental or regulatory authorities for enforcement,
cleanup, removal, response, remedial or other actions or damages pursuant to any
applicable Environmental Law and (ii) any and all Claims by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Materials or arising from alleged
injury or threat of injury to health, safety or the environment; and (E)
"Release" means disposing, discharging, injecting, spilling, leaking, leaching,
dumping, emitting, escaping, emptying, seeping, placing and the like, into or
upon any land or water or air, or otherwise entering into the environment.
2.20 Interests in Clients, Suppliers, Etc. Except as set forth on
-------------------------------------
Schedule 2.20, no stockholder or any officer or director of either Seller
- -------------
possesses, directly or indirectly, any financial interest in, or is a director,
officer or employee of, any person or entity that is a client, supplier,
customer, lessor, lessee, or competitor or potential competitor of either
Seller.
2.21 Insurance. Schedule 2.21 is an accurate and complete list of all
--------- -------------
insurance policies that either Seller maintains with respect to their respective
businesses, properties, employees or stockholders, including all life insurance
policies on the lives of employees, stockholders or others of which either
Seller is the owner or the beneficiary. Schedule 2.21 also contains a list of
-------------
all areas pertaining to the Sellers' Businesses with respect to which either
Seller is self-insured and all unresolved outstanding claims relating thereto.
Schedule 2.21 also sets forth a list of all claims made with respect to the
- -------------
Sellers' insurance policies in excess of $1,000 (with respect to either Seller's
group medical plan, only claims in excess of $10,000 per claimant per year need
be disclosed) in the three year period prior to the date hereof and all claims
with respect to matters for which either Seller is self-insured (including
workers compensation) which were made by or submitted to either Seller in the
three year period prior to the date hereof. Schedule 2.21 also lists all
-------------
outstanding claims submitted with respect to either Sellers' insurance policies
regardless of when such claims were originally submitted. The insurance
policies set forth on Schedule 2.21 are (a) in full force and effect, (b) are
-------------
free from any right of termination on the part of the insurance carriers, and
(c) with respect to their amounts and types of coverage, are adequate to insure
fully against risks to which each Seller and its property and assets are
normally exposed in the operation of its businesses. Except as set forth on
Schedule 2.21, all premiums owed on all prior and current insurance policies of
- -------------
either or both Sellers have been paid and no prior or current insurance policy
contains provisions providing for any form of retroactive premium adjustment or
similar assessment which might occur after the Closing Date.
2.22 Licenses and Permits. Schedule 2.22 identifies all permits, licenses,
-------------------- -------------
franchises and other authorizations required of either Seller with respect
to the operation of Sellers' Businesses and such schedules identify which such
items are transferrable to Buyers. Each Seller has obtained and maintains all
licenses, permits and other authorizations required to be obtained or maintained
to operate its business and own its properties. Neither Seller is in violation
of or default under any such license, permit or authorization, and to the
knowledge of Sellers, there is no proceeding pending or threatened to revoke or
terminate any such license, permit or authorization.
2.23 Bank Accounts; Powers of Attorney. Set forth on Schedule 2.23 is an
--------------------------------- -------------
accurate and complete list showing (a) the name and address of each bank in
which each Seller has an account or safe deposit box, the number of any such
account or any such box and the names of all persons authorized to draw thereon
or to have access thereto, and (b) the names of all persons, if any, holding
powers of attorney from either Seller and a summary statement of the terms
thereof.
2.24 Disclosure. None of this Agreement, the Financial Statements, any
-----------
Schedule, Exhibit or certificate attached hereto or delivered
pursuant to this Agreement or any document or statement in writing which has
been supplied by or on behalf of either Seller in connection with the
transactions contemplated by this Agreement contains any untrue statement of a
material fact, or omits any statement of a material fact necessary in order to
make the statements contained herein or therein not misleading. There is no
fact known to either Seller which materially and adversely affects the business,
operations, condition (financial or otherwise) or prospects of either Seller or
its properties or assets, which has not been set forth in this Agreement, the
Financial Statements, or any Schedule, Exhibit or certificate attached to this
Agreement.
2.25 Broker's or Finder's Fees. No agent, broker, person or firm acting on
--------------------------
behalf of either Seller is, or will be, entitled to any commission or broker's
or finder's fees from any of the parties hereto, in connection with any of the
transactions contemplated by this Agreement.
2.26 Inventories. Sellers have maintained inventories in the ordinary
-----------
course of business sufficient to conduct their respective businesses consistent
with past practices. The inventories of each Seller do not include any items of
a quality or a quantity not useable in the normal course of business of each
respective Seller as currently conducted or, if such item exists in either
Seller's inventories as of the date hereof, such items are not included within
the value of the inventories set forth on the Financial Statements nor will they
appear in the Closing Balance Sheets.
2.27 Investment Representations. Each Seller has sufficient knowledge
--------------------------
and experience in financial and business matters to evaluate the merits and
risks of an investment in the Purchase Price Shares.
2.28 Capital Structure; Stockholders. The authorized capital of H-W consists
-------------------------------
of 500,000 shares of common stock, par value of $1.00 per share, of which
118,480 shares are issued and outstanding and 30,000 shares of preferred
stock, par value of $50.00 per share, of which 14,375 shares are issued and
outstanding. The authorized capital of UPI consists of 10,000 shares of common
stock, par value of $10.00 per share, of which 100 shares are issued and
outstanding. The record and beneficial owners of the issued and outstanding
stock of each of H-W and UPI and the number of shares owned of record or
beneficially by each such person as of the record date for the special
stockholders meeting (or, in the case of UPI, the record date for the written
consent) at which the stockholders of H-W and UPI were asked to approve the
transactions contemplated by this Agreement are set forth on Schedule 2.28.
----
2.29 Sellers' Special Stockholders Meetings; Related Matters. Each
-------------------------------------------------------
Seller has conducted a special stockholders meeting (or, in the case of UPI,
solicited the written consent of its sole stockholder) at which its stockholders
approved the transactions contemplated by this Agreement. H-W delivered a
notice of special stockholders meeting pursuant to which its stockholders
approved the transactions contemplated by this Agreement, including a notice of
dissenters' rights under the North Carolina Business Corporation Act, a copy of
this Agreement in its then-current form (as of November 5, 1996) and related
materials providing information regarding the terms of the transactions
contemplated by this Agreement and the special stockholders meeting. Each
Seller gave its stockholders an opportunity to ask questions regarding the
transactions contemplated by this Agreement. Each Seller has given its
stockholders an opportunity to obtain financial statements of Sellers and any
other information that may be relevant to an evaluation of the transactions
contemplated by this Agreement.
ARTICLE 3
----------
REPRESENTATIONS AND WARRANTIES OF BUYERS
----------------------------------------
Buyers, jointly and severally, represent and warrant to Sellers as follows:
3.1 Organization, Qualification and Authority. Buyers and MasTec are
-----------------------------------------
each corporations duly organized, validly existing and in good standing under
the laws of the State of Delaware, and have the corporate power and authority to
own their respective properties and to carry on their respective businesses as
they are now being conducted. Each Buyer is an indirect wholly owned subsidiary
of MasTec. Buyers have the corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery by Buyers of this Agreement and the consummation by
Buyers of the transactions contemplated herein have been duly authorized by the
respective Board of Directors of each Buyer. No other corporate action on the
part of Buyers or action of any kind by any other person or entity is necessary
to authorize the execution and delivery of this Agreement by Buyers or the
consummation by Buyers of the transactions contemplated herein. This Agreement
has been duly executed and delivered by Buyers and is a valid, binding and
enforceable agreement of Buyers. The guaranty in the form of Exhibit 3.1 (the
-----------
"Guaranty") has been duly executed and delivered by MasTec, the execution and
delivery of which have been duly authorized by the Board of Directors of MasTec,
and is a valid, binding and enforceable agreement of MasTec.
3.2 Absence of Conflict. The execution and delivery of this Agreement
-------------------
and the performance and compliance with its terms by Buyers, and the performance
of and compliance with the Guaranty by MasTec, do not and will not conflict
with, or result in breach of, any of the terms, conditions or provisions of, or
constitute or with the passing of time or the giving of notice, or both, will
constitute a default under, or result in the creation of any liens, charges,
mortgages, pledges, rights, claims, restrictions, options or other encumbrances
or limitations of any kind upon any assets of Buyers or MasTec pursuant to
either Buyers' or MasTec's respective Bylaws or Certificates of Incorporation or
any agreement, trust, indenture, mortgage, pledge, assignment or any other
instrument or any law, rule, regulation, judgment, order or decree to which any
Buyer or MasTec or their respective assets may be a party or may be bound.
3.3 Consents. No consent, approval or authorization of any federal,
--------
state or local governmental authority or third party which has not been obtained
is required in connection with the execution, delivery or performance by Buyers
of this Agreement or by MasTec of the Guaranty or any agreement, instrument or
document contemplated hereby or the consummation by Buyers and MasTec of the
transactions contemplated hereby.
3.4 Disclosure. No representation or warranty of Buyers under this
----------
Agreement or any Schedule, Exhibit or certificate attached hereto or delivered
by Buyers pursuant to this Agreement or any document or statement in writing
which has been supplied by or on behalf of Buyers in connection with the
transactions contemplated by this Agreement contains any untrue statement of a
material fact, or omits any statement of a material fact necessary in order to
make the statements contained herein or therein not misleading. There is no
fact known to Buyers or MasTec which materially hinders or impairs the
consummation of the transactions contemplated hereby.
3.5 MasTec Common Stock. The MasTec Common Stock, when issued to
-------------------
Sellers, will be (a) duly and validly issued, fully paid and nonassessable, (b)
registered under the Securities Act of 1933 pursuant to an effective
registration statement thereunder, (c) eligible for immediate resale by Sellers
in accordance with Rule 145(d) under the Securities Act of 1933, and (d) listed
on the NASDAQ National Market. At the Closing Date and thereafter throughout
the Liquidation Period, there shall be available adequate current public
information with respect to MasTec in accordance with Rule 144(c) under the
Securities Act of 1933.
The Prospectus and the Prospectus Supplement, when sent to the stockholders of
Sellers, and as of the date of the vote of such stockholders on the transactions
contemplated by this Agreement, will not contain an untrue statement of a
material fact required to be stated therein or omit to state a material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
ARTICLE 4
---------
CONDUCT OF BUSINESS; EXCLUSIVE DEALING; ACCESS TO INFORMATION
-------------------------------------------------------------
4.1 Conduct of Business of Sellers. Prior to the Closing Date, each
------------------------------
Seller shall (a) conduct its operations only according to its ordinary and usual
course of business and in accordance with all Laws and Restrictions, (b) use its
best efforts to preserve intact its business organization, keep available the
services of its officers and employees and maintain satisfactory relationships
with licensors, suppliers, distributors, clients and others having business
relationships with it, (c) not take, agree to take or knowingly permit any
action that could cause any of the representations or warranties of either
Seller to be untrue or incorrect in any material respect, or that could cause a
violation in any material respect of any covenant, term or condition to be
complied with, fulfilled or performed by either Seller under this Agreement, (d)
use their best efforts to take all actions necessary or appropriate to
consummate the transactions contemplated by this Agreement; (e) confer on a
regular and frequent basis with one or more designated representatives of Buyers
to report material operational matters and to report the general status of
ongoing operations; (f) notify Buyers of any unexpected emergency or other
change in the normal course of its business or in the operation of its
properties, and of any governmental or third party complaints, demands,
investigations, hearings or other adjudicatory proceedings (or communications
indicating that the same may be contemplated) involving Sellers' Businesses or
the Acquired Assets, keep Buyers fully informed of such events and permit
Buyers' representatives prompt access to all materials prepared in connection
therewith; (g) make any change in the organizational documents of either Seller
adversely affecting Buyers' or Seller's rights, power, authority or ability to
consummate the transactions contemplated by this Agreement; (h) assume any
additional indebtedness for borrowed money that Buyers will be expected to
assume under this Agreement; or (i) subject or knowingly permit any of the
Acquired Assets to be subjected to any Liens not disclosed in this Agreement.
4.2 Exclusive Dealing. From the date of this Agreement until the earlier to
-----------------
occur of the Closing or December 31, 1996, each Seller shall refrain from taking
any action to, directly or indirectly, encourage, initiate or engage in
discussions or negotiations with, or provide any information to, any person,
other than Buyers, concerning any purchase of the Acquired Assets, or any
capital stock of either Seller, or any merger, sale of substantial assets or
similar transaction involving either Seller.
4.3 Access to Information About Sellers. Buyers may, from and after the date
-----------------------------------
of this Agreement to the Closing Date, directly or through their
representatives, review the properties, books and records of either Seller and
their respective financial and legal condition, including without limitation all
of the Acquired Assets and the Assumed Liabilities, to the extent they deem
necessary or advisable to familiarize themselves with such properties and other
matters; such review shall not, however, affect the representations and
warranties made by Sellers in this Agreement or the remedies of Buyers for
breaches of those representations and warranties. Sellers shall permit Buyers
and their representatives to have, from the date of this Agreement to the
Closing Date, full access to the premises, including without limitation the Real
Property and the Improvements, and to all the books and records of each Seller
and to cause the officers, accountants, architects, attorneys, engineers,
employees, agents and other representatives of each Seller to furnish Buyers
with such financial and operating data and other information with respect to the
business and properties of Sellers as Buyers shall from time to time reasonably
request. Sellers shall deliver or cause to be delivered to Buyers such
additional instruments, documents, certificates and opinions as Buyers may
reasonably request for the purpose of (a) verifying the information set forth in
this Agreement and on any Exhibit or Schedule attached hereto and (b)
consummating or evidencing the transactions contemplated by this Agreement.
Buyers agree to keep all such information received from either Seller or their
respective representatives confidential and not to disclose such information to
any other person or entity other than Buyers' advisors and other representatives
with a need to know, other than information which is in the public domain or
which is otherwise known generally through no act or omission of Buyers to its
representatives.
4.4 Violations. Each Seller shall promptly inform Buyers in writing
----------
upon either Seller's receipt of notice or knowledge of any existing or alleged
(i) violation of or nonconformity with any Law or Restriction relating to,
affecting or concerning either Seller, the Sellers' Businesses or any of the
Acquired Assets, or (ii) material breach or the untruth of any of either
Seller's representations or warranties or of any covenant, term or condition to
be complied with by either Seller hereunder.
4.5 Consents. Each Seller shall cooperate with Buyers to attempt to
--------
obtain the consent of BellSouth to H-W's assignment of the BellSouth Contracts
to Buyers.
4.6 Employment and Employee Benefit Plans Matters.
---------------------------------------------
(a) Except as expressly set forth in this Section 4.6, Buyers are not
obligated to assume or continue any Employee Benefit Plan or other benefit plan
established by either Seller with or for the benefit of any employee or former
employee of either Seller. Any trust fund established and any other liability
(including any termination benefits or other entitlements arising at any time)
with respect to any such plan will remain the responsibility of Sellers.
(b) Sellers acknowledge that the transactions provided for herein may
result in obligations on the part of Sellers and one or more of its Employee
Benefit Plans that is a welfare benefit plan (within the meaning of ERISA
Section 3(1)) to comply with the health care continuation requirements of Part 6
of Title I of ERISA and Code (S)4980B, as applicable. Sellers and each of their
respective Employee Benefit Plans that is such a welfare plan will comply with
the requirements of those laws. Buyers agree to assume all responsibility for
administration of "COBRA" health care continuation under ERISA (S)(S)601 through
608 and Code (S)4980B for employees, former employees and any other COBRA
qualified beneficiaries under Sellers' medical plans who have elected COBRA
continuation coverage as of the Closing Date, who have incurred a COBRA
qualifying event such that they could elect COBRA continuation coverage as of
the Closing Date, or who incur a COBRA qualifying event by virtue of not being
hired by Buyers on or after the Closing Date. Sellers hereby represent and
warrant to Buyers that Schedule 4.6(b) contains a list of all employees, former
---------------
employees and any other COBRA qualified beneficiaries under Sellers' medical
plans who are current beneficiaries of COBRA continuation coverage or who have
incurred a COBRA qualifying event such that they could elect COBRA continuation
coverage as of the Closing Date and also that Stewart Odham has been provided
the opportunity to elect COBRA continuation coverage prior to the Closing Date.
(c) Sellers acknowledge that Buyers are making no commitment to hire
any employee of Sellers.
(d) Buyers shall have no responsibility under this Agreement with
respect to, and Sellers will pay in full, all wages, salaries, bonuses, sick
pay, severance pay and other direct or indirect compensation earned by all
employees of the Sellers' Businesses through the Closing Date (whether or not
payable by such date) except to the extent such amounts constitute Assumed
Liabilities or are covered by Buyers' indemnification of Sellers hereunder.
Buyers shall grant credit to, but not be obligated to pay, Sellers' employees
for any accrued vacation time.
(e) Sellers sponsor a tax-qualified defined contribution plan that
permits pre-tax employee contributions under Code (S)401(k) and discretionary
employer profit-sharing contributions, a copy of which is attached as Schedule
--------
4.6(e) (the "401(k) Plan"). Sellers shall cause the 401(k) Plan to be
- ------
terminated effective as of the Closing Date, and in that regard the 401(k) Plan
shall be amended to fully vest the accounts of all participants in the 401(k)
Plan and to provide for the payment of all such accounts. Any active employee
of Sellers who accepts employment with Buyers and who has an account in the
401(k) Plan shall be given the opportunity to roll over the eligible portion of
the active employee's account under the 401(k) Plan to a tax-qualified defined
contribution plan in which Buyers are participating employers if the active
employee is an employee of Buyers as of the date of such rollover.
(f) Sellers sponsor a group health plan ("Group Health Plan") for
their eligible current and former employees, a copy of which is attached as
Schedule 4.6(f), which in part provides Retiree Medical Coverage (post-
- ---------------
retirement medical benefits) to eligible former employees. Buyers agree to
establish or make available as of the Closing Date to any eligible employee (and
his or her eligible spouse and dependants) of Seller who becomes employed by
Buyers on or immediately following the Closing Date a group plan providing
benefits (excluding all post-retirement benefits) that are substantially similar
to the benefits provided by Sellers under their Group Health Plan immediately
prior to the Closing Date as described in the Schedule of Benefits dated
November 1995 for the Harrison-Wright Company, Inc. Group Insurance Plan, First
Allmerica Financial Life Insurance Company Group Policy Number GP-25992 (a copy
of the Schedule of Benefits is attached as a part of Schedule 4.6(f)). Buyers
---------------
shall extend such coverage to such former employees of Seller without any
waiting periods and without application of any pre-existing condition
limitations, except to the extent applicable under the Group Health Plan
sponsored by Sellers immediately prior to the Closing Date, and Buyers shall
count claims arising prior to the Closing Date for purposes of deductibles, out-
of-pocket maximums, benefit maximums, and all other similar limitations for the
plan year to the same extent as applicable under Sellers' Group Health Plan as
in effect immediately prior to the Closing Date. Buyers may modify or terminate
any such employee benefit plan at any time after the Closing Date in its
discretion. Buyers' right to modify such plan shall include, but is not limited
to, the right to modify the eligibility requirements to participate in the plan
and the right to increase required premiums to be paid by employees under the
plan.
(g) Sellers agree to formally amend their Group Health Plan prior to
the Closing Date to eliminate Retiree Medical Coverage as of the Closing Date
except with respect to former employees (and their eligible spouses) of H-W who
are receiving such coverage under Sellers' Group Health Plan as of the Closing
Date and active employees (and their eligible spouses) of Seller who are
eligible to receive such coverage under Sellers' Group Health Plan if they were
to retire on the Closing Date. Sellers represent and warrant to Buyer that
there is currently only one person receiving Retiree Medical Coverage under
Sellers' Group Health Plan as of the Closing Date, namely Julia Hathcock.
Sellers also represent and warrant that there are only three active employees of
Seller who are eligible to begin receiving post-retirement medical coverage
under the Retiree Medical Coverage component of Seller's Group Health Plan if
they were to retire as of the Closing Date, namely Howard Coleman, Samuel Pope
and Kermit Marshall. The individuals named in the preceding two sentences (and
their eligible spouses, if any) shall be collectively referred to herein as
"Eligible Retirees." Buyers agree to offer to Julia Hathcock on or immediately
following the Closing Date, and to the remaining Eligible Retirees at the time
of retirement from employment with Buyers, the opportunity to elect post-
retirement medical coverage (but no other type of coverage) similar to the
medical coverage described in the Schedule of Benefits dated November 1995 for
the Harrison-Wright Company, Inc. Group Insurance Plan, First Allmerica
Financial Life Insurance Company Group Policy Number GP-25992, which medical
coverage shall be conditioned upon the payment by the Eligible Retiree of 100%
of the required premiums and which medical coverage shall be subject to a
maximum annual benefit of $10,000 each year with a $50,000 lifetime maximum
benefit (as was imposed under Sellers' Group Health Plan). Buyers shall offer
such post-retirement medical coverage to the Eligible Retirees without any
waiting periods and without application of any pre-existing
condition limitations, except to the extent applicable under the Group Health
Plan sponsored by Sellers immediately prior to the Closing Date, and Buyers
shall count claims arising prior to the Closing Date for purposes of
deductibles, out-of-pocket maximums, benefit maximums, and all other similar
limitations for the plan year to the same extent as applicable under Sellers'
Group Health Plan as in effect immediately prior to the Closing Date. For an
Eligible Retiree who timely elects to receive post-retirement medical coverage,
such coverage shall terminate on the earlier of (i) the date the Eligible
Retiree becomes eligible for either Part A or Part B of Medicare or (ii) the
date the Eligible Retiree who was an employee of Sellers attains age sixty-five.
Except as otherwise specified herein with respect to post-retirement medical
benefits, Buyers shall have no other obligations to provide any other current or
future benefits to the Eligible Retirees.
(h) H-W has commitments under the H-W Amended Deferred Compensation
Agreement dated July 16, 1979, as amended by an agreement dated December 13,
1985 and an agreement dated October 1, 1991, copies of which are attached as
Schedule 4.6(h) (the "Deferred Compensation Plan"). H-W and the participants in
- ---------------
the Deferred Compensation Plan have agreed to terminate the Deferred
Compensation Plan effective as of the Closing Date pursuant to an agreement
dated August 16, 1996 as amended by an agreement dated October 29, 1996
(collectively, the "Termination Agreement"), which agreements are also attached
to Schedule 4.6(h). In accordance with the Termination Agreement, H-W shall pay
---------------
each Deferred Compensation Plan participant a single cash payment in full
satisfaction of the participant's benefits under the Deferred Compensation Plan.
The aggregate amount of H-W's liability under the Termination Agreement and the
Deferred Compensation Plan (consisting of such single cash payments and H-W's
liability for the related payroll taxes) is $929,767.39.
4.7 Securities Act Compliance; NASDAQ Listing.
-----------------------------------------
(a) Buyers and MasTec have informed Sellers that a registration
statement on Form S-4 (No. 333-09607), including a prospectus (the "S-4"),
relating to the issuance of the shares of the MasTec Common Stock from time to
time in mergers, acquisitions and other similar transactions in accordance with
Rule 415 under the Securities Act of 1933, as amended (the "Securities Act"),
has been filed by MasTec with the Securities and Exchange Commission (the "SEC")
and has been declared effective by the SEC. Sellers hereby acknowledge that
Buyers and MasTec have furnished to the Sellers copies of the S-4, its report on
Form 10-K for the 1995 fiscal year, its reports on Form 10-Q for the first two
quarters of the 1996 fiscal year, the Form 8-K dated April 30, 1996 and MasTec
proxy materials dated April 30, 1996, filed by MasTec with the SEC during the
period from January 1, 1996 through the Closing Date.
(b) On or before the Closing Date, MasTec and Buyers shall deliver to
Sellers a prospectus supplement containing information about the transactions
contemplated by this Agreement, to the extent required by Rule 415 under the
Securities Act and instruction H of the Form S-4. MasTec shall take all other
steps that may be necessary in its reasonable judgment to comply with the
Securities Act in connection with the offer and sale of the MasTec Common Stock
to the Sellers (if such stock is delivered in lieu of immediately available
funds at the Closing), including the filing of any required post-effective
amendment to the S-4. On or before the Closing, MasTec and Buyers shall obtain
approval for listing the MasTec Common Stock on the NASDAQ National Market.
(c) Each of Sellers understands and agrees that:
(i) Neither Buyers nor MasTec is under any further obligation to
register the sale, transfer or other disposition by Sellers of the MasTec Common
Stock issued to Sellers pursuant to this Agreement or, except as provided in
paragraph (d) below or Section 3.5, to take any action necessary in order to
make an exemption from registration available.
(ii) Stop transfer instructions will be given to the transfer
agent of MasTec with respect to the MasTec Common Stock issued to Sellers
pursuant to this Agreement. There will be placed on the certificates
representing the MasTec Common Stock, or any certificates delivered in
substitution or exchange therefor, a legend stating in substance:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 UNDER THE SECURITIES ACT OF 1933 (THE
"ACT") APPLIES. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY
ONLY BE TRANSFERRED IN ACCORDANCE WITH RULE 145(D) OR AN EFFECTIVE
REGISTRATION STATEMENT OR EXEMPTION FROM REGISTRATION UNDER THE ACT."
(iii) Unless the transfer by Sellers of the MasTec Common Stock
is a sale made in conformity with the provisions of Rule 145(d), or made
pursuant to a registration statement under the Securities Act or an exemption
from registration, Buyers and MasTec reserve the right to put an appropriate
legend on the certificates issued to a transferee.
(d) Buyers agree that the stop transfer instructions and legends
referred to in paragraph (c) above shall be terminated or removed if Sellers
shall have delivered to MasTec evidence reasonably satisfactory to MasTec to the
effect that such instructions are not required for the purposes of the Act.
Following presentation of documentation reasonably satisfactory to counsel to
MasTec that the MasTec Common Stock received by Sellers have been sold in
conformity with the provisions of Rule 145(d), such counsel shall issue an
opinion authorizing the termination of the stop transfer instructions and the
removal of the legends referred to in paragraph (c) above.
4.8 Cooperation. Sellers shall provide to Buyers as promptly as
-----------
practicable such information as may be reasonably necessary to prepare the
prospectus supplement referred to in Section 4.7, or any post-effective
amendments to the S-4 that may be required under the Securities Act. Each of
the Sellers shall cooperate, and cause their counsel and accountants to
cooperate, with the Buyers in the preparation of this prospectus supplement and
any required post-effective amendments to the S-4, and otherwise in connection
with Securities Act compliance.
4.9 Closing Expenses/Taxes. Buyers shall pay all (a) 1996 real and
----------------------
personal property taxes assessed on the Acquired Assets, (b) all sales or use
taxes that may be imposed by any state, or any division or instrumentality
related to the Acquired Assets, and (c) sales or use taxes, transfer taxes, deed
stamps, recording fees and all other transfer fees or expenses of a similar
nature assessed or arising in connection with the transfer of the Acquired
Assets.
ARTICLE 5
---------
CONDITIONS TO BUYERS' OBLIGATIONS
---------------------------------
5.1 Conditions to Buyers' Obligations. The purchase of the Acquired
---------------------------------
Assets by Buyers on the Closing Date is conditioned upon satisfaction, at or
prior to the Closing, or written waiver by Buyers, of the following conditions:
(a) No Material Adverse Change. Subject to the provisions of Section
--------------------------
2.4(b), prior to the Closing Date, there shall have been no material adverse
change in the assets or liabilities, the business or condition (financial or
otherwise), the results of operations, or prospects of either Seller.
(b) Truth of Representations and Warranties. The representations and
---------------------------------------
warranties of Sellers contained in this Agreement or in any Exhibit or Schedule
attached hereto shall be true and correct on and as of the Closing Date with the
same effect as though such representations and warranties had been made on and
as of such date.
(c) Performance of Agreements. All of the covenants and agreements of each
-------------------------
Seller to be performed prior to the Closing pursuant to the terms of this
Agreement shall have been duly complied with or performed.
(d) No Litigation Threatened. No action or proceedings shall have been
------------------------
instituted or threatened before a court or other government body or by any
public authority to restrain or prohibit any of the transactions contemplated
hereby.
(e) Consents and Approvals. All consents and approvals, if any, necessary
----------------------
or desirable to permit the consummation of the transactions contemplated by this
Agreement shall have been received, including without limitation all consents
and approvals necessary to assign the BellSouth Contracts, the Assumed
Contracts, the Assumed Leases and the Stockholder Policies to Buyers.
(f) Proceedings. All proceedings to be taken in connection with the
-----------
transactions contemplated by this Agreement and all documents incident thereto
shall be satisfactory in form and substance to Buyers and their counsel, and
Buyers shall have received copies of all such documents and other evidences as
it or its counsel may reasonably request in order to establish the consummation
of such transactions and the taking of all proceedings in connection therewith.
(g) Closing Deliveries. Sellers shall have executed and/or delivered
------------------
the items required pursuant to Section 7.2 hereof.
(h) Real Estate Matters. Buyers shall have obtained title insurance,
-------------------
at its expense, on terms and conditions satisfactory to Buyers ensuring Buyers'
title in fee simple to the Real Property free and clear of all encumbrances
other than the Permitted Liens.
(i) Permits and Licenses. Buyers shall have procured all permits and
--------------------
licenses necessary for its operation of the Sellers' Businesses following the
Closing.
(j) Bulk Sales Compliance. Sellers and Buyers shall have complied
---------------------
with the provisions of the North Carolina bulk transfer laws to the extent
required by Buyers.
(k) Due Diligence. Buyers shall have completed and be satisfied with
-------------
the results of its legal, environmental and financial due diligence of the
assets, businesses and operations of the Sellers.
(l) Panthers Tickets. Buyers shall have been provided evidence that
----------------
certain stockholders of Sellers have reimbursed Sellers for all deposits placed
for Carolina Panthers' football tickets in the name of Sellers.
(m) Debt Assumption. Buyers shall have been provided executed copies
---------------
of all debt assumption documents required by creditors of Assumed Liabilities.
ARTICLE 6
---------
CONDITIONS TO SELLERS' OBLIGATIONS
----------------------------------
6.1 Conditions to Sellers' Obligations. The obligations of Sellers to
----------------------------------
consummate the transactions contemplated hereby are subject to the fulfillment,
or written waiver by Sellers, of each of the following conditions:
(a) Truth of Representations and Warranties. The representations and
---------------------------------------
warranties of Buyers contained in this Agreement or in any Exhibit or Schedule
attached hereto shall be true and correct on and as of the Closing Date with the
same effect as though such representations and warranties have been made on and
as of such date.
(b) Performance of Agreements. All of the covenants and agreements of
-------------------------
Buyers and MasTec to be performed pursuant to the terms of this Agreement shall
have been duly complied with or performed.
(c) No Litigation Threatened. No action or proceedings shall have
------------------------
been instituted or threatened before a court or other government body or by any
public authority to restrain or prohibit any of the transactions contemplated
hereby.
(d) Consents and Approvals. All consents and approvals, if any,
----------------------
necessary or desirable to permit the consummation of the transactions
contemplated by this Agreement shall have been received.
(e) Proceedings. All proceedings to be taken in connection with the
-----------
transactions contemplated by this Agreement and all documents incident thereto
shall be satisfactory in form and substance to each Seller and their counsel,
and each Seller shall have received copies of all such documents and other
evidences as it or its counsel may reasonable request in order to
establish the consummation of such transactions and the taking of all
proceedings in connection therewith.
(f) Closing Deliveries. Buyers shall have executed and/or delivered
------------------
the items required pursuant to Section 7.3 hereof.
ARTICLE 7
---------
CLOSING; DELIVERIES AT CLOSING
------------------------------
7.1 Closing. The closing of the purchase and sale referred to in
-------
Section 1.1 (the "Closing") shall take place at 12:00 P.M. at the offices of
Parker, Poe, Adams & Bernstein L.L.P., 2500 Charlotte Plaza, Charlotte, North
Carolina, 28244 on November 21, 1996, or at such other time and date as the
parties hereto shall designate in writing and such date is herein referred to as
the "Closing Date".
7.2 Deliveries by Sellers. On or before the Closing Date, Sellers shall
---------------------
deliver or cause to be delivered to Buyers the following, in form and substance
reasonably satisfactory to Buyers:
(a) A certificate executed by each Seller's president certifying that
the conditions set forth in Sections 5.1(a) - (e) have been satisfied, in form
and substance satisfactory to Buyers.
(b) An instrument substantially in the form of Exhibit 7.2(b)
--------------
assigning the BellSouth Contracts to Buyers.
(c) Instruments of assignment assigning each Seller's rights under the
Assumed Leases, the Assumed Contracts and the Stockholder Policies, in forms
acceptable to Buyers. Sellers shall also execute and deliver all requisite
change of ownership and change of beneficiary forms required in connection with
the transfer of the Stockholder Policies.
(d) General warranty deeds in forms satisfactory to Buyers conveying
the Real Property and Improvements to Buyers free and clear of any and all Liens
except for Permitted Liens and all documentation reasonably required by Buyers
in connection with such real estate transfer.
(e) Bill(s) of sale substantially in the form of Exhibit 7.2(e)
--------------
transferring the remaining Acquired Assets to Buyers free and clear of any and
all Liens except for Permitted Liens.
(f) Consents to assignment of the BellSouth Contracts executed by
BellSouth in a form acceptable to Buyers.
(g) Consents to the assignments of the Assumed Leases, the Assumed
Contracts and the Stockholder Policies in a form acceptable to Buyers.
(h) Executed titles of ownership in form suitable for transfer to
Buyers of all licensed vehicles (including trucks, trailers and automobiles)
being acquired by Buyers as part of the Acquired Assets.
(i) Certificates of Existence of each Seller in North Carolina in full
force and effect and unamended as of not more than seven days prior to the
Closing Date, together with a copy of the resolutions of the Board of Directors
and stockholders of each Seller approving this Agreement, such Seller's
obligations hereunder and the consummation of the actions contemplated hereby,
each certified by the Secretary of each respective Seller to be validly adopted
and in full force and effect and unamended as of Closing.
(j) An executed amendment to each Seller's Articles of Incorporation
suitable for filing with the State of North Carolina changing such Seller's name
to a name not confusingly similar to its current name.
(k) The legal opinion of Kennedy Covington Lobdell & Hickman, L.L.P.
counsel to Sellers in a form acceptable to Buyers.
(l) An executed copy of the Escrow Agreement.
(m) Evidence satisfactory to Buyers that the Termination Agreement has
been fully executed and that the Deferred Compensation Plan has been terminated.
(n) An executed Confidentiality and Non-solicitation Agreement between
Buyers and Arthur McDonald, in a form satisfactory to Buyers.
(o) Evidence satisfactory to Buyers that all Liens other than the
Permitted Liens on the Acquired Assets have been removed (including, but not
limited to a deed of trust on the Real Property used in UPI's Business in favor
of First Union National Bank, as trustee for Shriner's Hospital for Crippled
Children and the Lien on such property in favor of the Employment Security
Commission).
(p) Each of the completed and executed letters in the form attached
hereto as Exhibit 7.2(p) received by Sellers from their stockholders by the
--------------
Closing Date.
(q) Evidence satisfactory to Buyers that McGuire Properties has waived
its right to receive a commission under its listing contract covering the Church
Street Real Property in connection with the transactions contemplated hereby.
(r) Evidence of Sellers' amendment of its Group Health Plan to
eliminate the provision of Retiree Medical Coverage as of the Closing Date.
7.3 Deliveries by Buyers. On or before the Closing Date, Buyers shall
--------------------
deliver or cause to be delivered to Sellers the following, in form and substance
reasonably satisfactory to Sellers:
(a) The portion of the Purchase Price payable pursuant to Sections
1.2(a) and 1.2(b) by either delivering immediately available funds in the
requisite amounts by wire transfer to the accounts designated in writing by
Sellers and to the Escrow Agent or by delivering the Purchase Price Shares to
the Sellers and the Escrow Agent in the amounts indicated in Sections 1.2(a) and
1.2(b).
(b) An executed Assignment and Assumption Agreement providing for
Sellers' assignment and Buyers' assumption of all Assumed Liabilities hereunder
in a form acceptable to Sellers.
(c) The Guaranty duly and properly executed by MasTec.
(d) Certificates of Existence of Buyers and MasTec in Delaware in full
force and effect and unamended as of not more than seven (7) days prior to the
Closing Date, together with a copy of the resolutions of the Board of Directors
of each Buyer and MasTec approving this Agreement, the Guaranty, the obligations
of Buyers and MasTec hereunder and the consummation of the actions contemplated
hereby, each certified by the Secretary of Buyers and MasTec, as applicable, to
be validly adopted and in full force and effect and unamended as of the Closing.
(e) The legal opinion of Parker, Poe, Adams & Bernstein L.L.P., in a
form acceptable to Sellers.
(f) The legal opinion of Fried, Frank, Harris, Shriver & Jacobson,
in a form acceptable to Sellers.
(g) An executed copy of the Escrow Agreement.
(h) An officer's certificate of Buyers in a form acceptable to
Sellers.
7.4 Further Assurances. At the reasonable request of Buyers, at Closing
------------------
and at any time or from time to time thereafter, each Seller agrees to take all
actions necessary to put Buyers in actual possession and operating control of
the Acquired Assets, and to execute and deliver such further instruments of
sale, conveyance, transfer and assignment and take such other action as Buyers
may reasonably request in order to sell, convey, transfer and assign to Buyers
the Acquired Assets. At the reasonable request of Sellers, at Closing and at
any time or from time to time thereafter, each Buyer agrees to take any further
actions reasonably requested of it to implement the transactions contemplated
hereby.
ARTICLE 8
---------
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION; NON-COMPETITION
-------------------------------------------------------------
8.1 Survival of Representations. The respective representations and warranties
---------------------------
of the parties contained in this Agreement or in any Exhibit or Schedule
attached hereto as well as the agreements and covenants of each party in this
Agreement shall survive the purchase and sale of the Acquired Assets pursuant to
this Agreement.
8.2 Indemnification.
---------------
(a) Sellers agree, jointly and severally, to indemnify and hold Buyers
and their respective officers, directors, stockholders, affiliates, employees,
representatives and other agents harmless from and against any and all claims,
demands, actions, controversies, suits, liabilities, losses, damages, costs and
charges (including without limitation reasonable counsel and paralegal fees and
other expenses) of every nature and character, whether groundless or otherwise
(collectively, "Losses"), suffered or paid, directly or indirectly, through
application of either Seller's or Buyers' assets or otherwise, as a result of or
arising by reason of, connected to or resulting from (i) any breach of or
inaccuracy in any of either Seller's representations or warranties hereunder,
(ii) any breach by either Seller of any covenant or agreement contained in this
Agreement, and (iii) any claim, debt, obligation or liability of either Seller
that is not an Assumed Liability hereunder. The obligations to indemnify and
hold harmless pursuant to this Section 8.2 shall survive the consummation of the
transactions contemplated by this Agreement.
(b) Buyers, jointly and severally, agree to indemnify and hold each
Seller and their respective officers, directors, stockholders, affiliates,
employees, representatives and other agents harmless from and against any and
all claims, demands, actions, controversies, suits, liabilities, losses,
damages, costs and charges (including without limitation reasonable counsel and
paralegal fees and other expenses) of every nature and character, whether
groundless or otherwise (collectively "Losses"), incurred or subjected, directly
or directly, as a result or arising by reason of, connected to or resulting from
(i) any breach of or inaccuracy in any of Buyers' representations or warranties
hereunder, (ii) any breach by Buyers of any covenant or agreement contained in
this Agreement, (iii) any claim, debt, obligation or liability of either Seller
that is specifically assumed by Buyers as an Assumed Liability pursuant to this
Agreement, (iv) any violation by Buyers or MasTec of any federal or state
securities law relating in any way to the issuance or delivery to Sellers of the
Purchase Price Shares and the subsequent sale of the Purchase Price Shares
pursuant to the provisions of Section 1.2(c) or the Escrow Agreement, (v)
noncompliance with any applicable bulk transfer laws, except to the extent that
Buyers have requested Sellers' compliance pursuant hereto, (vi) any severance
pay, compensation-related liability or other claim or liability (including any
liability of Sellers arising pursuant to the Worker Adjustment and Retraining
Notification Act, 29 U.S.C. (S) 2101 et. seq., in connection with the
--------
transactions contemplated hereby) arising from Buyers' failure or refusal to
hire or termination of any employee of either Seller as of the Closing Date
which such employee Buyers (A) do not hire or (B) elect to terminate and (vii)
any violation by Sellers of any federal or state securities law in connection
with any sale by Sellers of the Purchase Price Shares hereunder or under the
Escrow Agreement provided that Sellers' actions in connection with any such
sales were taken in accordance with the terms and conditions of this Agreement
and the Escrow Agreement.
(c) The obligations of the indemnifying party (the "Indemnitor") under
this Section 8.2 to the party seeking indemnification hereunder (the
"Indemnitee") with respect to claims, demands, damages, liabilities, costs and
expenses asserted by third parties ("Third Party Claim") shall be subject to the
following terms and conditions: The Indemnitee will give the Indemnitor prompt
notice of any Third Party Claim, and the Indemnitor shall assume the defense,
compromise or settlement thereof by representatives of its own choosing, at its
own cost and expense, provided that the Indemnitee shall have the right (but not
the obligation) to participate in such defense with its own counsel at its own
expense and that no settlement will be agreed to without the Indemnitee's prior
written consent, which consent will not be withheld unreasonably. The Indemnitee
agrees not to withhold its consent to any settlement if the Indemnitor agrees to
pay money damages, if any, and if the Indemnitee determines in good faith that
such settlement will not otherwise have an adverse effect on the business,
reputation or financial condition of the Indemnitee. If the Indemnitor does not
promptly assume such defense, the Indemnitee will (upon notice to the
Indemnitor) have the right (but not the obligation) to undertake the defense,
compromise or settlement of such Third Party Claim on behalf of and for the
account and risk of the Indemnitor, provided that the Indemnitor shall have the
right (but not the obligation) to participate in such defense with its own
counsel at its own expense and that no settlement will be agreed to without the
Indemnitor's prior written consent, which consent will not be withheld
unreasonably.
(d) Buyers shall be entitled to offset against the Escrowed Amount, in
accordance with the terms and conditions of the Escrow Agreement, the amount of
(i) any purchase price adjustment pursuant to Section 1.4(b) or any required
payment of the Excess Amount pursuant to Section 1.2(c), (ii) any
indemnification obligation of either Seller to Buyers, and (iii) the amount of
any of the accounts receivable of Sellers acquired by Buyers as part of the
Acquired Assets which have not been collected by Buyers within the 180-day
period following the Closing Date (without any reference to the threshold
limitation set forth in subsection 8.2(e) below) other than the retainages and
employee travel advances set forth on the Closing Date Balance Sheet and (iv)
any liability or cost associated with or arising from the presence or removal of
asbestos from the Real Property or from the removal of, contamination caused by,
or remediation related to, underground storage tanks which are or were on the
Real Property or are otherwise set forth on Schedule 2.19 (such amounts may be
-------------
offset against the Escrowed Amount notwithstanding the fact that the liabilities
and costs referenced in this subsection (iv) are Assumed Liabilities hereunder).
All uncollected accounts receivable which are made the subject of an offset
against the Escrowed Amount by Buyers pursuant to the terms hereof shall be
reassigned by Buyers to Sellers immediately upon Buyers' offset with respect
thereto (thereafter, Sellers shall be entitled to collect and retain for
Sellers' benefit such reassigned accounts receivable at their sole expense).
(e) Buyers agree that they shall not assert against Sellers any claim
or claims for indemnification pursuant to this Section 8.2 unless the aggregate
amount of the claim or claims for which Buyers seeks indemnification exceed
Twenty Five Thousand and 00/100 Dollars ($25,000.00) in the aggregate. Once
such indemnification threshold is met (and it must be met only once for all
claims in the aggregate, i.e., this threshold need not be met for each claim),
----
Sellers shall be responsible for all claims for indemnification to the extent
such claims exceed $25,000. Anything herein to the contrary notwithstanding,
(i) the $25,000 threshold limitation
provided for in this subsection (e) shall not apply to any claim with respect to
any purchase price adjustment pursuant to Section 1.4(b), any required payment
of the Excess Amount pursuant to Section 1.2(c), any offset against the Escrowed
Amount with respect to uncollected accounts receivable pursuant to Section
8.2(d) or any claim alleging fraud or wilful misconduct, and (ii) the aggregate
liability of Sellers to Buyers and, Buyers' sole remedy, for all indemnification
claims hereunder (excluding claims related to any purchase price adjustment
pursuant to Section 1.4(b), any required payment of the Excess Amount pursuant
to Section 1.2(c), uncollected accounts receivable, other than the retainages
and employee travel advances set forth on the Closing Balance Sheet, or any
claims alleging fraud or wilful misconduct) shall be limited to the Escrowed
Amount.
8.3 Non-Competition; Non-Interference. In consideration of the purchase
---------------------------------
of the Acquired Assets by Buyers, each Seller agrees that from the Closing Date
until five years from the Closing Date, such Seller will not:
(a) within any jurisdiction or marketing area in which either Seller
or any of its subsidiaries or affiliates is doing business or is qualified to do
business as of the Closing Date, directly or indirectly own, manage, operate,
control, be employed by or participate in the ownership, management, operation
or control of, or be connected in any manner with, any business of the type and
character engaged in and competitive with Sellers' Businesses. For these
purposes, ownership of securities of 1% or less of any class of securities of a
public company shall not be considered to be competition with Sellers'
Businesses.
(b) persuade or attempt to persuade any existing customer or client,
or potential customer or client to which either Seller or any of its
subsidiaries has made a presentation or with which either Seller or any of its
subsidiaries has been having discussions, to cease doing business with or
decrease the amount of business done with or not to hire Sellers' Businesses (as
owned by Buyers) or to commence doing business with or increase the amount of
business done with or hire another company.
(c) solicit the business of any person or entity that is a customer or
client of either Seller or any of its subsidiaries as of the Closing Date, or
was its customer or client within two years prior to the Closing Date.
(d) persuade or attempt to persuade any individual who is an employee
of either Seller or any of their respective subsidiaries as of the Closing Date,
or any individual who was an employee of either Seller during the two years
prior to the Closing Date, to leave Buyers' employ, or to become employed by any
person or entity other than Buyers.
(e) disclose or use any confidential, proprietary or secret
information relating to Buyers, either Seller, any of their respective
subsidiaries or any of their respective clients and customers.
It is the desire and intent of the parties to this Agreement that the
provisions of this Section 8.3 shall be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. If any particular provisions or portion of this
Section 8.3 shall be adjudicated to be invalid or unenforceable, this section
shall be deemed
amended to delete therefrom such provision or portion adjudicated to be invalid
or unenforceable, such amendment to apply only with respect to the operation of
such section in the particular jurisdiction in which such adjudication is made.
The parties recognize that the performance of the obligations under this Section
8.3 by each Seller is special, unique and extraordinary in character, and that
in the event of the breach or threatened breach by either Seller of the terms
and conditions of this Section 8.3, Buyers shall suffer irreparable injury for
which no adequate remedy at law may exist. Accordingly, in the event of such
breach or threatened breach, Buyers shall be entitled, if it so elects, to
institute and prosecute proceedings in any court of competent jurisdiction,
either in law or in equity, to obtain damages for any breach of this Section 8.3
or to enforce the specific performance thereof by either Seller or to enjoin
either Seller from breaching or attempting to breach this section.
8.4 Use of Name. Following the Closing, neither Seller nor any
-----------
affiliate that either Seller controls shall use the name "Harrison-Wright
Company, Incorporated" or "Utility Precast, Inc.," or any confusingly similar
name.
ARTICLE 9
---------
MISCELLANEOUS
-------------
9.1 Expenses. The parties hereto shall pay all of their own expenses
--------
relating to the consummation of the transactions contemplated by this Agreement,
including, without limitation, the fees and expenses of their respective counsel
and financial advisers. Such expenses of the Sellers shall not constitute a
part of the Assumed Liabilities.
9.2 Governing Law; Consent to Jurisdiction. This Agreement, the rights and
--------------------------------------
obligations of the parties, and any claims or disputes relating in any way
thereto shall be governed by and construed in accordance with the laws of the
State of North Carolina, without regard to its choice of law principles. Each
Seller and Buyer, by executing this Agreement, hereby (a) irrevocably submits to
the exclusive jurisdiction of any federal or North Carolina, state court sitting
in the County of Mecklenburg in respect of any suit, action or proceeding
arising out of or relating in any way to this Agreement, and irrevocably accepts
for itself and in respect of its property, generally and unconditionally, the
jurisdiction of such courts and to be bound by any judgment rendered in such
courts; (b) waives, to the fullest extent it may do so effectively under
applicable law, any objection it may have to the laying of the venue of any such
suit, action or proceeding brought in any such court and any claim that any such
suit, action or proceeding brought in any such court has been brought in an
inconvenient forum; and (c) irrevocably consents, to the fullest extent it may
do so effectively under applicable law, to the service of process of any of the
aforementioned courts in any such suit, action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to either
Seller at the address set forth in this Agreement, such service to become
effective five (5) days (or such other period of time provided by applicable
law) after such mailing. Nothing herein shall affect the right of Buyers to
serve process in any other manner permitted by law or to commence legal
proceedings or otherwise proceed against either Seller in any other jurisdiction
or venue.
9.3 Captions. The Article and Section captions used herein are for reference
--------
purposes only, and shall not in any way affect the meaning or interpretation of
this Agreement.
9.4 Publicity and Confidentiality. Except as otherwise required by law, none
------------------------------
of the parties shall issue any press release or make any other public statement
relating to, connected with or arising out of this Agreement or the transactions
contemplated herein, including the existence and terms of this Agreement,
without obtaining the prior approval of Buyers to the contents and the manner of
presentation and publication thereof. The parties shall keep all non-public
information disclosed pursuant to this Agreement confidential and shall not
disclose such information for any purpose or to any person or entity not related
to the consummation and performance of this Agreement, except as may be required
by applicable law.
9.5 Notices. Any notices, demands, consents, agreements, requests or other
-------
communications which may be or are required to be given, served or sent by any
party to any other party or obtained from any party pursuant to this Agreement
must be in writing and must be (a) mailed by first-class mail, registered or
certified, return receipt requested, postage prepaid, (b) hand delivered
personally by independent courier, or (c) transmitted by telecopier addressed as
follows:
(i) If to either Seller:
c/o Kennedy Covington Lobdell & Hickman, L.L.P.
NationsBank Corporate Center
Suite 4200
100 North Tryon Street
Charlotte, NC 28202-4006
Attn: Jon Barrett
Fax: (704) 331-7598
(ii) If to Buyers:
c/o MasTec, Inc.
3155 N.W. 77th Avenue
Suite 130
Miami, FL 33122
Attn: Legal Department
Telecopier: (305) 406-1907/1908
Each party may designate by notice in writing a new address to which any notice,
demand, consent, agreement, request or communication may thereafter be given,
served or sent. Each notice, demand, consent, agreement, request or
communication which is mailed, hand delivered or transmitted in the manner
described above shall be deemed received for all purposes at such time as it is
delivered to the addressee (with the return receipt, the courier delivery
receipt or the telecopier answer back confirmation being deemed conclusive
evidence of such delivery) or at such time as delivery is refused by the
addressee upon presentation.
9.6 Counterparts. This Agreement may be executed in counterparts, and
------------
it shall not be necessary that the signatures on behalf of each party appear on
each counterpart. All counterparts shall collectively constitute a single
agreement.
9.7 Amendments. This Agreement may not be amended or modified or any
----------
provision or obligation waived or changed except by a writing executed by the
party sought to be charged thereby.
9.8 Savings Clause. Any provision of this Agreement that is prohibited
--------------
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Agreement and any such prohibition
or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the maximum extent
permitted by applicable law, the parties to this Agreement waive any provision
of law that renders any provision of this Agreement prohibited or unenforceable
in any respect.
9.9 Entire Agreement. This Agreement constitutes the entire agreement
----------------
of the parties with respect to its subject matter and supersedes all prior
written and oral agreements and understandings of any kind (including, but not
limited to, the Letter of Intent between the parties dated August 8, 1996, as
amended by the revised Letter of Intent dated August 27, 1996), except any
separate confidentiality agreement entered into by the parties previously.
9.10 Delays. No failure or delay of any party in exercising any power or
------
right under this Agreement shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power.
9.11 No Third Party Beneficiaries. This Agreement shall be binding upon
----------------------------
and shall inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and permitted assigns. The provisions of
this Agreement are solely for the benefit of the parties hereto and are not
intended to benefit any third party, whether viewers or otherwise, and no third
party shall be deemed to have any privity of contract by virtue of this
Agreement.
9.12 No Partnership. Nothing in this Agreement shall be deemed to create
--------------
a joint venture or partnership between the parties.
9.13 No Assignment. The rights and obligations of the parties under this
-------------
Agreement may not be assigned or delegated to any other person or entity without
the prior consent of all the parties hereto; provided, that Buyers may, without
the consent of Sellers, assign any or all of its rights and delegate any or all
of its obligations and may transfer the Acquired Assets to any other entity that
it controls, is controlled by or is under common control with.
9.14 Attorneys' Fees. If any legal proceeding is brought to enforce or
---------------
interpret this Agreement or any provision thereof, the prevailing party in any
such proceeding shall be entitled to recover from the other party its reasonable
attorneys' and paralegal fees and court costs.
[SIGNATURES ON NEXT PAGE]
EXECUTED as of the date and year first above written.
SELLERS:
HARRISON-WRIGHT COMPANY,
INCORPORATED
By:
----------------------------------
Name:
--------------------------------
Title: President
UTILITY PRECAST, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
--------------------------------
BUYERS:
H-W ACQUISITION I CO., INC.
By:
----------------------------------
Name:
--------------------------------
Title:
--------------------------------
H-W ACQUISITION II CO., INC.
By:
----------------------------------
Name:
--------------------------------
Title:
--------------------------------
H-W ACQUISITION III CO., INC.
By:
-----------------------------------
Name:
--------------------------------
Title:
---------------------------------
LIST OF SCHEDULES
Excluded Assets
Assumed Contracts
Assumed Leases
Real Property
Equipment and Vehicles
Certain Assumed Liabilities
Absence of Conflicts
Exceptions to GAAP
Changes Since Balance Sheet Date
Liens on Assets
Real Property
Operating Condition Exceptions
Leases
Material Contracts
Litigation
Taxes
Intellectual Property Matters
Non-Compliance with Applicable Laws
Options
Employee Benefit Plans
Exceptions to Amendment/Termination Rights
ERISA Non-compliance
Code Qualifications
Triggering Events under Employee Benefit Plans
Environmental Matters
Interests in Clients, Suppliers
Insurance
Licenses and Permits
Bank Accounts; Powers of Attorney
H-W/UPI Shareholders/Shares Held
Employees on COBRA
401(K)
Group Health Plan
Deferred Compensation Plan/Termination Agreement
LIST OF EXHIBITS
Escrow Agreement
Sellers' Broker Instruction Letter
Purchase Price Allocation
Financial Statements
MasTec Guaranty
Assignments of BellSouth Contracts
Bill of Sale
Securities Letter
