SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
Commission File Number 001-08106
MASTEC, INC.
(Exact name of registrant as specified in its charter)
Florida 65-0829355
State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
3155 N.W. 77th Avenue, Miami, FL 33122-1205 (305) 599-1800
(Address of principal executive offices) (Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Name of each exchange on
Title of each class which registered
Common Stock, $.10 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes _X_ No ____.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. _X_
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act. Yes _X_ No ____.
The aggregate market value of the registrant's outstanding common stock
held by non-affiliates of the registrant computed by reference to the price
at which the common stock was last sold as of the last business day of
the registrant's most recently completed second fiscal quarter was
$194,105,323 (based on a closing price of $7.36 per share for the
registrant's common stock on the New York Stock Exchange on June 28, 2002).
There were 48,035,674 shares of common stock outstanding as of March 21,
2003.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement relating to the 2003
Annual Meeting of Shareholders to be held on May 30, 2003 are incorporated
by reference in Part III of this Annual Report on Form 10-K.
TABLE OF CONTENTS
PART I ................................................................. 3
ITEM 1. BUSINESS.................................................. 3
ITEM 2. PROPERTIES................................................ 11
ITEM 3. LEGAL PROCEEDINGS......................................... 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....... 12
ITEM 4(A). EXECUTIVE OFFICERS..................................... 12
PART II................................................................. 12
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS....................................... 12
ITEM 6. SELECTED FINANCIAL DATA................................... 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 14
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK...................................................... 25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............... 25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE....................... 51
PART III................................................................ 51
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT........ 51
ITEM 11. EXECUTIVE COMPENSATION.................................... 51
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS................ 51
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............ 51
ITEM 14. CONTROLS AND PROCEDURES................................... 51
PART IV................................................................. 52
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.................................................. 52
SIGNATURES.............................................................. 54
POWER OF ATTORNEY....................................................... 54
SECTION 302 CERTIFICATIONS.............................................. 55
PART I
ITEM 1. BUSINESS
Cautionary Statement Regarding Forward-Looking Statements
Except for historical information, the matters discussed below may
contain forward-looking statements, such as statements regarding our future
growth and profitability, growth strategy and anticipated trends in the
industries and economies in which we operate. These forward-looking
statements are based on our current expectations and are subject to a number
of risks, uncertainties and assumptions, including that our revenue or profit
may differ from that projected, that we may be further impacted by slowdowns
in our clients' businesses or deterioration in our clients' financial
condition, that our reserves may be inadequate or our equity investments may
be impaired, that the outcome of pending litigation may be adverse to us and
that we may experience increased costs associated with realigning our
business or may be unsuccessful in those efforts. Should one or more of
these risks or uncertainties materialize, or should the underlying
assumptions prove incorrect, actual results may differ significantly from
results expressed or implied in any forward-looking statements made by us.
These and other risks are detailed in this annual report and in other
documents filed by us with the Securities and Exchange Commission. We do
not undertake any obligation to revise these forward-looking statements to
reflect future events or circumstances.
General
We are a leading end-to-end infrastructure service provider offering
services in telecommunications, broadband, intelligent traffic systems, and
energy markets to a broad range of clients in North America and Brazil.
We design, build, install, maintain and upgrade external networks and
other facilities for our clients. We are one of the few national, multi-
disciplinary infrastructure providers that furnishes a comprehensive
solution to our clients' infrastructure needs ranging from basic installation
and construction to sophisticated engineering, design and integration. Our
diverse and long-standing client base, experienced management and integrated
value added service offering provide a stable base of repeat business and
enable us to quickly and efficiently meet client demands.
Our strategy is to use these competitive strengths to increase market
share in the fragmented network infrastructure industry by expanding
relationships across multiple service offerings with long-time clients and
selected new clients who have both financial liquidity and end-user customers.
We target predictable recurring maintenance and upgrade work under exclusive,
multiple year master service and other agreements. We are also focused on
leveraging our administrative base and achieving other cost savings and
efficiencies through better utilization of our equipment, facilities and
personnel and through economies of scale.
In the third quarter of 2002, we initiated an organizational efficiency
plan designed to improve gross margins and reduce general and administrative
costs. The majority of the expenses associated with this plan were incurred
in the fourth quarter of 2002. There can be no assurance that we will be
able to effect the plan or that the plan will result in the expected benefits.
Clients
Our more than 200 clients include some of the largest and most prominent
companies in the communications, broadband, intelligent traffic services, and
energy fields, including:
- - incumbent local exchange carriers - government agencies such as state,
- - cable television operators departments of transportation,
- - long distance carriers municipalities and the Department
- - satellite TV service providers of Defense
- public and private energy companies
- financial institutions
Services and Markets
We design, build, install, maintain, upgrade and monitor the physical
facilities used to provide end-to-end voice, video and data service from the
provider's central office, switching center or cable television head-end to
the ultimate consumer's home or business. We provide similar services to
electrical and other utility providers. We provide these services both
externally on public or private rights-of-ways or in our clients' premises.
Our services include:
- - comprehensive project management, coordination, consulting and
administration,
- - designing conduit networks and fiber rings,
- - placing and splicing fiber optic, coaxial and copper cable; excavating
trenches in which to place the cable; and furnishing and placing related
structures such as poles, anchors, conduits, manholes, cabinets and
closures,
- - overhead and underground installation and maintenance of electrical and
other utilities' transmission and distribution networks, substation
construction and maintenance,
- - placing drop lines from our clients' main distribution terminals to their
customer's home or business,
- - installing set-top boxes, satellite dishes and other connection devices
in homes and businesses,
- - erecting wireless communication towers, constructing related structures
and installing associated equipment,
- - designing and installing intelligent traffic networks,
- - engineering, furnishing and installing integrated voice, video and data
networks inside client premises,
- - systems integration, which includes selecting, configuring and installing
software, hardware and other computing and communications equipment and
cabling to provide an integrated computing and communications system,
- - procuring materials,
- - providing acceptance testing and as-built documentation, and
- - maintaining, upgrading, removing and replacing these systems.
Backlog
At December 31, 2002 and 2001, we had a backlog in our domestic
operations of approximately $1.2 billion and $1.4 billion, respectively.
Our backlog consists of the uncompleted portion of services we are to perform
under project-specific contracts as well as estimated work on master service
agreements. We expect to complete most of our project-specific backlog as of
December 31, 2002 during the next 18 months. Our backlog also includes
certain master service agreements that contain 3 to 5 year terms.
Sales and Marketing
We market our services individually and in combination to provide the
most efficient and effective solution to meet our clients' demands, which
increasingly require resources from multiple disciplines. Through our unified
"MasTec"(R) brand and an integrated organizational structure designed to
permit rapid deployment of labor, equipment and materials, we are able
quickly and efficiently to allocate resources to meet client needs.
We have developed a marketing plan emphasizing the "MasTec"(R) registered
service mark and an integrated service offering to position ourselves as a
seamless, end-to-end nationwide infrastructure services solution, providing
services ranging from basic installation to sophisticated engineering,
design and integration. We believe our long-standing relationships with our
clients and reputation for reliability and efficiency facilitate our repeat
business. Our marketing efforts are principally carried out by the
management of our service offerings, most of whom have many years' experience
in the industries they serve, both at the service provider level and in some
cases with the clients we serve. Our service offering leadership markets to
existing and potential clients to negotiate new contracts or to be placed on
lists of vendors invited to submit proposals for master service agreements
and individual projects. Our executive management supplements their efforts
at the national level. We also market through salespeople and our corporate
marketing department.
Safety and Insurance/Risk Management
Performance of our services requires the use of equipment and exposure
to conditions that can be dangerous. Although we are committed to a policy
of operating safely and prudently, we have been and will continue to be
subject to claims by team members, customers and third parties for property
damage and personal injuries resulting from the performance of our services.
We perform on-site services using team members who have completed our
applicable safety and training programs. Our policies require that team
members complete the prescribed training and service program for which they
work in addition to those required by applicable law.
We are committed to ensuring that our team members perform their work
safely and strive to instill safe work habits in all of our team members. We
evaluate our team members not only on the basis of the efficiency and quality
of their work but also on their safety records and the safety records of the
team members they supervise. We also hold regular training sessions and
seminars with our team members devoted to safe work practices. We have
established a company-wide safety committee to share best practices and to
monitor and improve compliance with safety regulations.
The primary claims we face in our operations are workers' compensation,
automobile liability and various general liabilities. We maintain insurance
policies with respect to these risks, but these policies are subject to
deductibles for workers' compensation, automobile liability and general
liability up to $1.0 million per claim. We have umbrella coverage up to a
policy limit of $50.0 million and no stop loss coverage for the 2002-2003
policy period. An independent third party actuarially determines any
liabilities for unpaid claims and associated expenses, including incurred but
not reported losses, and we reflect those liabilities on our balance sheet as
an accrued liability. We continually review these claims and expenses and
the appropriateness of the accrued liability.
Suppliers and Materials
Our clients supply the majority of the raw materials and supplies
necessary to carry out our contracted work. We obtain materials and supplies
for our own account from independent third-party providers and do not
manufacture any significant amount of materials or supplies for resale. We
are not dependent on any one supplier for any materials or supplies that
we obtain for our own account. We have not experienced any significant
difficulty in obtaining an adequate supply of materials and supplies.
We use independent contractors to perform portions of our services and
to manage work flow. These independent contractors typically are sole
proprietorships or small business entities. Independent contractors
typically provide their own employees, vehicles, tools and insurance
coverage. We are not dependent on any single independent contractor. Our
contracts with our subcontractors typically contain provisions limiting our
obligation to pay the subcontractor if our client has not paid us. These
payment limitation provisions may not be available to us in certain cases.
Competition
There is no dominant provider in the network infrastructure services
industry. The industry is highly fragmented and we compete with other
companies in most of the markets in which we operate ranging from small
independent firms servicing local markets to larger firms servicing regional
and national markets. We also face competition from existing or prospective
clients who employ in-house personnel to perform some of the same types of
services we provide. Historically, there have been relatively few
significant barriers to entry into the markets in which we operate and, as a
result, any organization that had adequate financial resources and access to
technical expertise may become one of our competitors. We are, however, one
of the few providers with a nationwide comprehensive services offering.
We believe our clients consider a number of factors in choosing a
service provider, including technical expertise and experience, financial
and operational resources, nationwide presence, industry reputation and
dependability. A significant portion of our revenue is currently derived
from unit price agreements and price historically has often been the
principal factor in determining whether the services provider is awarded the
work on smaller, less complex projects. Smaller competitors are sometimes
able to win bids for these projects based on price alone due to their lower
costs and financial return requirements. We believe our size, nationwide
presence, integrated value added service offering, financial strength,
bonding capacity and reputation provide a competitive advantage in obtaining
larger, more complex infrastructure projects and gaining market share in the
fragmented infrastructure services industry. There can be no assurance,
however, that our competitors will not develop the expertise, experience
and resources to provide services that are superior in both price and
quality to our services or that we will be able to maintain or enhance our
competitive position.
Regulation
Our operations are subject to various federal, state and local laws,
including:
- contractor licensing requirements,
- building and electrical codes,
- permitting and inspection requirements, and
- regulations related to labor relations, worker safety,
and environmental protection.
We believe we have all material licenses and permits required to
conduct our operations and that we are in substantial compliance with all
applicable regulatory requirements.
Employees
As of December 31, 2002, we had approximately 7,100 team members in
North American operations and approximately 2,930 in Brazil. The total number
of our team members is down from December 31, 2001 by approximately 500.
Approximately 300 of our team members are represented by labor unions,
principally the Communication Workers of America or the International
Brotherhood of Electrical Workers. We believe that our employee relations
are good.
Recruiting. Our primary hiring sources for our team members include
promotion from within, team member referrals, print and Internet advertising
and direct recruiting. We attract and retain team members by offering
technical training opportunities, bonus opportunities, stock ownership,
competitive salaries, and a comprehensive benefits package. Our "MasTec"(R)
brand and integrated service offering also has created a unified corporate
culture that we believe helps attract and retain team members. Team members
are exposed to numerous technologies being deployed by our clients which
serves as a recruitment tool. We attract talent from numerous sources
including higher learning institutions, colleges, and industry.
Training and Career Development. We believe that our continuous focus
on training and career development helps us to retain our team members.
Team members participate in on-going educational programs, many of which are
internally developed, to enhance their technical and management skills
through classroom and field training. Manufacturers of telecommunications
equipment also sponsor training programs covering the installation and
maintenance of their equipment, which our team members regularly attend. We
also provide opportunities for promotion and mobility within our integrated
service organization that we believe helps retain our team members.
Available Information
A copy of this Annual Report on Form 10-K, as well as our Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to these
reports, are available free of charge on the Internet at our website,
www.mastec.com, as soon as reasonably practicable after we electronically
file these reports with, or furnish these reports to, the Securities and
Exchange Commission. The reference to our website address does not
constitute incorporation by reference of the information contained on the
website and should not be considered part of this report.
Alternatively, you may access these reports at the Securities and
Exchange Commission's Internet website, www.sec.gov.
Other
We are organized as a Florida corporation. Our predecessor company was
formed in 1969, and we have operated as "MasTec" since 1994.
Risk Factors
This report includes forward-looking statements that are necessarily
subject to various risks and uncertainties. These statements are based on
current expectations and assumptions which management believes are
reasonable and on information currently available to management. Actual
results could differ materially from those contemplated by the forward-
looking statements. Although MasTec is not able to predict all the factors
that may affect future results, some of the factors, many of which have
been disclosed previously, that could cause future results to differ
materially from those expressed or implied by forward-looking statements or
from historical results include the following:
The industries we serve are subject to consolidation and rapid technological
and regulatory change.
We derive and anticipate that we will continue to derive a substantial
portion of our revenue from customers in the telecommunications industry.
The telecommunications industry is subject to rapid changes in technology
and governmental regulation. Changes in technology may reduce the demand
for the services we provide. New or developing technologies could displace
the wireline systems used for the transmission of voice, video and data,
and improvements in existing technology may allow telecommunications
providers to significantly improve their networks without physically
upgrading them. Additionally, the telecommunications industry has been
characterized by a high level of consolidation that may result in the loss
of one or more customers. The energy and broadband industries have also
entered into a phase of deregulation and consolidation similar to the
telecommunications industry, which could lead to the same uncertainties as
in the telecommunications industry.
Economic slowdown or increased international political instability may have
an adverse effect on our business and results of operations.
If the economy remains slow, our customers may not outsource projects
to us. Additionally, the recent international political instability,
demonstrated by enhanced security measures, terrorist threats, the war in
Iraq, and increasing tension in the Middle East and Korea, may have an
adverse effect on our business. Items that could impact our business include:
- demand for our services,
- cost of fuel,
- availability of financing,
- delay or cancellation of new projects,
- potential bankruptcies,
- availability of insurance at reasonable rates, and
- additional security precautions.
If the economic slowdown or international political instability
continues or increases, our business, results of operations and the market
price of our common stock could be adversely affected.
The volume of work we receive is dependent on our customers' financial
resources and ability to obtain capital.
The volume of work awarded under contracts with certain of our
telecommunications and energy customers is subject to periodic
appropriations or rate increase approvals during each contract's term. If a
customer fails to receive sufficient appropriations or rate increase
approvals, that customer could reduce the volume of work that it awards to
us or delay its payments to us. In addition, financing conditions for the
telecommunications and energy industries could adversely affect our
customers and their ability or willingness to fund capital expenditures
in the future. We currently derive a significant portion of our revenue
from our master service contracts and master service-like agreements. Under
these contracts, our customers have no obligations to undertake any
infrastructure projects or other work with us. A significant decline in the
work our customers assign us could materially and adversely affect our
results of operations by decreasing the amount of revenue we receive.
Our industry is highly competitive.
The industries in which we operate are highly competitive. Additionally,
many of our customers provide the same type of services we provide which
means we face competition from our customers as well as third parties. There
are relatively few significant barriers to entry into certain of the markets
in which we operate, and as a result, any organization that has adequate
financial resources and access to technical expertise may become one of our
competitors. We cannot be certain that our existing customers will continue
to outsource services in the future. Our competitors may be able to offer
similar services at a lower cost.
Some of our contracts may be canceled on short notice.
Many of our customers may cancel our long-term contracts with them on
short notice, typically 90 to 180 days, even if we are not in default under
the contract. Therefore, these contracts do not give us the assurances that
long-term contracts typically provide. Many of our contracts, including
our master service contracts, are opened to public bid at the expiration of
their terms and price is often an important factor in the award of such
agreements. We cannot assure you that we will be the successful bidder on
our existing contracts that come up for bid. We also provide a significant
portion of our services on a non-recurring, project by project basis. We
could experience a material adverse effect on our results of operations and
financial condition if:
- our customers cancel a significant number of contracts,
- we fail to win a significant number of our existing contracts upon
re-bid, or
- we complete the required work under a significant number of our
non-recurring projects and cannot replace them with similar projects.
Our business is seasonal, exposing us to variable quarterly results.
The budgetary years of many of our external network services customers
end in December. As a result of the end of their budgetary years, our
telecommunications customers, and particularly our incumbent local exchange
customers, typically reduce their expenditures and work order requests
towards the end of the year. The onset of winter also affects our ability
to render external network services in certain regions of the United States.
As a result, we experience reduced revenue in the first and fourth quarters
of each year.
We may be unable to attract and retain qualified managers and employees.
Our business is labor intensive, and many of our operations experience
a high rate of employee turnover. At times of low unemployment rates in the
United States it will be more difficult for us to find qualified personnel
at low cost in some areas where we operate. Additionally, our business is
managed by a small number of key executive and operational officers. As we
offer new services and pursue new customer markets, we will need to increase
our executive and support personnel. We cannot assure you that we will be
able to hire and retain the sufficient skilled labor force necessary to
operate efficiently and to support our growth strategy or that our labor
expenses will not increase as a result of a shortage in the supply of
skilled personnel. Labor shortages or increased labor costs or the loss of
key personnel could have a material adverse effect on our financial
condition and our operations.
Continued efforts to streamline our business operations could significantly
strain our operational infrastructure, financial resources and, if
unsuccessful, our ability to meet the requirements under the Sarbanes-Oxley
Act of 2002.
To manage our business effectively, we will need to continuously:
- Improve our information and financial reporting systems. We are
converting our accounting systems to a fully integrated ERP
software system.
- Restructure our business model. During 2002, we engaged outside
consultants to assist us in a project that contemplates significant
reductions in our cost structure, including reductions in leased
facilities and equipment, underutilized fleet, insurance premiums,
personnel and other costs. Results of operations will be adversely
affected if we are unsuccessful in implementing the plan.
- Enhance our operational and financial systems and controls. We
continue to take action to assure compliance with the internal
controls, disclosure controls and other governance requirements of
the Sarbanes-Oxley Act of 2002.
Additionally, if we are unable to expand and improve our operational
infrastructure and financial and control systems, our business and
results of operations may be adversely affected and we may experience
continued reductions in profitability.
We are effectively self-insured against many potential liabilities.
Although we maintain insurance policies with respect to automobile,
general liability, workers' compensation and employee group health claims,
those policies are generally subject to high deductibles, and we are
effectively self-insured for all claims up to the amount of the applicable
deductible. We actuarially determine any liabilities for unpaid claims and
associated expenses, including incurred but not reported losses, and reflect
those liabilities in our balance sheet as an accrued liability. We
periodically review the status of such claims and expenses and the
extent of the accrued liability. Because of increases in claims (primarily
workers compensation claims), a weak economy, projected significant increases
in medical costs and wages, lost compensation, and reductions in coverage,
insurance carriers may be unwilling to provide the current levels of coverage
without a significant increase in collateral requirements to cover our
deductible obligations. The increased collateral requirements may be in the
form of additional letters of credit because most surety firms are no longer
providing surety bonds due to overall weakness in the insurance and surety
markets. If our insurance claims or costs are higher than our estimates, it
will reduce our profitability.
Our credit facility and senior notes impose restrictions on us.
We have a credit facility with a group of financial institutions and
have outstanding 7 3/4% Senior Subordinated Notes due 2008. The terms of our
indebtedness contain customary events of default and covenants that prohibit
us from taking certain actions without satisfying certain financial tests or
obtaining the consent of the lenders. The prohibited actions include, among
other things:
- making investments in excess of specified amounts,
- incurring additional indebtedness in excess of a specified amount,
- paying dividends in excess of a specified amount,
- making capital expenditures in excess of a specified amount,
- creating certain liens,
- prepaying our other indebtedness, including the senior notes,
- engaging in mergers or combinations and
- engaging in transactions that would result in a "change of control."
Events that are beyond our control may affect our ability to comply
with these provisions. If we breach any of these covenants, we could be in
default under the credit facility or under the indenture relating to the
senior notes. A default could accelerate the indebtedness and restrict our
liquidity. In addition, these covenants may significantly restrict our
ability to respond to changing business and economic conditions or to secure
additional financing, if needed, and may prevent us from engaging in
transactions that might otherwise be considered beneficial to us.
If we violate one or more of these covenants in the future, and we are
unable to cure or obtain waivers from our lenders or amend or otherwise
restructure the credit facility, we could be in default under the facility
which would entitle the lenders to accelerate the repayment of amounts
outstanding and terminate the facility, and we may be required to sell
assets for less than their carrying value to repay any amounts outstanding
under this facility. We also may be required to seek alternative sources
of liquidity if our cash flows from operations are insufficient to fund our
operations. As a result of these covenants, our ability to respond to
changing business and economic conditions and to secure additional
financing, if needed, may be restricted significantly, and we may be
prevented from engaging in transactions that might otherwise be considered
beneficial. Further, to the extent additional financing is needed, there
can be no assurance that such financing would be available at all or on
favorable terms.
We may be unable to obtain sufficient bonding capacity to support certain
of service offerings.
Some of our contracts within certain service offerings require
performance and payment bonds. Bonding capacity in the infrastructure
industry has become increasingly difficult to obtain, and bonding companies
are denying or restricting coverage to certain contractors. We are
currently negotiating our bonding agreements with existing carriers and
seeking additional carriers. There can be no assurance that we will be
able to maintain a sufficient level of bonding capacity in the future,
which could adversely impact our ability to seek work from certain clients.
We are controlled by a small number of our existing shareholders.
Jorge Mas, our Chairman, and other members of his family beneficially
own approximately 49.6% of the outstanding shares of our common stock.
Accordingly, they remain in a position to effectively:
- control the vote of most matters submitted to our shareholders,
including any merger, consolidation or sale of all or substantially
all of our assets,
- elect all of the members of our Board of Directors,
- prevent or cause a change in our control and
- decide whether we will issue additional common stock or other
securities or declare dividends.
The Mas family's ability to exercise significant control over us may
discourage, delay or prevent a takeover attempt that you might consider in
your best interest and that might result in you receiving a premium for your
common stock.
Our Articles of Incorporation and Florida law contain anti-takeover
provisions that may make it more difficult to effect a change in our control.
Our articles of incorporation and bylaws and certain provisions of the
Florida Business Corporation Act may make it difficult in some respects to
effect a change in our control and replace our incumbent directors and
management.
We have a "classified" or "staggered" Board of Directors and our Board
of Directors has the authority to fix the rights and preferences of, and to
issue our preferred stock, and to take other actions that may have the effect
of delaying or preventing a change of our control without the action of our
shareholders.
New York Stock Exchange Listing.
All stock exchanges have certain minimum initial and continuing listing
requirements for companies. These exchange requirements include, among other
items, certain average minimum stock prices, shareholders' equity, financial
performance and compliance with other non-financial rules and regulations.
The materialization of any risks included in this section, any financial
problem or a significant decline in the price of our common stock for an
extended period of time could cause us to be out of compliance with
continuing listing requirements of the stock exchange. In such a case, we
must in a timely manner remedy the compliance problem or successfully list
on another exchange or over the counter market, or our securities could become
less liquid and decrease in value.
Our foreign operations are subject to political and economic instability and
foreign currency fluctuations.
We derived approximately 5.0% of our revenue during the year ended
December 31, 2002 from our operations in Brazil, which are subject to the
risks of political, economic or social instability, including:
- the possibility of expropriation,
- confiscatory taxation,
- recessions,
- hyper-inflation,
- other adverse governmental or regulatory developments or
- limitations on the repatriation of investment income, capital stock
and other assets.
We also conduct business in foreign currencies that are subject to
fluctuations in their exchange rates relative to the U.S. dollar. We monitor
our currency exchange risk but we do not currently hedge against that risk.
We cannot assure you that currency exchange fluctuations or other political,
economic or social factors will not adversely affect our financial condition
or results of operations.
ITEM 2. PROPERTIES
Our corporate headquarters is located in a 60,000 square foot building
owned by us in Miami, Florida. Our principal operations are conducted from
approximately 175 service facilities, none of which we believe is material
to our operations because most of our services are performed on the clients'
premises or on public rights of way. In addition, we believe that equally
suitable alternative locations are available in all areas where we currently
conduct business. We are attempting to sell our corporate headquarters and
move into a smaller location in or around Miami, Florida.
We also own a substantial amount of machinery and equipment, which at
December 31, 2002 had a gross value of $253.0 million (see Note 5 to Notes
to Consolidated Financial Statements). This machinery and equipment includes
vans, trucks, tractors, trailers, bucket trucks, backhoes, bulldozers,
directional boring machines, digger derricks, cranes and testing equipment.
We obtain our equipment from various third-party vendors, none of which
we depend upon, and have not experienced any difficulties in obtaining
desired equipment.
ITEM 3. LEGAL PROCEEDINGS
In November of 1997, we filed two suits against Miami-Dade County
seeking unpaid amounts due under several contracts between us and the
county for road repair, paving, sidewalk construction and road stripping.
Miami-Dade County filed counterclaims seeking recovery of amounts paid by
the county to us for work that was alledgedly not actually performed by
one of the Company's subcontractors. Following a mediation that occurred
in December of 2002, we settled all claims arising out of the litigation
and paid Miami-Dade County the amount of $2.25 million in February, 2003.
Following the settlement, the litigation has been dismissed.
The labor union representing the workers of Sistemas e Instalaciones de
Telecomunicacion S.A. ("Sintel"), a former MasTec subsidiary, has instigated
an investigative action with a Spanish federal court that commenced in July
2001 alleging that five former members of the board of directors of Sintel,
including Jorge Mas, the Chairman of the Board of MasTec, and his brother
Juan Carlos Mas, approved a series of allegedly unlawful transactions that
led to the bankruptcy of Sintel. We are also named as a potentially liable
party. The union alleges Sintel and its creditors were damaged in the
approximate amount of 13 billion pesetas ($81.9 million at December 31, 2002
exchange rates). As discussed in prior filings, the Spanish judge has taken
no action to enforce a bond order pending since July 2001 for the amount of
alleged damages. A Spanish judge has met with certain of our executives,
but neither we nor our executives have been served in the action.
On January 9, 2002, Harry Schipper, a MasTec shareholder, filed a
shareholder derivative lawsuit in the U.S. District Court for the Southern
District of Florida against us as nominal defendant and against certain
current and former members of the Board of Directors and senior management,
including Jorge Mas, our Chairman of the Board, and Austin J. Shanfelter,
our President and Chief Executive Officer. The lawsuit alleges
mismanagement, misrepresentation and breach of fiduciary duty as a result
of a series of allegedly fraudulent and criminal transactions, including
both the matters described above, the severance we paid our former chief
executive officer, and our investment in and financing of a client that
subsequently filed for bankruptcy protection, as well as certain other
matters. The lawsuit seeks damages and injunctive relief against the
individual defendants on MasTec's behalf. The Board of Directors has
formed a special committee, as contemplated by Florida law, to investigate
the allegations of the complaint and to determine whether it is in the best
interests of MasTec to pursue the lawsuit. The lawsuit has been
administratively dismissed without prejudice by agreement of the parties
to permit the committee to complete its investigation. On July 16, 2002,
Mr. Schipper made a supplemental demand on our Board of Directors by letter
to investigate allegations that (a) we reported greater revenue in an
unspecified amount on certain contracts than permitted under the contract
terms and (b) we recognized between $3 to $5 million in income for certain
projects on the books of two separate subsidiaries. These additional
allegations have also been referred to the special committee for
investigation.
We believe we have meritorious defenses to the actions described above.
We are also a party to other pending legal proceedings arising in the normal
course of business. While complete assurance cannot be given as to the
outcome of any legal claims, we believe that any financial impact would not
be material to our results of operations, financial position or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 4(A). EXECUTIVE OFFICERS
The following is a list of the names and ages of our executive officers
as of March 21, 2003, indicating all positions and offices they hold with us.
Our executive officers hold office for the term of their respective
employment contract and if they do not have an employment contract, one year
or until their successors are elected by our Board of Directors.
Name Age Position
----------------------------------------------------------------------------
Austin J. Shanfelter 45 President and Chief Executive Officer
Jose R. Mas 31 Executive Vice President-Business Development
Eric J. Tveter 44 Executive Vice President and Chief Operating Officer
Donald P. Weinstein 38 Executive Vice President and Chief Financial Officer
Austin J. Shanfelter has been our Chief Executive Officer and President
since August 2001. From February until August 2001, Mr. Shanfelter was our
Chief Operating Officer. Prior to being named Chief Operating Officer, he
served as President of one of our service offerings from January 1997.
Mr. Shanfelter has been in the infrastructure industry since 1981.
Mr. Shanfelter has been a member of the Board of Directors of the Power and
Communications Contractors Association (PCCA), an industry trade group,
since 1993. He is also the Chairman of the Cable Television Contractors
Council of the PCCA. Mr. Shanfelter is also a member of the Society of
Cable Television Engineers since 1982 and the National Cable Television
Association since 1991.
Jose R. Mas has been our Executive Vice President-Business Development
since September 2001. Mr. Mas has served in a number of capacities at the
operating level with us since 1991, most recently as President of one of our
service offerings from May 1999 to August 2001. Mr. Mas is the brother of
Jorge Mas, who is MasTec's Chairman of the Board.
Eric J. Tveter has been our Executive Vice President and Chief
Operating Officer since August 2002. Prior to joining MasTec, Mr. Tveter
was an executive with Comcast Corporation, Time Warner Communications,
Cablevision Systems Corporation's Lightpath business unit, and Metromedia
International Group, Inc., where he held various key roles in the
industries served by MasTec, most recently as President of Cablevision
Lightpath, Inc.
Donald P. Weinstein has been our Executive Vice President and Chief
Financial Officer since January 2002. From November 1999 to April 2001,
Mr. Weinstein was Senior Vice President and Chief Financial Officer of AGL
Resources, Inc., a publicly traded energy services holding company, as well
as President of the company's telecommunications subsidiary, AGL Networks.
From August 1989 to November 1999, Mr. Weinstein was employed by Citizens
Communications Co., a telecommunications and utility company, the last two
years as Vice President - Planning and Development.
Other than indicated above for Jose R. Mas, there are no family
relationships among the directors and executive officers.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market Information. Our common stock currently is listed on the New
York Stock Exchange under the symbol "MTZ." The following table sets forth,
for the quarters indicated, the high and low sale prices of the common
stock, as reported by the New York Stock Exchange.
Year Ended December 31,
---------------------------------------------
2001 2002
High Low High Low
---------------------------------------------
First Quarter $ 24.75 $ 12.26 $ 8.30 $ 5.25
Second Quarter $ 19.45 $ 11.40 $ 9.13 $ 6.80
Third Quarter $ 15.42 $ 4.30 $ 7.65 $ 2.40
Fourth Quarter $ 6.95 $ 3.98 $ 4.30 $ 2.03
Year Ended December 31,
Holders. As of March 21, 2003, there were 2,152 shareholders of record
of the common stock.
Dividends. We have not declared cash dividends since our inception and
we do not anticipate paying any cash dividends, but intend instead to retain
any future earnings for reinvestment in our business. On February 28, 1997
and June 19, 2000, we effected three-for-two splits of our outstanding
shares of common stock by paying each of our shareholders a stock dividend
of one share of common stock for every two shares of common stock held by
the shareholder on the record date for each split. We paid cash in lieu of
fractional shares resulting from the stock splits based on the last sale
price as reported on the New York Stock Exchange on the record date. All
references in this Annual Report to shares of common stock or share prices
have been adjusted to give retroactive effect to the stock splits.
Any future determination as to the payment of dividends will be made at
the discretion of our Board of Directors and will depend upon our operating
results, financial condition, capital requirements, general business
conditions and such other factors as the Board of Directors deem relevant.
In addition, certain credit agreements to which we are a party restrict us
from paying cash dividends or making other distributions on the common stock
except in certain circumstances. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations-Liquidity and Capital
Resources."
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected financial data, which
are derived from our audited consolidated financial statements. The
operating data for 1998 includes the results of our Spanish operations, 87%
of which we sold effective December 31, 1998. You should read the following
selected financial data together with our consolidated financial statements
and their notes as well as "Management's Discussion and Analysis of
Financial Condition and Results of Operations." Historical results are not
necessarily indicative of results to be expected in the future.
Year Ended December 31,
-------------------------------------------------------
1998 (1) 1999 2000 2001 2002
-------------------------------------------------------
(dollars in thousands, except per share amounts)
Statement of Operations Data:
Revenue $1,048,922 $1,059,022 $1,330,296 $1,222,580 $ 838,055
Costs of revenue, excluding
depreciation(1) 803,112 803,799 1,017,878 988,198 745,178
Depreciation 32,288 46,447 52,413 51,707 35,063
Amortization 11,025 9,701 11,042 10,810 883
General and administrative
expenses (1)(5) 140,472 91,898 98,521 290,040 117,395
Goodwill impairment - - - - 79,710
Interest expense 29,580 26,673 18,283 20,426 19,237
Interest income 9,093 9,398 4,973 5,775 1,069
Other expense, net
(1)(2)(3)(4)(5) 38,920 10,092 25,756 14,618 10,129
--------- ---------- ---------- ---------- ---------
Income (losses) before
(provision) benefit for
income taxes, equity in
earnings (losses) of
unconsolidated companies
and minority interest 2,618 79,810 111,376 (147,444) (168,471)
(Provision) benefit for
income taxes (1) (12,550) (33,266) (45,877) 54,858 65,473
Equity in earnings (losses)
of unconsolidated companies
and minority interest (3,983) (1,818) (352) 232 (137)
--------- ---------- ---------- ---------- ---------
Income (loss) before
cumulative effect of change
in accounting principle (13,915) 44,726 65,147 (92,354) (103,135)
Cumulative effect of change
in accounting principle - - - - (25,671)
--------- ---------- ---------- ---------- ---------
Net income (loss) $ (13,915) $ 44,726 $ 65,147 $ (92,354)$(128,806)
========= ========== ========== ========== =========
Basic weighted average common
shares outstanding (6) 41,234 41,714 46,390 47,790 47,922
Basic earnings (loss) per
share before cumulative
change in accounting
principle $ (0.34) $ 1.07 $ 1.40 $ (1.93)$ (2.15)
Cumulative effect of change
in accounting principle - - - - (0.54)
--------- ---------- ---------- ---------- ---------
Basic earnings (loss) per
share $ (0.34) $ 1.07 $ 1.40 $ (1.93)$ (2.69)
========= ========== ========== ========== =========
Diluted weighted average common
shares outstanding (6) 41,234 42,624 48,374 47,790 47,922
Diluted earnings (loss) per
share before cumulative change
In accounting principle $ (0.34) $ 1.05 $ 1.35 $ (1.93) (2.15)
Cumulative effect of change
in accounting principle - - - - (0.54)
--------- ---------- ---------- ---------- ---------
Diluted earnings (loss) per
share $ (0.34) $ 1.05 $ 1.35 $ (1.93) $ (2.69)
========= ========== ========== ========== =========
December 31,
-------------------------------------------------
Balance Sheet Data: 1998 (2) 1999 2000 2001 2002
-------------------------------------------------
(in thousands)
Working capital $ 197,587 $ 169,619 $ 242,437 $ 248,062 $ 144,777
Property and equipment, net 137,382 153,527 159,673 151,774 118,475
Total assets 732,221 728,409 956,345 851,372 623,792
Total debt 321,832 279,658 209,483 269,749 198,642
Total shareholders' equity 204,273 256,833 500,328 406,803 273,748
(1) Included in 1998 are severance charges relating to our Spanish
operations of $13.4 million, of which $1.9 million is reflected in
costs of revenue and $11.5 million in general and administrative
expenses, and a loss of $9.2 million related to the sale of our Spanish
subsidiary. Our effective tax rate for the year ended December 31,
1998 was mainly affected by a tax liability of approximately $7.8
million resulting from the sale of 87% of our Spanish subsidiary, the
non-deductibility of the amortization of intangibles and the non-
deductibility of other expenses. Because of the sale, the balance sheet
data as of December 31, 1998 does not include the financial position of
our Spanish operations.
(2) Included in 1998 is a charge for payments to operational management of
$33.8 million.
(3) Included in 1999 is a write-down of $10.2 million related to non-core
international assets.
(4) Included in 2000 is a net write-down and other charges of $26.3 million
related primarily to non-core assets.
(5) Included in 2001 and 2002, respectively, in other expense are charges to
reduce the carrying amount of certain assets held for sale and in use,
and non-core assets, totaling $16.5 million and $12.8 million. Included
in selling general and administrative expense are reserves for bad debt
totaling $182.2 million in 2001 related to clients who filed for
bankruptcy protection and severance charges totaling $11.5 million in
2001 and $0.2 million in 2002.
(6) Amounts have been adjusted to reflect the three-for-two stock splits
effected on February 28, 1997 and June 19, 2000.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
We design, build, install, maintain, upgrade and monitor internal and
external networks and other facilities for our clients, ranging from basic
installation and construction to sophisticated engineering, design and
integration. Our diverse and long-standing client base, experienced
management and integrated value added service offering provide a stable
base of repeat business and enable us to quickly and efficiently meet client
demands.
Our primary types of contracts with our clients include:
- master service agreements for all specified design, installation and
maintenance services within a defined geographic territory for a
multi-year term,
- design and installation contracts for specific projects, and
- turnkey agreements for comprehensive design, engineering,
procurement, installation and maintenance services.
The majority of our contracts provide that we will furnish a specified
unit of service for a price per unit. We recognize revenue as the related
work is performed. A portion of our work during 2002 was performed under
percentage-of-completion contracts. Under this method, revenue is recognized
on a cost-to-cost method based on the estimated percentage of total cost
incurred to date in proportion to total estimated cost to complete the
contract. We anticipate that percentage-of-completion contracts will
constitute a smaller percentage of our total contracts in 2003 as compared
to prior years. We also recognize revenue for monitoring services and
project management services ratably over the term of the agreement. Clients
are billed with varying frequency-weekly, monthly or upon attaining specific
milestones.
We perform a significant portion of our services under master service
agreements, which typically are exclusive service agreements to provide all
of the client's network requirements up to a specified dollar amount per job
within defined geographic areas. These contracts are generally for up to five
years but are typically subject to termination at any time upon 90 to 180
days prior notice. Each master service agreement consists of hundreds of
individual projects generally valued at less than $100,000 each. These
master service agreements are frequently awarded on a competitive bid basis,
although clients are often willing to negotiate contract extensions beyond
their original terms without re-bidding. Master service agreements are
invoiced on a unit basis as work is completed. In addition, we have a
significant number of long-term maintenance and upgrade contracts with our
broadband clients that are similar to master service agreements except they
typically are not exclusive. Taken together, our master service agreements
and master service-like agreements constitute a majority of our contracts by
prior years volume.
We derive a significant amount of our revenue from telecommunications
clients. During the latter part of 2001 and all of 2002, certain segments
of the telecommunications and broadband industries suffered a severe
downturn that resulted in a number of our clients filing for bankruptcy
protection or experiencing financial difficulties. The downturn adversely
affected capital expenditures for infrastructure projects, even among
clients that did not experience financial difficulties. Capital
expenditures by telecommunications and broadband clients in 2002 remained
at low levels in comparison with prior years, and there can be no assurance
that additional clients will not file for bankruptcy protection or otherwise
experience financial difficulties in 2003. Although we refocused our
business on long-time, stable telecommunications, broadband, governmental
and other clients, there can be no assurance that these clients will
continue to fund capital expenditures for infrastructure projects at current
levels or that we will be able to increase our market share with these
stronger clients. Additional bankruptcies or further decreases in our
client's capital expenditures could reduce our cash flows and adversely
impact our liquidity.
Direct costs included in costs of revenue are:
- operations payroll and benefits,
- fuel,
- subcontractor costs,
- equipment rental,
- materials not provided by our clients, and
- insurance.
Our clients generally supply materials such as cable, conduit and
telephone equipment.
General and administrative expenses include all costs of our management
personnel, severance payments, reserves for bad debts, rent, utilities,
travel and business development efforts and back office administration such
as financial services, insurance administration, professional costs and
clerical and administrative overhead.
Contracts often include retainage provisions under which 5% to 10% of
the contract price is withheld from us until the work has been completed and
accepted by the client. We typically agree to indemnify our clients against
adverse claims and warrant the workmanship of our services for specified
time periods, usually one year.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of
operations is based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in
the United States. The preparation of these financial statements requires us
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenue and expenses, and related disclosure of contingent
assets and liabilities. On an on-going basis, we evaluate our estimates,
including those related to revenue recognition, allowance for doubtful
accounts, intangible assets, reserves and accruals, impairment of assets,
income taxes, insurance reserves and litigation and contingencies. We base
our estimates on historical experience and on various other assumptions that
are believed to be reasonable under the circumstances, the results of which
form the basis of making judgments about the carrying values of assets and
liabilities, that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions.
We believe the following critical accounting policies involve our more
significant judgments and estimates used in the preparation of our
consolidated financial statements.
Revenue Recognition
Revenue and related costs for short-term construction projects (i.e.,
generally projects with a duration of less than one month) are recognized as
the services are rendered, generally using units of output. We recognize
revenue and related costs as work progresses on long-term, fixed price
contracts using the percentage-of-completion method, which relies on
estimates of total expected contract revenue and costs. We follow this
method since reasonably dependable estimates of the revenue and costs
applicable to various stages of a contract can be made. Recognized revenue
is subject to revisions as the contract progresses to completion. Revisions
in estimates are charged to income in the period in which the facts that
give rise to the revision become known. If we do not accurately estimate
revenue and costs, the profitability of such contracts can be affected
adversely. At the time a loss on a contract becomes known, the entire
amount of the estimated ultimate loss is accrued.
Allowance for Doubtful Accounts
We maintain allowances for doubtful accounts for estimated losses
resulting from the inability of our clients to make required payments.
Management analyzes historical bad debt experience, client concentrations,
client credit-worthiness, analysis of client financial condition and credit
reports, the availability of mechanic's and other liens, the existence of
payment bonds and other sources of payment, and current economic trends when
evaluating the adequacy of the allowance for doubtful accounts. We review
the adequacy of reserves on a monthly basis. If our estimates of the
collectability of accounts receivable are incorrect, adjustments to the
allowance for doubtful accounts may be required, which could reduce our
profitability.
Depreciation
We depreciate our property and equipment over estimated useful lives
using the straight-line method. We periodically review changes in technology
and industry conditions, asset retirement activity and salvage to determine
adjustments to estimated remaining useful lives and depreciation rates.
Effective November 30, 2002, we have implemented the results of a review
of the estimated service lives of our in use property and equipment. Useful
lives were adjusted to reflect the extended use of much of our equipment.
In addition, the adjustments make the estimated useful lives for similar
equipment consistent among all operating units.
Valuation of Long-Lived Assets
We review long-lived assets, consisting primarily of property and
equipment and intangible assets with finite lives, for impairment in
accordance with Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No.
144). In analyzing potential impairment, we use projections of future cash
flows from the assets. These projections are based on our views of growth
rates for the related business and anticipated future economic conditions and
the appropriate discount rates relative to risk and estimates of residual
values. We believe that our estimates are consistent with assumptions that
marketplace participants would use in their estimates of fair value. If
changes in growth rates, future economic conditions or discount rates and
estimates of terminal values were to occur, long-lived assets may become
impaired. In 2002, we recognized impairment losses related to long-lived
assets no longer in use and held for sale and certain assets in use.
Valuation of Intangible Assets and Investments
We have adopted SFAS No. 142, "Goodwill and Other Intangible Assets."
In accordance with that statement, we conduct, on at least an annual basis,
a review of our reporting units to determine whether their carrying value
exceeds fair market value. Should this be the case, the value of our
goodwill may be impaired and written down. The valuations employ a
combination of present value techniques to measure fair value corroborated
by comparisons to estimated market multiples. When necessary, we engage
third party specialists to assist us with our valuations. Impairment losses
are reflected in operating income or loss in the consolidated statements
of operations.
Effective January 1, 2002, we adopted SFAS No. 142 resulting in a
write-down of our goodwill, net of tax, in the amount of $25.7 million,
which is reflected in our consolidated financial statements as a
cumulative effect due to a change in accounting principle as discussed in
Note 2 to the Consolidated Financial Statements. Impairment losses
subsequent to adoption totalling $79.7 million ($51.9 million, net of tax)
are reflected in operating income or loss on the consolidated statement
of operations.
Insurance Reserves
We maintain insurance policies subject to a $1.0 million deductible per
claim for certain auto, property and casualty and worker's compensation
claims. We are required to post letters of credit to secure our obligation
to reimburse the insurance carrier for amounts that could potentially be
advanced by the carrier that are not covered by insurance. Our estimated
liability for claims and the associated expenses is reflected in other
current and non-current liabilities. The determination of such claims and
expenses and the appropriateness of the related liability is reviewed and
updated semi-annually. If we do not accurately estimate the losses
resulting from these claims, we may experience losses in excess of our
estimated liability, which may reduce our profitability. We also may be
required to post additional collateral with the insurance carrier, which
may affect our liquidity.
Income Tax Liability
We record income taxes using the liability method of accounting for
deferred income taxes. Under this method, deferred tax assets and
liabilities are recognized for the expected future tax consequence of
temporary differences between the financial statement and income tax bases
of our assets and liabilities. We estimate our income taxes in each of the
jurisdictions in which we operate. This process involves estimating our
tax exposure together with assessing temporary differences resulting from
differing treatment of items, such as deferred revenue, for tax and
accounting purposes. These differences result in deferred tax assets and
liabilities, which are included within our consolidated balance sheet. While
the Company has considered future taxable income and ongoing prudent and
feasible tax planning strategies in assessing the need for a valuation
allowance, in the event that we determine that we will not be able to realize
all or part of the net deferred tax asset in the future, an adjustment to
the deferred tax asset would be charged to income in the period such
determination is made.
Restructuring Charges
During the second quarter of 2002, we initiated a study to determine
the proper balance of downsizing and cost cutting in relation to our
ability to respond to current and future work opportunities in each of our
service offerings. The review not only evaluated our current operations,
but also the growth and opportunity potential of each service offering as
well as the consolidation of back-office processes. As a result of this
review, we implemented a restructuring program which included four
categories to accomplish:
* Elimination of service offerings that no longer fit into our core
business strategy. This process includes reducing or eliminating
service offerings that do not fit our long-term business plan.
* Reduce or eliminate services that do not produce adequate revenue or
margins to support the level of profitability, return on investment or
investments in capital resources. This includes exiting contracts
that do not meet the minimum rate on return requirements and
aggressively seeking to improve margins and reduce costs.
* Analyze businesses that provide adequate profit contributions but still
need margin improvements which includes aggressive cost reductions and
efficiencies.
* Review new business opportunities in similar business lines that can
utilize our existing human and physical resources.
The elements of the restructuring program included involuntary
terminations of employees in affected service offerings and the
consolidation of facilities. The plan resulted in a pre-tax charge of
operations of $3.7 million. The involuntary terminations impacted both the
salaried and hourly employee groups. The total employees impacted was
approximately 1025. As of December 31, 2002, all employees have been
terminated and a balance of $0.6 million severance and benefit costs remains
to be paid. We also closed approximately 25 facilties during 2002 as part
of the program and anticipate further office closures in 2003. As of
December 31, 2002, we have remaining obligations under existing lease
agreements for closed facilities of approximately $2.1 million.
In addition to the costs noted above, we paid a consulting firm
approximately $4.6 million to assist us in preparing the plan, all of which
was expensed in 2002 as the plan was complete as of December 31,
2002. We also recognized valuation allowances and impairment losses related
to property and equipment of $12.8 million in connection with the
restructuring plan (see Note 6).
The following is a reconciliation of the restructuring accruals as of
December 31, 2002 (in thousands):
Severance costs (1) $ 1,075
Lease cancellation costs (2) 2,585
-------
3,660
Cash payments (925)
-------
Accrued costs at December 31, 2002 $ 2,735
=======
(1) Severance costs of $0.9 million are reflected in costs of revenue
and $0.2 million is reflected in general and administrative.
(2) Lease cancellation costs are reflected in costs of revenue.
Results of Operations
The following tables state for the periods indicated our consolidated
operations in dollar and percentage of revenue terms for 2000, 2001 and
2002 (dollars in thousands):
Year Ended December 31,
2000 2001 2002
-------------------------------------------
Revenue $1,330,296 $1,222,580 $ 838,055
Costs of revenue, excluding
depreciation 1,017,878 988,198 745,178
Depreciation 52,413 51,707 35,063
Amortization 11,042 10,810 883
General and administrative expenses 98,521 290,040 117,395
Godwill impairment - - 79,710
Interest expense, net of
interest income 13,310 14,651 18,168
Other expense, net 25,756 14,618 10,129
---------- ---------- ----------
Income (loss) before (provision)
benefit for income taxes
and minority interest 111,376 (147,444) (168,471)
(Provision) benefit for income taxes (45,877) 54,858 65,473
Minority interest (352) 232 (137)
---------- ---------- ----------
Net income (loss) before cumulative
effect of change in
accounting principle 65,147 (92,354) (103,135)
Cumulative effect of change in
accounting principle - - (25,671)
---------- ---------- ----------
Net income (loss) $ 65,147 $ (92,354) $ (128,806)
========== ========== ==========
Year Ended December 31,
2000 2001 2002
------ ------ ------
Revenue 100.0% 100.0% 100.0%
Costs of revenue 76.5 80.8 88.9
Depreciation 4.0 4.2 4.2
Amortization 0.8 0.9 0.1
General and administrative expenses 7.4 23.7 14.0
Goodwill impairment - - 9.5
Interest expense, net of
interest income 1.0 1.2 2.2
Other expense, net 1.9 1.3 1.2
----- ----- -----
Income (loss) before (provision)
benefit for income taxes,
and minority interest 8.4 (12.1) (20.1)
(Provision) benefit for income
taxes (3.4) 4.4 7.8
Minority interest (0.1) 0.1 -
----- ----- -----
Net income (loss) before cumulative
effect of change in
accounting principle 4.9 (7.6) (12.3)
Cumulative effect of change in
accounting principle - - (3.1)
----- ----- -----
Net income (loss) 4.9% (7.6)% (15.4)%
===== ===== =====
Year ended December 31, 2002, compared to year ended December 31, 2001
Our revenue was $838.1 million for the year ended December 31, 2002,
compared to $1,222.6 million for the same period in 2001, representing a
decrease of $384.5 million or 31.5%. This decrease was due primarily to a
continued reduction in capital expenditures by incumbent communications and
broadband clients and our decision to reduce services to certain Competitive
Local Exchange Carriers (CLEC) due to adverse financial condition
experienced by many such carriers. In addition, our fourth quarter 2002
revenues were negatively impacted by weather conditions. By industry
category, revenues in our Broadband construction operations declined by
$106.0 million, which was partially offset by increasing residential
installation revenues which reflected a $22.5 million increase. Our Energy
division reflected a $26.0 million or 15.0% decline in year over year revenues,
which was partially the result of exiting certain unprofitable contracts as
well as negative industry trends that resulted in reduced capital expenditures
by our customers. Our revenues from government contracts experienced a slight
(2.3%) decline in 2002, primarily as a result of poor weather conditions
in the southwestern, midatlantic, and southeastern United States. Inside
plant and wireless revenues reflected dramatic declines as we began to
significantly reduce these services. During the fourth quarter of 2002,
we implemented plans to exit certain unprofitable divisions and locations.
Revenue from these locations aggregated $77.8 million during 2002.
Our costs of revenue were $745.2 million or 88.9% of revenue for the
year ended December 31, 2002, compared to $988.2 million or 80.8% of
revenue for the same period in 2001. In 2002, margins were adversely
affected by under-utilization of personnel and equipment and demobilization
and redeployment costs as we adjusted to reduced capital spending by our
client base. In addition, our margins were negatively affected by
additional reserves for insurance and litigation, restructuring charges and
demobilization costs incurred to exit certain contracts and locations.
During the fourth quarter of 2002, we implemented plans to exit certain
locations or businesses which incurred costs of revenue aggregating $85.9
million in 2002.
Depreciation was $35.1 million or 4.2% of revenue for the year ended
December 31, 2002, compared to $51.7 million or 4.2% of revenue for the same
period in 2001. The decrease in the amount of depreciation expense in 2002
was due primarily to reduction of fixed assets resulting from disposals of
excess equipment.
Amortization expense decreased to $0.9 million for the year ended
December 31, 2002, compared to $10.8 million for the same period in 2001.
Goodwill is no longer amortized in accordance with SFAS No. 142 (see Note 2
to the Consolidated Financial Statements), which was implemented January 1,
2002. The remaining amortization expense relates to non-competition
agreements.
General and administrative expenses were $117.4 million or 14.0% of
revenue for the year ended December 31, 2002, compared to $290.0 million or
23.7% of revenue for the same period in 2001. Included in general and
administrative expenses in 2002 and 2001 are provisions for bad debts of
$15.4 million and $185.5 million, respectively. We incurred severance
charges totaling $0.2 million in 2002 in connection with our restructuring
plan, and $11.5 million in 2001 primarily related to our former president
and chief executive officer. Excluding these provisions and charges, general
and administrative expenses were $101.8 million or 12.1% of revenue for the
year ended December 31, 2002 and $93.0 million or 7.6% of revenue for the
year ended December 31, 2001, an increase of $8.8 million from the prior
year. General and administrative expenses as a percentage of revenue in
2002 was affected by an overall decline in revenues experienced during the
year without a similar reduction of expenses as well as additional costs
incurred in connection with our restructuring plan. We are currently
implementing additional measures to streamline our cost structure,
including exiting certain divisions and locations and activities that
added approximately $17.1 million to our overall general and
administrative expenses in 2002.
Interest expense, net of interest income, was $18.2 million or 2.2% of
revenue for the year ended December 31, 2002, compared to $14.7 million or
1.3% of revenue for the same period in 2001. We had no outstanding draws on
our credit facility as of December 31, 2002. Although we continue to incur
interest expense from our long term debt and periodic credit line borrowing
to meet working capital needs and support various letters of credit, we have
reduced interest expense by $1.2 million during the year. This reduction
was partially offset by a $4.7 million reduction in interest income from
notes receivable.
Other expense was $10.1 million or 1.2% of revenue for the year ended
December 31, 2002, compared to $14.6 million of other expense or 1.3% of
revenue for the same period in 2001. In 2002, a $5.0 million gain on
disposal of certain non-core assets, investments and excess equipment was
offset by a $13.2 million valuation allowance to reduce the carrying value
of certain assets held for sale, long lived assets in use and investments.
In 2001, we recorded an impairment charge of $6.5 million related to our
equity investment in a client and a $10.0 million write-down of non-core
international assets
For the year ended December 31, 2002, our effective tax rate was
approximately 37.9%, compared to 37.2% in 2001. The increase in effective
rate was due to the nondeductibility of certain expenses which reduced the
overall tax benefit in 2002 due to a proportionate increase in our loss
for 2002 relative to 2001.
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
Our revenue was $1.2 billion for the year ended December 31, 2001,
compared to $1.3 billion for the same period in 2000, representing a
decrease of $107.7 million or 8.1% primarily due to a reduction in capital
expenditures by telecommunications clients and a downturn in the economy
generally.
Our costs of revenue were $988.2 million or 80.8% of revenue for the
year ended December 31, 2001, compared to $1.0 billion or 76.5% of revenue
for the same period in 2000. In 2001, margins were impacted by under-
utilization of personnel, leased equipment and other properties; losses
related to our internal network service offerings; and demobilization and
redeployment costs, all related to reduced capital spending by
telecommunication carriers.
Depreciation was $51.7 million or 4.2% of revenue for the year ended
December 31, 2001, compared to $52.4 million or 4.0% of revenue for the
same period in 2000. The decrease in the amount of depreciation expense
in 2001 was due primarily to reduced capital expenditures.
Amortization was $10.8 million or 0.9% of revenue for the year ended
December 31, 2001, compared to $11.0 million or 0.8% of revenue for the same
period in 2000. Beginning January 1, 2002, goodwill was no longer
amortized as a result of the adoption of SFAS 142.
General and administrative expenses were $290.0 million or 23.7% of
revenue for the year ended December 31, 2001, compared to $98.5 million or
7.4% of revenue for the same period in 2000. Included in general and
administrative expenses in 2001 is a reserve for bad debt of $182.2 million
related to receivables from clients that have filed for bankruptcy
protection or are experiencing financial difficulties and a charge of
$11.5 million primarily related to severance for our former president and
chief executive officer. Excluding these charges and reserves, general and
administrative expenses were $96.3 million or 7.9% of revenue, a reduction
of $2.2 million from the prior year.
Interest expense, net of interest income, was $14.7 million or 1.2% of
revenue for the year ended December 31, 2001, compared to $13.3 million or
1.0% of revenue for the same period in 2000. The increase in net interest
expense of $1.4 million was due primarily to higher debt balances in 2001.
Other expense was $14.6 million or 1.3% of revenue for the year ended
December 31, 2001, compared to $25.8 million or 1.9% of revenue for the same
period in 2000. In 2001, we recorded an impairment charge of $6.5 million
related to our equity investment in a client and a $10 million write-down of
non-core international assets. In 2000, we recognized a net charge of $26.3
million primarily related to write-downs of non-core international assets.
For the year ended December 31, 2001, our effective tax rate was
approximately 37.2%, compared to 41.2% in 2000. The decline in effective
rate was due to the nondeductibility of certain expenses which reduced the
overall tax benefit in 2001 proportionately more than increased the tax
provision in 2000 due to the greater amount of the loss in 2001 compared to
the amount of income in 2000.
Financial Condition, Liquidity and Capital Resources
We derive a significant amount of our revenue from communications
providers. During the last two years, the communications industry suffered
a severe downturn that resulted in a number of our clients filing for
bankruptcy protection or experiencing financial difficulties. The downturn
adversely affected capital expenditures for infrastructure projects even
among clients that did not experience financial difficulties. Capital
expenditures by telecommunications and other clients in 2003 are expected
to remain at low levels in comparison with prior years, and there can be no
assurance that additional clients will not file for bankruptcy protection or
otherwise experience financial difficulties in 2003. Although we have
refocused our business on established, stable communications, energy,
government entities and other clients, there can be no assurance that these
clients will continue to fund capital expenditures for infrastructure
projects at current levels or that we will be able to increase our market
share with these stronger clients. Further decreases in our client's
capital expenditures could reduce our cash flows and adversely impact our
liquidity.
Our primary liquidity needs are for working capital, capital
expenditures, letters of credit and debt service. Our primary sources of
liquidity are cash flows from operations, borrowings under revolving lines of
credit, tax refunds and sale of property and assets. During the fourth
quarter of 2002, we recorded certain restructuring charges aggregating $8.2
million, including consulting fees, of which $6.3 million remains outstanding
as of December 31, 2002. We anticipate payment of approximately $5.2 million
during 2003 and $1.1 million in 2004.
Net cash provided by operating activities was $57 million for the year
ended December 31, 2002, compared to $54.8 million in 2001. The net cash
provided by operating activities in 2002, in part resulted from collection
of receivables, changes in other working capital components, and receipt of
a $53.4 million income tax refund resulting from losses incurred in 2001.
Proceeds from the income tax refund were used to repay all borrowings under
our credit facility at the time of receipt.
We have a credit facility for U.S. operations that provides for
borrowings up to an aggregate of $125.0 million, based on a percentage of
eligible accounts receivable and unbilled receivables as well as a fixed
amount of equipment that decreases quarterly. Although the credit facility
provides for borrowings of up to $125.0 million, the amount that can be
borrowed at any given time is based upon a formula that takes into account,
among other things, our eligible billed and unbilled accounts receivable,
which can result in borrowing availability of less than the full amount of
the facility. As of December 31, 2002, availability under the credit
facility totaled $39 million net of outstanding standby letters of credit
aggregating $47 million. Substantially all of the outstanding letters of
credit are all issued to the Company's insurance providers as part of the
Company's insurance program. We had no outstanding draws under the credit
facility as of December 31, 2002. Amounts outstanding under the revolving
credit facility mature on January 22, 2007. The credit facility is
collateralized by a first priority security interest in substantially all
of our U.S. assets and a pledge of the stock of certain of our operating
subsidiaries. Interest under the facility accrues at rates based, at our
option, on the agent bank's base rate plus a margin of between 0.50% and
1.50% or its LIBOR rate (as defined in the credit facility) plus a margin of
between 2.0% and 3.0% each depending on certain financial thresholds. The
credit facility includes an unused facility fee of 0.50%, which may be
adjusted to as low as 0.375% or as high as 0.625% depending on the
achievement of certain financial thresholds.
The credit facility, as amended in March 2003, contains customary
events of default (including cross-default) provisions and covenants related
to our North American operations that prohibit, among other things, making
investments and acquisitions in excess of a specified amount, incurring
additional indebtedness in excess of a specified amount, paying cash
dividends, making other distributions in excess of a specified amount, making
capital expenditures in excess of a specified amount, creating liens,
prepaying other indebtedness, including our 7.75% senior subordinated notes,
and engaging in certain mergers or combinations without the prior written
consent of the lenders. In addition, deterioration in the quality of our
billed and unbilled receivables will reduce availability under our credit
facility.
The credit facility, as amended in March 2003, contains certain
financial covenants that require us to maintain:
(a) tangible net worth
(i) on or after March 31, 2002 and on or prior to December 31,
2002 of $180.0 million plus an amount equal to 50% of net
income from North American operations with certain adjustments
for non-recurring charge amounts for the period from September
30, 2002 through December 31, 2002 and
(ii) any time after December 31, 2002 the greater of our tangible
net worth from North American operations and $167.0 million
less $10.0 million, plus an amount equal to 50% of net income
from North American operations from January 1, 2003 through
the date of determination, and
(b) a minimum fixed charge coverage ratio (all as defined in the
credit facility) of at least:
for calendar year, 2002, of at least 2.0:1 for the successive
periods of three, four, five, six, seven, eight, nine, ten, eleven
and twelve consecutive calendar months beginning January 1, 2002
and for calendar year 2003 of at least:
(i) 1.10:1 for the successive periods of three, four and five
consecutive calendar months beginning January 1, 2003;
(ii) 1.25:1 for the successive periods of six, seven and eight
consecutive calendar months beginning January 1, 2003;
(iii) 1.50:1 for the successive periods of nine, ten and eleven
consecutive calendar months beginning on January 1, 2003;
(iv) 1.75:1 for the period of 12 consecutive calendar months
ending on December 31, 2003 and
(v) 2.0:1 for the period of 12 consecutive months ending on or
after January 31, 2004.
As of December 31, 2002, we were in compliance with all of the
covenants under the credit facility, as amended in March 2003. During
2002, we amended the credit facility to provide a sub-facility for the
issuance of letters of credit to secure our potential obligations under
casualty insurance programs, to exclude a portion of the cost of
implementing our new management information system, and to modify certain
financial covenants. Failure to achieve certain results could cause us not
to meet these covenants in the future.
We have $200.0 million, 7.75% senior subordinated notes due in
February 2008, with interest due semi-annually, of which $196.0 million,
net of discount, is outstanding at December 31, 2002. The notes also
contain default (including cross-default) provisions and covenants
restricting many of the same transactions as under our credit facility.
During the year ended December 31, 2002, we paid approximately $17.3
million related to contingent consideration from earlier acquisitions that
was reflected as a reduction in other current liabilities. During the
year ended December 31, 2002, we invested $11.6 million in our fleet to
replace or upgrade equipment and $7.4 million in technology enhancements
including approximately $1.2 million of which was financed. Also, we
received proceeds of approximately $14.3 million on the sale of assets
and disposal of assets held for sale and investments. During year ended
December 31, 2002, our financing activities primarily consisted of the
repayment of all borrowings under our credit facility using the proceeds
from the $53.4 million income tax refund received, sales of assets and cash
generated from operations.
The following table sets forth our contractual commitments as of
December 31, 2002 (in thousands) and the payment obligations:
2007 &
Contractual Obligations Total 2003 2004 2005 2006 Thereafter
- -------------------------------------------------------------------------------
Senior subordinated notes (1) $195,860 $ - $ - $ - $ - $195,860
Notes payable for equipment(1) 1,955 380 1,575 - - -
Other revolving debt(1) 827 827 - - - -
Obligations related to
acquisitions (2) 4,919 4,919 - - - -
Capital leases (3) 2,291 974 703 566 48 -
Severance 571 414 157
Operating leases 31,266 13,660 9,142 4,791 2,035 1,638
-------- ------- ------- ------- ------ --------
Total $237,689 $21,174 $11,577 $ 5,357 $2,083 $197,498
======== ======= ======= ======= ====== ========
(1) See Note 6 to the Notes to Consolidated Financial Statements.
(2) Primarily related to contingent consideration for acquisitions.
(3) Included in other liabilities in Consolidated Balance Sheets.
Total
Amounts 2007 &
Other Commitments Committed 2003 2004 2005 2006 Thereafter
- -----------------------------------------------------------------------------
Standby letters of credit $46,704 $46,704 $ - $ - $ - $ -
Executive life insurance 22,856 1,624 1,624 1,624 1,124 16,860
------- ------- ------ ------ ------ -------
Total $69,560 $48,328 $1,624 $1,624 $1,124 $16,860
======= ======= ====== ====== ====== =======
Seasonality
Our North American operations are historically seasonally slower in the
first and fourth quarters of the year. This seasonality is primarily the
result of client budgetary constraints and preferences and the effect of
winter weather on external network activities. Some of our clients,
particularly the incumbent local exchange carriers, tend to complete
budgeted capital expenditures before the end of the year and defer
additional expenditures until the following budget year. Revenue in local
currency from our Brazilian operations is not expected to fluctuate
seasonally.
Impact of Inflation
The primary inflationary factor affecting our operations is increased
labor costs. We have not experienced significant increases in labor costs
to date. Our Brazilian operations may be exposed to risks associated with
high inflation.
Recently Issued Accounting Pronouncements
In 2001, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 requires
that goodwill be assessed at least annually for impairment by applying a
fair-value based test. Goodwill will no longer be amortized over its
estimated useful life. In addition, acquired intangible assets are required
to be recognized and amortized over their useful lives if the benefit of the
asset is based on contractual or legal rights. Effective January 1, 2002,
we implemented SFAS No. 142, which resulted in a write-down of our goodwill,
net of tax, in the amount of $25.7 million and is reflected in our
consolidated financial statements as a cumulative effect due to a change in
accounting principle. Subsequent to adoption, a $79.7 million impairment
charge was recognized in the fourth quarter of 2002 in the accompanying
consolidated statement of operations.
In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses
financial accounting and reporting for the impairment or disposal of long-
lived assets. This statement supersedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
and establishes a single accounting model, based on the framework
established in SFAS No. 121, for long-lived assets to be disposed of by
sale. We adopted SFAS No. 144 effective January 1, 2002. The adoption of
this statement had a material effect on the Company's operating results as
of December 31, 2002, as we recorded valuation allowances and impairment
charges against certain assets held for sale and in use, which aggregated
$12.8 million.
In May 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections. SFAS No. 145 rescinds the automatic treatment of
gains or losses from extinguishment of debt as extraordinary unless they
meet the criteria for extraordinary items as outlined in APB Opinion No.
30, Reporting the Results of Operations, Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions. SFAS No. 145 also requires sale-
leaseback accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions and makes various
technical corrections to existing pronouncements. The provisions of SFAS
No. 145 related to the rescission of FASB Statement 4 are effective for
fiscal years beginning after May 15, 2002, with early adoption encouraged.
All other provisions of SFAS No. 145 are effective for transactions
occurring after May 15, 2002, with early adoption encouraged. We do not
anticipate that adoption of SFAS No. 145 will have a material effect on
our earnings or financial position.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This statement requires the
recording of costs associated with exit or disposal activities at their fair
values only once a liability exists. Under previous guidance, certain exit
costs were accrued when management committed to an exit plan, which may have
been before an actual liability arose. The provisions of SFAS No. 146 are
effective for exit or disposal activities that are initiated after December
31, 2002, with early application encouraged. We do not anticipate that
adoption of SFAS No. 146 will have a material effect on our earnings or
financial position.
In December 2002, the Financial Accounting Standards Board issued
Statement of Accounting Standards No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure an Amendment of FASB Statement No.
123 ("SFAS 148") which is effective for years ending after December 15, 2002.
SFAS 148 amends Statement of Accounting Standards No. 123, "Acconting for
Stock-Based Compensation" ("SFAS 123"), to provide alternative methods of
transition for an entity that voluntarily changes to the fair value based
method of accounting for stock-based employee compensation. It also amends
the disclosure provisions of SFAS 123 to require prominent disclosure about
the effects on reported net earnings of an entity's accounting policy
decisions with respect to stock-based compensation. Finally, SFAS 148
amends APB Opinion No. 28, "Interim Financial Reporting," to require
disclosure about those effects in interim financial information. We will
continue to apply APB Opinon No. 25, "Accounting for Stock Issued to
Employees" and related interpretations in accounting for stock-based
compensation plans, which continues to be allowed under SFAS 123, as
amended by SFAS 148. In addition, we have made the required disclosure
provisions required by SFAS 148 in Notes 1 and 9 of the Notes to the
Consolidated Financial Statements and will include the additional required
disclosures in all future interim financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Notes 12 and 13 of Notes to Consolidated Financial Statements
for disclosures about market risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Page
Report of Independent Certified Public Accountants..........................26
Report of Independent Certified Public Accountants..........................27
Consolidated Statements of Operations for the Three Years Ended
December 31, 2002.........................................................28
Consolidated Balance Sheets as of December 31, 2001 and 2002................29
Consolidated Statements of Changes in Shareholders' Equity for the
Three Years Ended December 31, 2002.......................................30
Consolidated Statements of Cash Flows for the Three Years Ended
December 31, 2002.........................................................31
Notes to Consolidated Financial Statements..................................33
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and
Shareholders of MasTec, Inc.:
We have audited the accompanying consolidated balance sheet of MasTec, Inc.
as of December 31, 2002 and the related consolidated statement of operations,
shareholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of MasTec,
Inc. at December 31, 2002 and the consolidated results of their operations
and their cash flows for year then ended, in conformity with accounting
principles generally accepted in the United States.
As discussed in Note 2 to the Financial Statements in 2002, the Company
adopted Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets.
/s/ Ernst & Young LLP
Miami, Florida
March 10, 2003
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and
Shareholders of MasTec, Inc.:
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of operations, changes in shareholders'
equity and cash flows present fairly, in all material respects, the
financial position of MasTec, Inc. and its subsidiaries at December 31,
2001, and the results of their operations and their cash flows for each
of the two years in the period ended December 31, 2001 in conformity with
accounting principles generally accepted in the United States of America.
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 of these
statements in accordance with auditing standards generally accepted in the
United States of America, which 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, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
Miami, Florida
February 18, 2002
MASTEC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
Year Ended December 31,
2000 2001 2002
---------- ---------- ----------
Revenue $1,330,296 $1,222,580 $ 838,055
Costs of revenue, excluding
depreciation 1,017,878 988,198 745,178
Depreciation 52,413 51,707 35,063
Amortization 11,042 10,810 883
General and administrative expenses 98,521 290,040 117,395
Goodwill impairment - - 79,710
Interest expense 18,283 20,426 19,237
Interest income 4,973 5,775 1,069
Other expense, net 25,756 14,618 10,129
---------- ---------- ----------
Income (loss) before (provision)
benefit for income taxes and
minority interest 111,376 (147,444) (168,471)
(Provision) benefit for income taxes (45,877) 54,858 65,473
Minority interest (352) 232 (137)
---------- ---------- ----------
Net income (loss) before cumulative
change in accounting principle 65,147 (92,354) (103,135)
Cumulative change in accounting
principle - - (25,671)
---------- ---------- ----------
Net income (loss) $ 65,147 $ (92,354) $ (128,806)
========== ========== ==========
Basic weighted average common
shares outstanding 46,390 47,790 47,922
Basic earnings (loss) per share
before cumulative change
in accounting principles $ 1.40 $ (1.93) (2.15)
Cumulative change in accounting
principle - - (0.54)
---------- ---------- ----------
Basic earnings (loss) per share $ 1.40 $ (1.93) $ (2.69)
========== ========== ==========
Diluted weighted average common
shares outstanding 48,374 47,790 47,922
Diluted earnings (loss) per share
before cumulative change in
accounting principles $ 1.35 $ (1.93) $ (2.15)
Cumulative change in accounting
principle - - (0.54)
---------- ---------- ----------
Diluted earnings (loss) per share $ 1.35 $ (1.93) $ (2.69)
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
MASTEC, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31
-----------------------
2001 2002
---------- ---------
Assets
Current assets:
Cash and cash equivalents. . . . . . . . . . $ 48,478 $ 8,730
Accounts receivable, unbilled revenue and
retainage, net. . . . . . . . . . . . . . . 251,715 185,235
Inventories. . . . . . . . . . . . . . . . . 25,697 23,736
Income tax refund receivable . . . . . . . . 44,904 24,598
Prepaid expenses and other current assets. . 23,078 32,873
--------- ---------
Total current assets . . . . . . . . . . . 393,872 275,172
Property and equipment, net. . . . . . . . . . 151,774 118,475
Goodwill . . . . . . . . . . . . . . . . . . . 264,826 150,984
Deferred taxes . . . . . . . . . . . . . . . . - 40,271
Other assets . . . . . . . . . . . . . . . . . 40,900 38,890
--------- ---------
Total assets . . . . . . . . . . . . . . . $ 851,372 $ 623,792
========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of debt . . . . . . . . $ 1,892 $ 1,207
Accounts payable . . . . . . . . . . . . . 75,508 63,492
Other current liabilities. . . . . . . . . 68,410 65,696
--------- ---------
Total current liabilities. . . . . . . . 145,810 130,395
--------- ---------
Other liabilities. . . . . . . . . . . . . . 30,902 22,214
--------- ---------
Long-term debt . . . . . . . . . . . . . . . 267,857 197,435
--------- ---------
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value; authorized
shares - 5,000,000; issued and outstanding
shares - none. . . . . . . . . . . . . . - -
Common stock $0.10 par value; authorized
shares - 100,000,000; issued and outstanding
shares - 47,905,000 in 2001 and
48,006,000 in 2002 . . . . . . . . . . . 4,791 4,801
Capital surplus. . . . . . . . . . . . . . 348,022 348,319
Retained earnings (deficit). . . . . . . . 73,996 (54,810)
Foreign currency translation adjustments . (20,006) (24,562)
--------- ---------
Total shareholders' equity . . . . . . . 406,803 273,748
--------- ---------
Total liabilities and shareholders' equity $ 851,372 $ 623,792
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
Foreign Accumulated
Common Stock Currency Other
-------------- Capital Retained Translation Comprehensive
Shares Amount Surplus Earnings Adjustments Total Income
------ ------ -------- -------- ----------- -------- -----------
Balance December 31, 1999 42,350 $4,235 $167,387 $101,203 $(15,992) $256,833 $ 85,211
Net income - - - 65,147 - 65,147 65,147
Foreign currency translation
adjustment - - - - (899) (899) (899)
Stock issued, primarily for
acquisitions and stock
options exercised 5,352 535 173,804 - - 174,339 -
Tax benefit resulting from
stock option plan - - 4,908 - - 4,908 -
------ ------ -------- -------- -------- -------- --------
Balance December 31, 2000 47,702 $4,770 $346,099 $166,350 $(16,891) $500,328 $149,459
Net loss - - - (92,354) - (92,354) (92,354)
Foreign currency translation
adjustment - - - - (3,115) (3,115) (3,115)
Stock issued, primarily for
acquisitions and stock
options exercised 203 21 1,923 - - 1,944 -
------ ------ -------- -------- -------- -------- --------
Balance December 31, 2001 47,905 $4,791 $348,022 $ 73,996 $(20,006) $406,803 $ 53,990
Net loss - - - (128,806) - (128,806) (128,806)
Foreign currency translation
adjustment - - - - (4,556) (4,556) (4,556)
Stock issued, primarily for stock
options exercised 101 10 297 - - 307 -
------ ------ -------- -------- -------- -------- --------
Balance December 31, 2002 48,006 $4,801 $348,319 $( 54,810) $(24,562) $273,748 $(79,372)
====== ====== ======== ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
------------------------------
2000 2001 2002
-------- -------- ---------
Cash flows from operating activities:
Net income (loss). . . . . . . . . . . . . $ 65,147 $(92,354) $(128,806)
Adjustments to reconcile net income
(loss) to net cash (used in) provided
by operating activities:
Depreciation and amortization. . . . . . 63,455 62,517 35,946
Minority interest. . . . . . . . . . . . 352 (232) 137
Gain on disposal of assets and investments (450) (863) (5,520)
Bad debt expense . . . . . . . . . . . . - 182,200 15,418
Write-down of assets . . . . . . . . . . 23,024 16,500 20,375
Cumulative change in accounting
principle, net . . . . . . . . . . . . - - 25,671
Goodwill impairment. . . . . . . . . . . - - 79,710
Deferred income tax provision (benefit). 981 719 (41,783)
Changes in assets and liabilities net
of effect of acquisitions:
Accounts receivable, unbilled revenue
and retainage, net . . . . . . . . . (109,470) (17,121) 41,709
Inventories. . . . . . . . . . . . . . (4,347) (5,807) (3,031)
Income tax refunds . . . . . . . . . . - (44,904) 53,414
Other assets, current and non-current
portion. . . . . . . . . . . . . . . (56,665) (525) (35,701)
Accounts payable . . . . . . . . . . . (1,433) (3,701) (11,768)
Other liabilities, current and non-
current portion. . . . . . . . . . . 7,535 (41,617) 11,201
-------- -------- ---------
Net cash (used in) provided by operating
activities . . . . . . . . . . . . . . . . (11,871) 54,812 56,972
-------- -------- ---------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . (52,638) (43,915) (18,965)
Cash paid for acquisitions and contingent
consideration, net of cash acquired. . . (55,303) (30,313) (17,269)
Investments in unconsolidated companies
and distribution to joint venture
partner. . . . . . . . . . . . . . . . . (4,900) (11,450) -
Investment in life insurance policies. . . - - (1,840)
Repayment of notes receivable. . . . . . . 1,100 - -
Net proceeds from sale of assets and
investments. . . . . . . . . . . . . . . 54,065 2,336 14,280
-------- -------- ---------
Net cash used in investing activities. . . . (57,676) (83,342) (23,794)
-------- -------- ---------
Cash flows provided by (used in) financing
activities:
Proceeds (repayments) from revolving
credit facilities, net . . . . . . . . . (71,538) 58,645 (71,107)
Proceeds from issuance of common stock . . 133,695 1,146 307
-------- -------- ---------
Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . . . 62,157 59,791 (70,800)
-------- -------- ---------
Net (decrease) increase in cash and cash
equivalents. . . . . . . . . . . . . . . . (7,390) 31,261 (37,622)
Net effect of translation on cash. . . . . . (1,788) (1,240) (2,126)
Cash and cash equivalents--beginning
of period. . . . . . . . . . . . . . . . . 27,635 18,457 48,478
-------- -------- ---------
Cash and cash equivalents--end of period . . $ 18,457 $ 48,478 $ 8,730
======== ======== =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . $ 18,042 $ 20,115 $ 19,576
======== ======== =========
Income taxes . . . . . . . . . . . . . . . $ 44,618 $ 10,016 $ 1,555
======== ======== =========
(continued)
The accompanying notes are an integral part of these consolidated financial
statements.
MASTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS-(Continued)
During the year ended December 31, 2000, we completed certain
acquisitions which have been accounted for as purchases. The fair value of
the net assets acquired excluding goodwill totaled $16.2 million and was
comprised primarily of $26.9 million of accounts receivable, $9.4 million of
property and equipment, $1.1 million of other assets and $5.8 million in
cash, offset by $27.0 million of assumed liabilities. The excess of the
purchase price over the net assets acquired was $73.4 million and was
allocated to goodwill. The total purchase price of $89.6 million was paid
by issuing $36.5 million of common stock (0.6 million shares) and notes and
$53.1 million in cash. We also issued 207,171 shares of common stock with a
value of $15.8 million related to the payment of contingent consideration
from earlier acquisitions. Of the $15.8 million, $0.2 million was recorded
as a reduction of other current liabilities and $15.6 million as additional
goodwill. Additionally, $8.0 million of contingent consideration was paid
in cash and was recorded as goodwill.
During the year ended December 31, 2001, we completed certain
acquisitions which have been accounted for as purchases. The fair value of
the net assets excluding goodwill acquired totaled $2.6 million and was
comprised primarily of $3.0 million of accounts receivable, $2.0 million of
property and equipment, $0.5 million of other assets and $0.2 million in
cash, offset by $3.1 million of assumed liabilities. The excess of the
purchase price over the fair value of net assets acquired was $2.7 million
and was allocated to goodwill. The total purchase price of $5.3 million is
comprised of $4.0 million in cash and the balance in seller financing. We
also paid approximately $25.9 million related to contingent consideration
from earlier acquisitions of which $0.6 million was reflected as additional
goodwill and $25.3 million reflected as a reduction in other current
liabilities.
During the year ended December 31, 2002, we paid approximately $17.3
million related to contingent consideration from earlier acquisitions that
was reflected as a reduction in other current liabilities.
The accompanying notes are an integral part of these consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Note 1 - Nature of the Business and Summary of Significant Accounting Policies
We are a leading end-to-end communication, broadband and energy
infrastructure service provider for a broad range of clients in North America
and Brazil. We design, build, install, maintain, upgrade and monitor internal
and external networks and other facilities for our clients. We are one of
the few national, multi-disciplinary infrastructure providers that furnishes
a comprehensive solution to our clients' infrastructure needs ranging from
basic installation and construction to sophisticated engineering, design and
integration. Our diverse and long-standing client base, experienced management
and integrated value added service offering provide a stable base of repeat
business and enable us to quickly and efficiently meet client demands.
A summary of the significant accounting policies followed in the
preparation of the accompanying consolidated financial statements is
presented below:
Management estimates. The preparation of financial statements in
conformity with accounting principles generally accepted in the United States
requires us to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenue and expenses, and related disclosure
of contingent assets and liabilities. The more significant estimates relate
to our revenue recognition, allowance for doubtful accounts, intangible
assets, accrued insurance, income taxes, litigation and contingencies. We
base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances, the results of
which form the basis for our judgments about our results and the carrying
values of our assets and liabilities. Actual results and values may differ
from these estimates.
Principles of consolidation. The consolidated financial statements
include MasTec, Inc. and its subsidiaries. Other parties' interests in
consolidated entities are reported as minority interests. All material
intercompany accounts and transactions have been eliminated.
Reclassifications. Certain prior year amounts have been reclassified
to conform to the 2002 presentation.
Comprehensive income (loss). As reflected in the consolidated statements
of changes in shareholders' equity, comprehensive income is a measure of net
income and all other changes in equity that result from transactions other
than with shareholders. Comprehensive loss consists of net loss and foreign
currency translation adjustments. Our comprehensive income (losses) for the
years ended December 31, 2000, 2001 and 2002 were $64.2 million, $(95.5)
million and $(133.4) million, respectively.
Foreign currency. We operate in Brazil, which is subject to greater
political, monetary, economic and regulatory risks than our domestic
operations. Assets and liabilities of foreign subsidiaries and equity with a
functional currency other than U.S. dollars are translated into U.S. dollars
at exchange rates in effect at the end of the reporting period. Foreign
entity revenue and expenses are translated into U.S. dollars at the average
rates that prevailed during the period. The resulting net translation gains
and losses are reported as foreign currency translation adjustments in
shareholders' equity as a component of other accumulated comprehensive
income. Exchange gains and losses on transactions and equity investments
denominated in a currency other than their functional currency are included
in results of operations as incurred.
Revenue recognition. Revenue and related costs for short-term
construction projects (i.e., generally projects with a duration of less than
one month) are recognized as the services are rendered, generally using units
of output. Revenue generated by certain long-term construction contracts are
accounted for by the percentage of completion method under which income is
recognized based on the ratio of estimated cost incurred to total estimated
contract cost. We follow this method since reasonably dependable estimates of
the revenue and costs applicable to various stages of a contract can be made.
Recognized revenue and profits are subject to revisions as the contract
progresses to completion. Revisions in profit estimates are charged to income
in the period in which the facts that give rise to the revision become known.
We also provide management, coordination, consulting and administration
services for network infrastructure projects. Compensation for such services
is recognized ratably over the term of the service agreement. At the time a
loss on a contract becomes known, the entire amount of the estimated ultimate
loss is accrued.
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. Work in process on contracts is
based on work performed but not billed to clients as per individual contract
terms.
Allowance for doubtful accounts. We maintain allowances for doubtful
accounts for estimated losses resulting from the inability of our clients to
make required payments. Management analyzes historical bad debt experience,
client concentrations, client credit-worthiness, the availability of
mechanic's and other liens, the existence of payment bonds and other sources
of payment, and current economic trends when evaluating the adequacy of the
allowance for doubtful accounts.
Earnings per share. Basic earnings per common share is computed by
dividing income available to common shareholders by the weighted average
number of common shares outstanding. Diluted earnings per common share
include the dilutive effect of stock options using the treasury stock
method. The difference between the weighted average common shares outstanding
used to calculate basic and diluted earnings per share relates to stock
options assumed exercised under the treasury method of accounting of
approximately 1,984,000 for the year ended December 31, 2000. Included in
the diluted earnings per share computation are approximately 167,000 shares
for the year ended December 31, 2000 to be issued in connection with an
acquisition of a network service provider. Potentially dilutive shares for
the year ended December 31, 2001 and 2002 totaling 199,000 and 74,000 shares,
respectively, were not included in the diluted per share calculation because
their effect would be anti-dilutive. Accordingly, for the years ended
December 31, 2001 and 2002, diluted net loss per common share is the
same as basic net loss per common share.
Cash and cash equivalents. We consider all short-term investments with
maturities of three months or less when purchased to be cash equivalents.
At December 31, 2001 and 2002, we had cash and cash equivalents denominated
in Brazilian reals that translate to approximately $4.0 million and $1.5
million, respectively.
Inventories. Inventories (consisting principally of materials and
supplies) are carried at the lower of first-in, first-out cost or market.
During 2002, the Company recorded an obsolescence reserve of $5.2 million
in "Costs of revenue" in the consolidated statement of operations.
Property and equipment. Property and equipment are recorded at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the respective assets. Leasehold improvements are
depreciated 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 and depreciated over the remaining useful life
of the asset. 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 other income or expense.
Deferred Financing Costs. Deferred financing costs related to the
Company's revolving credit facility and the senior subordinated notes whose
short and long-term portions are included in other current and non-current
assets in the consolidated balance sheets are amortized over the related
terms of the debt using the effective interest method. The net deferred
financing costs were $3.1 million and $6.2 million at December 31, 2001 and
2002, respectively.
Software Capitalization. The Company capitalizes certain costs incurred
in connection with developing or obtaining internal use software in
accordance with American Institute of Certified Public Accountants Statement
of Position 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use. These capitalized software costs are included
in "Property and equipment, net" in the consolidated balance sheets and are
being amortized ratably over a period not to exceed seven years.
Intangibles and other long lived assets. Intangibles, long-lived assets
and goodwill are recorded at estimated fair value. Intangibles are amortized
on a straight-line basis over periods of up to 5 years. We assess the
impairment of identifiable intangibles, long-lived assets and goodwill
whenever events or changes in circumstances indicate that the carrying value
may not be recoverable.
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 142, Goodwill and
Other Intangible Assets. SFAS No. 142 requires that goodwill be assessed
at least annually for impairment by applying a fair-value based test.
Goodwill is no longer amortized over its estimated useful life. In addition,
acquired intangible assets are required to be recognized and amortized over
their useful lives if the benefit of the asset is based on contractual or
legal rights. Effective January 1, 2002, we adopted SFAS No. 142 resulting
in a write-down of our goodwill, net of tax, in the amount of $25.7 million,
which is reflected in our consolidated financial statements as a cumulative
effect due to a change in accounting principle as discussed in Note 2.
Impairment losses subsequent to adoption are performed during the fourth
quarter of each year starting in the fourth quarter of 2002 and are
reflected in operating income or loss in the consolidated statement of
operations. During the fourth quarter of 2002, we recorded an additional
impairment charge of $79.7 million which is reflected in operating losses
in the consolidated statement of operations for the year ended December 31,
2002.
In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses
financial accounting and reporting for the impairment or disposal of long-
lived assets. This statement supersedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
and establishes a single accounting model, based on the framework
established in SFAS No. 121, for long-lived assets to be disposed of by sale.
The Company reviews its long-lived assets, including property and
equipment that are held and used in its operations for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
asset may not be recoverable, as required by FAS 144. If such an event or
change in circumstances is present, the Company will estimate the
undiscounted future cash flows, less the future outflows necessary to obtain
those inflows, excpected to result from the use of the asset and its eventual
disposition. If the sum of the undiscounted future cash flows is less than
the carrying amount of the related assets, the Comany will recognize an
impairment loss or review its depreciation policies as may be appropriate.
The Company records impairment losses resulting from such abandonment in
operating income. Assets to be disposed of are reclassified as assets held
for sale at the lower of their carrying amount or fair value less costs to
sell. Write-downs to fair value less costs to sell are reported above the
operating income line as other expense. We adopted SFAS No. 144 effective
January 1, 2002. See Note 5 for discussion of impairment losses recognized
in 2002.
Accrued insurance. The Company is insured for worker's compensation,
employers' liability, auto liability, and general liability claims subject
to a $1.0 million deductible per claim. Losses up to the deductible amounts
are accrued based upon the Company's estimates of the ultimate liability for
claims incurred and an estimate of claims incurred but not reported. The
accruals are based upon known facts and historical trends and management
believes such accruals to be accurate. Because the Company retains those
risks, up to certain limits, a change in experience or actuarial assumptions
that did not affect the rate of claims payments could nonetheless materially
affect results of operations in a particular period.
Income taxes. We record income taxes using the liability method of
accounting for deferred income taxes. Under this method, deferred tax assets
and liabilities are recognized for the expected future tax consequence of
temporary differences between the financial statement and income tax bases of
our assets and liabilities. We estimate our income taxes in each of the
jurisdictions in which we operate. This process involves estimating our tax
exposure together with assessing temporary differences resulting from differing
treatment of items, such as deferred revenue, for tax and accounting purposes.
These differences result in deferred tax assets and liabilities, which are
included in our balance sheet. While we have considered future taxable income
and ongoing prudent and feasible tax planning strategies in assessing the need
for a valuation allowance, in the event that we determine that we will not be
able to realize all or part of the net deferred tax asset in the future, an
adjustment to the deferred tax asset would be charged to income in the period
such determination is made.
Stock Based Compensation. The Company accounts for its stock-based
award plans in accordance with Accounting Principle Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations,
under which compensation expense is recorded to the extent that the current
market price of the underlying stock exceeds the exercise price. Note 9
provides the assumptions used to calculate the pro forma net income (loss)
and pro forma earnings (loss) per share disclosures as if the stock-based
awards had been accounted for using the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based
Compensation. The required pro forma disclosures are as follows: (in
thousands, except per share data)
2000 2001 2002
-------- ---------- ----------
Net income (loss)
As reported $ 65,147 $ (92,354) $(128,806)
Pro forma $ 41,707 $(106,944) $(134,196)
Net income (loss)
Basic:
As reported $ 1.40 $ (1.93) $ (2.69)
Pro forma $ 0.90 $ (2.24) $ (2.80)
Net income (loss)
Diluted:
As reported $ 1.35 $ (1.93) $ (2.69)
Pro forma $ 0.86 $ (2.24) $ (2.80)
Fair value of financial instruments. We estimate the fair market value
of financial instruments through the use of public market prices, quotes from
financial institutions and other available information. Judgment is required
in interpreting data to develop estimates of market value and, accordingly,
amounts are not necessarily indicative of the amounts that we could realize
in a current market exchange. Our short-term financial instruments, including
cash and cash equivalents, accounts and notes receivable, accounts payable
and other liabilities, consist primarily of instruments without extended
maturities, the fair value of which, based on management's estimates, equaled
their carrying values. At December 31, 2001 and 2002, the fair value of
senior subordinated notes was $163.7 million and $170.5 million, respectively,
based on quoted market values. We use 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 marketplace.
New pronouncements. In May 2002, the FASB issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections. SFAS No. 145 rescinds the automatic
treatment of gains or losses from extinguishment of debt as extraordinary
unless they meet the criteria for extraordinary items as outlined in APB
Opinion No. 30, Reporting the Results of Operations, Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions. SFAS No. 145 also requires
sale-leaseback accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions and makes various
technical corrections to existing pronouncements. The provisions of SFAS
No. 145 related to the rescission of FASB Statement 4 are effective for
fiscal years beginning after May 15, 2002, with early adoption encouraged.
All other provisions of SFAS No. 145 are effective for transactions occurring
after May 15, 2002, with early adoption encouraged. We do not anticipate
that adoption of SFAS No. 145 will have a material effect on our results of
operations or financial position.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This statement requires the
recording of costs associated with exit or disposal activities at their fair
values only once a liability exists. Under previous guidance, certain exit
costs were accrued when management committed to an exit plan, which may have
been before an actual liability arose. The provisions of SFAS No. 146 are
effective for exit or disposal activities that are initiated after December
31, 2002, with early adoption encouraged. We do not anticipate that adoption
of SFAS No. 146 will have a material effect on our results of operations or
financial position.
In December 2002, the Financial Accounting Standards Board issued
Statement of Accounting Standards No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure an Amendment of FASB Statement No.
123 ("SFAS 148") which is effective for years ending after December 15,
2002. SFAS 148 amends Statement of Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), to provide
alternative methods of transition for an entity that voluntarily changes to
the fair value based method of accounting for stock-based employee
compensation. It also amends the disclosure provisions of SFAS 123 to
require prominent disclosure about the effects on reported net earnings of
an entity's accounting policy decisions with respect to stock-based
compensation. Finally, SFAS 148 amends APB Opinion No. 28, "Interim
Financial Reporting," to require disclosure about those effects in
interim financial information. We will continue to apply APB Opinon
No. 25, "Accounting for Stock Issued to Employees" and related
interpretations in accounting for stock-based compensation plans, which
continues to be allowed under SFAS 123, as amended by SFAS 148. In
addition, we have made the required prominent disclosure with respect to
stock-based compensation in Note 9 of the Notes to the Consolidated
Financial Statements and will include the additional required disclosures
in all future interim financial statements.
Note 2 - Goodwill and Other Intangible Assets
As discussed in Note 1, in January 2002 we adopted SFAS No. 142, which
requires companies to stop amortizing goodwill and certain intangible assets
with an indefinite useful life. Instead, SFAS No. 142 requires that goodwill
and intangible assets deemed to have an indefinite useful life be reviewed
for impairment upon adoption of SFAS No. 142 and annually thereafter.
Under SFAS No. 142, goodwill impairment is deemed to exist if the net
book value of a reporting unit exceeds its estimated fair value as
determined using a discounted cash flow methodology applied to the particular
unit. This methodology differs from MasTec's previous policy, in accordance
with accounting standards existing at that time, of using undiscounted cash
flows on an enterprise-wide basis to determine recoverability. Upon adoption
of SFAS No. 142 in the first quarter of 2002, we recorded a one-time,
non-cash charge of approximately $25.7 million net of $13.8 million tax
benefit to reduce the carrying value of our goodwill. This charge is
reflected as a cumulative effect of an accounting change in the accompanying
consolidated statement of operations. The SFAS No. 142 goodwill impairment
recorded in the first quarter is associated with goodwill resulting from the
acquisition of various inside plant infrastructure businesses and is based
on discounting our projected future cash flows for these companies. During
2001, our inside plant infrastructure businesses experienced losses due to a
decrease in demand for services from telecommunications equipment
manufacturers, competitive local exchange carriers and corporate clients.
Based on that trend, our earnings forecasts were revised, resulting in an
impairment of the goodwill associated with our acquisitions of businesses
that provide these services.
During the fourth quarter of 2002, we performed an annual review of
goodwill for impairment. The review resulted in a goodwill impairment
charge of approximately $79.7 million ($51.9 million, net of tax) and is
based, in part, on an overall decline in the market value of our stock and
market values of other companies that serve our industry. Impairment
adjustments recognized after adoption are required to be recognized as
operating expenses and have been presented under "Goodwill impairment" on
the accompanying consolidated statements of operations. The primary factors
contributing to the impairment charge was the overall deterioration of the
business climate during 2002, the continued depression in the Company's
stock price, and the expected termination of various operations as a result
of our restructuring plan (see Note 7).
A summary of changes in the Company's goodwill for the year ended
December 31, 2002 is as follows (in thousands):
Note 2 - Goodwill and Other Intangible Assets (cont'd)
Balance as of January 1, 2002 $ 264,826
Transitional impairment (39,512)
Annual evaluation (79,710)
Other reclassifications 5,380
---------
Balance as of December 31, 2002 $ 150,984
=========
The following table sets forth our results for the years ended December
31, 2000 and 2001, which are presented on a basis comparable to the 2002
results, adjusted to exclude amortization expense related to goodwill:
Year ended December 31,
---------------------------------
2000 2001 2002
--------- -------- ---------
Income (loss) before cumulative effect of
accounting change, as reported $ 65,147 $(92,354) $(103,135)
Adjustments:
Goodwill amortization, net of tax 6,857 6,234 -
--------- -------- ---------
Income (loss) before cumulative effect of
accounting change, as adjusted $ 72,004 $(86,120) $(103,135)
========= ======== =========
Net income (loss), as reported $ 65,147 $(92,354) $(128,806)
Adjustments:
Goodwill amortization, net of tax 6,857 6,234 -
--------- -------- ---------
Net income (loss), as adjusted $ 72,004 $(86,120) $(128,806)
========= ======== =========
Basic earnings per share:
Net income (loss), as reported $ 1.40 $ (1.93) $ (2.69)
Adjustments:
Goodwill amortization, net of tax 0.15 0.13 -
--------- -------- ---------
Net income (loss), as adjusted $ 1.55 $ (1.80) $ (2.69)
========= ======== =========
Diluted earnings per share:
Net income (loss), as reported $ 1.35 $ (1.93) $ (2.69)
Adjustments:
Goodwill amortization, net of tax 0.14 0.13 -
--------- -------- ---------
Net income (loss), as adjusted $ 1.49 $ (1.80) $ (2.69)
========= ======== =========
Note 3 - Other Assets and Liabilities
Other non-current assets consists of the following as of December 31,
2001 and 2002 (in thousands):
2001 2002
------- -------
Long-term receivables, including retainage $12,236 $11,311
Non-core investments 10,132 12,122
Real estate held for sale 5,473 1,683
Deferred finance costs, net 2,616 4,834
Cash surrender value of insurance policies 1,774 3,402
Non-compete agreement, net 1,323 810
Other 7,346 4,728
------- -------
Total $40,900 $38,890
======= =======
Other current and non-current liabilities consists of the following as
of December 31, 2001 and 2002 (in thousands):
Current liabilities 2001 2002
- ----------------------------------- -------- --------
Obligations related to prior acquisitions $ 21,246 $ 4,919
Accrued compensation 20,727 21,302
Accrued insurance 10,448 11,354
Accrued severance 7,250 571
Accrued interest 6,819 6,480
Other 1,920 21,070
-------- --------
Total $ 68,410 $ 65,696
======== ========
Non-current liabilities 2001 2002
- ----------------------------------- -------- --------
Accrued insurance $ 15,626 $ 18,521
Net deferred tax liability 10,011 -
Minority interest 2,170 1,797
Other 3,095 1,896
-------- --------
Total $ 30,902 $ 22,214
======== ========
Note 4 - Accounts Receivable
Accounts receivable, classified as current, consist of the following
(in millions):
2001 2002
------- -------
Contract billings $ 207.5 $ 157.7
Retainage 18.2 15.3
Unbilled revenue 46.0 38.0
------- -------
Total 271.7 211.0
Less Allowance for doubtful accounts 20.0 25.8
------- -------
Accounts receivable, net $ 251.7 $ 185.2
======= =======
Retainage, which has been billed but is not due until completion of
performance and acceptance by clients, is expected to be collected within
one year. Any retainage expected to be collected beyond a year is recorded
in long-term other assets.
For the Twelve Months Ended
($ amounts in millions)
---------------------------------------
December 31, December 31, December 31,
2000 2001 2002
----------- ----------- -----------
Allowance for doubtful accounts at
beginning of year $ 9.7 $ 11.0 $ 20.0
Additions charged to bad debt expense 6.6 185.5 15.4
Amounts charged against the allowance,
net of recoveries and reclasses (5.3) (176.5) (9.6)
----------- ----------- -----------
Allowance for doubtful accounts at
end of year $ 11.0 $ 20.0 $ 25.8
=========== =========== ===========
Note 5 - Property and Equipment
Property and equipment is comprised of the following as of December 31,
2001 and 2002 (in thousands):
Estimated
Useful Lives
2001 2002 (In Years)
--------- --------- ----------
Land $ 6,892 $ 6,451
Buildings and leasehold improvements 12,953 12,321 5 - 40
Machinery and equipment 290,606 253,135 2 - 15
Office furniture and equipment 29,544 39,726 3 - 5
--------- ---------
339,995 311,633
Less-accumulated depreciation (188,221) (193,158)
--------- ---------
$ 151,774 $ 118,475
========= =========
Management reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
realizable. If an evaluation is required, the estimated future undiscounted
cash flows associated with the asset are compared to the assets carrying
amount to determine if an impairment of such asset is necessary. The effect
of any impairment would be to expense the difference between the fair value
of such asset and its carrying value.
A review of the carrying value of property and equipment was conducted
during the fourth quarter of 2002 in accordance with SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets. This review was
conducted in connection with the Company's plan of exiting businesses that
did not have adequate revenue or margins to support the desired level of
profitability and consideration of changes in the business environment which
caused change in the extent and manner in which these assets were being used
(see Note 7).
An impairment loss of $12.8 million, including $3.1 million relating to
assets held and used, has been recognized and is presented as "Other expense"
on the accompanying Consolidated Statement of Operations for property and
equipment whose carrying value was not recoverable (carrying value exceeded
undiscounted cash flows expected to result from the use and eventual
disposition of the assets) and exceeded its fair market value. Fair market
value was determined by independent valuations.
As a result of the review, included in property and equipment on the
accompanying Consolidated Balance Sheet is property and equipment that is
held and used, the carrying amount of which is $3.0 million. These assets
held and used are expected to be disposed of by selling them to third
parties within the next 12 months.
Note 6 - Debt
Debt is comprised of the following at December 31, 2001 and 2002
(in thousands):
2001 2002
--------- --------
Revolving credit facility at LIBOR plus 2.25% or 4.18%
for 2001; and base rate plus 1.0 or 5.25% for base
rate loans and Libor + 2.50% for Libor loans for 2002 $ 70,000 $ -
Notes payable for equipment, at interest rates from
7.5% to 8.5% due in installments through the year 2004 2,397 1,955
Other revolving debt 1,520 827
7.75% senior subordinated notes due February 2008 195,832 195,860
--------- --------
Total debt 269,749 198,642
Less current maturities (1,892) (1,207)
--------- --------
Long-term debt $ 267,857 $197,435
========= ========
Revolving Credit Facility
We have a credit facility for U.S. operations that provides for
borrowings up to an aggregate of $125.0 million, based on a percentage of
eligible accounts receivable and unbilled receivables as well as a fixed
amount of equipment that decreases quarterly. Although the credit facility
provides for borrowings of up to $125.0 million, the amount that can be
borrowed at any given time is based upon a formula that takes into account,
among other things, our eligible billed and unbilled accounts receivable,
which can result in borrowing availability of less than the full amount of
the facility. As of December 31, 2002, availability under the credit
facility totaled $39 million net of outstanding standby letters of credit
aggregating $47 million. Substantially all of the outstanding letters of
credit are all issued to the Company's insurance providers as part of the
Company's insurance program. We had no outstanding draws under the credit
facility as of December 31, 2002. Amounts outstanding under the revolving
credit facility mature on January 22, 2007. The credit facility is
collateralized by a first priority security interest in substantially all
of our U.S. assets and a pledge of the stock of certain of our operating
subsidiaries. Interest under the facility accrues at rates based, at our
option, on the agent bank's base rate plus a margin of between 0.50% and
1.50% or its LIBOR rate (as defined in the credit facility) plus a margin
of between 2.0% and 3.0% each depending on certain financial thresholds.
The facility includes an unused facility fee of 0.50%, which may be
adjusted to as low as 0.375% or as high as 0.625% depending on the
achievement of certain financial thresholds.
The credit facility, as amended in March 2003, contains customary events
of default (including cross-default) provisions and covenants related to our
North American operations that prohibit, among other things, making
investments and acquisitions in excess of a specified amount, incurring
additional indebtedness in excess of a specified amount, paying cash
dividends, making other distributions in excess of a specified amount, making
capital expenditures in excess of a specified amount, creating liens,
prepaying other indebtedness, including our 7.75% senior subordinated notes,
and engaging in certain mergers or combinations without the prior written
consent of the lenders. In addition, deterioration in the quality of our
billed and unbilled receivables will reduce availability under our credit
facility.
The credit facility, as amended in March 2003, contains certain
financial covenants that require us to maintain:
(a) tangible net worth
(i.) on or after March 31, 2002 and on or prior to December 31,
2002 of $180.0 million plus an amount equal to 50% of net
income from North American operations with certain adjustments
for non-recurring charge amounts for the period from September
30, 2002 through December 31, 2002 and
(ii.) any time after December 31, 2002 the greater of our tangible
net worth from North American operations and $167.0 million
less $10.0 million, plus an amount equal to 50% of net income
from North American operations from January 1, 2003 through
the date of determination, and
(b) a minimum fixed charge coverage ratio (all as defined in the credit
facility) of at least:
(i.) for calendar year, 2002, of at least 2.0:1 for the successive
periods of three, four, five, six, seven, eight, nine, ten,
eleven and twelve consecutive calendar months beginning
January 1, 2002 and for calendar year 2003 of at least:
(ii.) 1.10:1 for the successive periods of three, four and five
consecutive calendar months beginning January 1, 2003;
(iii.) 1.25:1 for the successive periods of six, seven and eight
consecutive calendar months beginning January 1, 2003;
(iv.) 1.50:1 for the successive periods of nine, ten and eleven
consecutive calendar months beginning on January 1, 2003;
(v.) 1.75:1 for the period of 12 consecutive calendar months
ending on December 31, 2003 and
(vi.) 2.0:1 for the period of 12 consecutive months ending on or
after January 31, 2004.
As of December 31, 2002 we were in compliance with all of the covenants
under the credit facility, as amended in March 2003. During 2002, we
amended the credit facility to provide a sub-facility for the issuance of
letters of credit to secure our potential obligations under casualty
insurance programs, to exclude a portion of the cost of implementing our new
management information system, and to modify certain financial covenants.
Failure to achieve certain results could cause us not to meet these covenants
in the future.
Our variable rate credit facility exposes us to interest rate risk.
However, we believe that changes in interest rates should not materially
affect our financial position, results of operations or cash flows since at
December 31, 2002 we had no borrowings under our credit facility.
Senior Subordinated Notes
We have $200.0 million, 7.75% senior subordinated notes due in
February 2008, with interest due semi-annually, of which $195.9 million,
net of discount, is outstanding as of December 31, 2002. The notes also
contain default (including cross-default) provisions and covenants
restricting many of the same transactions as under our credit facility.
We had no holdings of derivative financial or commodity instruments at
December 31, 2002.
The maturities of long-term debt obligations (excluding capital leases)
as of December 31, 2002, are as follows (in thousands):
2003. . . . . . . . . . . . . $ 1,207
2004. . . . . . . . . . . . . 1,575
2005. . . . . . . . . . . . . -
2006. . . . . . . . . . . . . -
2007. . . . . . . . . . . . . -
Thereafter. . . . . . . . . . 195,860
---------
Total $ 198,642
=========
Note 7 - Restructuring Charges
During the second quarter of 2002, we initiated a study to determine the
proper balance of downsizing and cost cutting in relation to our ability to
respond to current and future work opportunities in each of our service
offerings. The review not only evaluated our current operations, but also
the growth and opportunity potential of each service offering as well as the
consolidation of back-office processes. As a result of this review, we
implemented a restructuring program which included four categories to
accomplish:
* Elimination of service offerings that no longer fit into our core
business strategy. This process includes reducing or eliminating
service offerings that do not fit our long-term business plan.
* Reduce or eliminate services that do not produce adequate revenue or
margins to support the level of profitability, return on investment or
investments in capital resources. This includes exiting contracts
that do not meet the minimum rate on return requirements and
aggressively seeking to improve margins and reduce costs.
* Analyze businesses that provide adequate profit contributions but still
need margin improvements which includes aggressive cost reductions and
efficiencies.
* Review new business opportunities in similar business lines that can
utilize our existing human and physical resources.
The elements of the restructuring program included involuntary
terminations of employees in affected service offerings and the
consolidation of facilities. The plan resulted in a pre-tax charge of
operations of $3.7 million. The involuntary terminations impacted both the
salaried and hourly employee groups. The total employees impacted was
approximately 1025. As of December 31, 2002, all employees have been
terminated and a balance of $0.6 million severance and benefit costs remains
to be paid. We also closed approximately 25 facilties during 2002 as part
of the program and anticipate further office closures in 2003. As of
December 31, 2002, we have remaining obligations under existing lease
agreements for closed facilities of approximately $2.1 million.
In addition to the costs noted above, we paid a consulting firm
approximately $4.6 million to assist us in preparing the plan, all of which
was expensed in 2002 as the plan was complete as of December 31,
2002. We also recognized valuation allowances and impairment losses related
to property and equipment of $12.8 million in connection with the
restructuring plan (see Note 6).
The following is a reconciliation of the restructuring accruals as of
December 31, 2002 (in thousands):
Severance costs (1) $ 1,075
Lease cancellation costs (2) 2,585
-------
3,660
Cash payments (925)
-------
Accrued costs at December 31, 2002 $ 2,735
=======
(1) Severance costs of $0.9 million are reflected in costs of revenue
and $0.2 million is reflected in generaland administrative.
(2) Lease cancellation costs are reflected in costs of revenue.
Note 8 - Lease Commitments
We have operating lease agreements for our premises and equipment that
expire on various dates. The operating lease agreements are subject to
escalation. Rent expense for the years ended December 31, 2000, 2001
and 2002 was approximately $14.4 million, $19.0 million and $18.5 million,
respectively.
Minimum future lease commitments under non-cancelable operating leases
in effect at December 31, 2002 were as follows (in thousands):
2003 $ 13,660
2004 9,142
2005 4,791
2006 2,035
2007 1,404
Thereafter 234
--------
Total minimum lease payments $ 31,266
Note 9 -- Retirement and Stock Option Plans
We have a 401(k) plan covering all eligible employees. Subject to
certain dollar limits, eligible employees may contribute up to 15% of their
pre-tax annual compensation to the plan. We currently match company common
stock 50% of the employee contributions up to 2% of their gross salary and
may make discretionary contributions in amounts determined by the Board of
Directors. Our matching contributions in the form of Company Common
Stock charged to earnings were approximately $2,077,000, $1,997,000 and
$806,000 for the years ended December 31, 2000, 2001 and 2002, respectively.
The Company has granted options to purchase its common stock to
employees and directors of the Company and its affiliates under various
stock option plans at no less than the fair market value of the underlying
stock on the date of grant. These options are granted for a term not
exceeding ten years and are forfeited in the event the employee or director
terminates his or her employment or relationship with the Company or one of
its affiliates. All option plans contain anti-dilutive provisions that
require the adjustment of the number of shares of the Company common stock
represented by each option for any stock splits or dividends.
We have three stock option plans in effect as of December 31, 2002: the
1994 Employee Stock Incentive Plan (the "1994 Plan"), the 1994 Stock Option
Plan for Non-Employee Directors (the "Directors' Plan") and the 1999 Non-
Qualified Employee Stock Option Plan (the "Non-Qualified Plan"). Typically,
options under these plans are granted at fair market value at the date of
grant, vest between three to five years after grant and terminate no later
than 10 years from the date of grant.
Under these plans there were a total of 2,028,798, 1,118,253 and
815,855 options available for grant at December 31, 2000, 2001 and 2002,
respectively. The 1994 Plan and the Directors Plan expire in 2004. In
addition, there are 286,450 options outstanding under individual option
agreements with varying vesting schedules at exercise prices ranging from
$2.56 to $17.67 with terms up to 10 years. We also have a 1997 non-
qualified employee stock purchase plan under which eligible employees may
purchase common stock of the company through payroll deductions or in a
lump sum at a 15% discount from fair market value.
The following is a summary of all stock option transactions:
Weighted Weighted Average
Stock Average Exercise Fair Value of
Options Price Options Granted
--------- -------------- ---------------
Outstanding December 31, 1999 5,855,940 $ 16.81
Granted 711,820 32.28 $20.39
Exercised (584,794) 10.98
Canceled (151,604) 20.44
--------- ------
Outstanding December 31, 2000 5,831,362 19.07
Granted 1,341,794 10.88 $ 7.79
Exercised (7,693) 11.26
Canceled (440,076) 23.15
--------- ------
Outstanding December 31, 2001 6,725,387 17.18
Granted 933,500 5.41 $ 3.84
Exercised - -
Canceled (622,275) 22.50
--------- ------
Outstanding December 31, 2002 7,036,612 $ 15.32
========= ======
The following tables summarize information about stock options outstanding:
As of December 31, 2002
- ---------------------------------------------------------------------------
Stock Options Outstanding Options Exercisable
------------------------------- -------------------
Weighted
Average Weighted Weighted
Range of Number of Remaining Average Number of Average
Exercise Stock Contractual Exercise Stock Exercise
Prices Options Life Price Options Price
- -------------- --------- -------- -------- --------- --------
$ 2.56 - 3.34 195,000 5.37 $ 3.16 45,000 $ 2.56
3.42 - 6.14 1,116,966 5.14 5.30 579,175 5.30
6.19 - 14.98 2,834,777 5.05 12.51 2,175,201 12.96
15.02 - 21.25 1,866,191 6.52 19.27 1,750,254 19.45
25.58 - 36.88 993,178 4.21 28.67 753,958 28.40
39.91 - 45.08 30,500 4.36 43.64 20,335 43.64
--------- -------- -------- --------- --------
$ 2.56 - 45.08 7,036,612 5.34 $15.32 5,323,923 $16.48
========= ======== ======== ========= ========
As of December 31, 2000 we had 2,982,238 of options which were
exercisable at a weighted average exercise price of $14.86. As of December
31, 2001 we had 4,276,377 which were exercisable at a weighted average
exercise price of $16.90.
We have elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for our employees' stock options. Pursuant to APB No. 25, no
compensation cost has been recognized.
We have reflected below the 2000, 2001 and 2002 earnings and the
proforma earnings as if compensation expense relative to the fair value of
the options granted had been recorded under the provisions of SFAS No. 123
"Accounting for Stock- Based Compensation." The fair value of each option
grant was estimated using the Black-Scholes option-pricing model with the
following assumptions used for grants in 2000, 2001 and 2002, respectively:
a five, five and seven year expected life; volatility factors of 60%, 79%
and 74%; risk-free interest rates of 5.75%, 3.50% and 3.0%; and no dividend
payments.
2000 2001 2002
-------- --------- ---------
Net income (loss) (in thousands):
As reported $ 65,147 $ (92,354) $(128,806)
======== ========= =========
Pro forma $ 41,707 $(106,944) $(134,196)
======== ========= =========
Basic earnings (loss) per share:
As reported $ 1.40 $ (1.93) $ (2.69)
Pro forma $ 0.90 $ (2.24) $ (2.80)
Diluted earnings (loss) per share:
As reported $ 1.35 $ (1.93) $ (2.69)
Pro forma $ 0.86 $ (2.24) $ (2.80)
Note 10 - Income Taxes
The provision (benefit) for income taxes before cumulative change in
accounting principle consists of the following (in thousands):
2000 2001 2002
-------- -------- ---------
Current:
Federal $ 36,669 $(46,068) $ (22,220)
Foreign 354 220 498
State and local 7,873 (9,729) (1,968)
-------- -------- ---------
44,896 (55,577) (23,690)
-------- -------- ---------
Deferred:
Federal 727 508 (32,731)
Foreign - - (444)
State and local 254 211 (8,608)
-------- -------- ---------
981 719 (41,783)
-------- -------- ---------
Provision (benefit) for
income taxes $ 45,877 $(54,858) $ (65,473)
======== ======== =========
The tax effects of significant items comprising our net deferred tax
(liability) asset as of December 31, 2001 and 2002 are as follows (in
thousands):
2001 2002
------- -------
Current:
Deferred tax assets
Non-compete $ 6,211 $ 4,681
Bad debts 6,710 7,429
Accrued self insurance 7,484 9,947
Operating loss and tax credit carry forward 974 34,159
Other 2,674 3,592
Goodwill - 18,873
-------- -------
Subtotal 24,053 78,681
Deferred tax liabilities:
Accounts receivable retainage 10,187 9,317
Property and equipment 15,946 8,270
Basis differences in acquired assets 2,027 1,979
Other 5,904 11,415
-------- -------
Total deferred tax liabilities 34,064 30,981
-------- -------
Net deferred tax (liability) asset $(10,011) $47,700
======== =======
At December 31, 2002, the Company has approximately $65.0 million of net
operating loss carry forwards for US federal income tax purposes that expire
in 2022. Additionally, the Company has net operating loss carryforwards
for U.S. state and local purposes that expire from 2005 to 2022.
In assessing the ability to realize the deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which these temporary differences become deductible. Management
considers the projected future taxable income and prudent and feasable tax
planning strategies in making this assessment. Accordingly, no valuation
allowance is recorded at December 31, 2002.
A reconciliation of U.S. statutory federal income tax expense on the
earnings from continuing operations is as follows:
2000 2001 2002
----- ----- ------
U.S. statutory federal rate
applied to pretax income 35% (35)% (35)%
State and local income taxes 5 (4) (5)
Amortization and impairment 1 1 2
Non-deductible expenses 1 1 -
Other (1) - -
----- ----- ------
Provision (benefit) for income taxes 41% (37)% (38)%
===== ===== ======
The IRS is currently auditing the year ended December 31, 1999 and
certain other years as a result of net operating losses carried back in
2001. We believe that the ultimate disposition of this matter will not
have a material adverse effect on our consolidated financial statements.
Note 11 - Operations by Geographic Areas and Segments
We operate in one reportable segment as a specialty contractor. We
design, build, install, maintain and upgrade aerial, underground, and buried
fiber-optic, coaxial and copper cable systems owned by local and long
distance communications carriers and cable television multiple system
operators. Additionally, we provide similar services related to the
installation of integrated voice, data and video local and wide area
networks within office buildings and similar structures and also provide
construction and maintenance services to electrical and other utilities.
All of our operating units have been aggregated into one reporting segment
due to their similar customer bases, products and production and distribution
methods. We also operate in Brazil through an 87.5% joint venture that we
consolidate net of a 12.5% minority interest after tax. Our Brazilian
operations perform similar services and for the years ended December 31,
2000, 2001 and 2002 had revenue of $55.3 million, $57.9 million and $41.8
million, respectively. Total assets for Brazil aggregated $33.9 million
and $35.3 million as of December 31, 2001 and December 31, 2002, respectively.
Note 12 - Commitments and Contingencies
In November of 1997, the Company filed two suits against Miami-Dade
County seeking unpaid amounts due under several contracts between the Company
and the county for road repair, paving, sidewalk construction and road
stripping. Miami-Dade County filed counterclaims seeking recovery of amounts
paid by the county to the Company for work that was not actually performed by
one of the Company's subcontractors. Following a mediation that occurred in
December of 2002, the Company and Miami-Dade County settled all claims arising
out of the litigation with the Company making payment to Miami-Dade County in
the amount of $2.25 million in February 2003. Following the settlement, the
litigation has been dismissed.
The labor union representing the workers of Sistemas e Instalaciones de
Telecomunicacion S.A. ("Sintel"), a former MasTec subsidiary, has instigated
an investigative action with a Spanish federal court that commenced in July
2001 alleging that five former members of the board of directors of Sintel,
including Jorge Mas, the Chairman of the Board of MasTec, and his brother
Juan Carlos Mas, approved a series of allegedly unlawful transactions that
led to the bankruptcy of Sintel. We are also named as a potentially liable
party. The union alleges Sintel and its creditors were damaged in the
approximate amount of 13 billion pesetas ($81.9 million at December 31, 2002
exchange rates). As discussed in prior filings, the Spanish judge has taken
no action to enforce a bond order pending since July 2001 for the amount of
alleged damages. A Spanish judge has met with certain of our executives,
but neither we nor our executives have been served in the action.
On January 9, 2002, Harry Schipper, a MasTec shareholder, filed a
shareholder derivative lawsuit in the U.S. District Court for the Southern
District of Florida against us as nominal defendant and against certain
current and former members of the Board of Directors and senior management,
including Jorge Mas, our Chairman of the Board, and Austin J. Shanfelter,
our President and Chief Executive Officer. The lawsuit alleges mismanagement,
misrepresentation and breach of fiduciary duty as a result of a series of
allegedly fraudulent and criminal transactions, including both the matters
described above, the severance we paid our former chief executive officer,
and our investment in and financing of a client that subsequently filed for
bankruptcy protection, as well as certain other matters. The lawsuit seeks
damages and injunctive relief against the individual defendants on MasTec's
behalf. The Board of Directors has formed a special committee, as
contemplated by Florida law, to investigate the allegations of the complaint
and to determine whether it is in the best interests of MasTec to pursue the
lawsuit. The lawsuit has been administratively dismissed without prejudice
by agreement of the parties to permit the committee to complete its
investigation. On July 16, 2002, Mr. Schipper made a supplemental demand on
our Board of Directors by letter to investigate allegations that (a) we
reported greater revenue in an unspecified amount on certain contracts than
permitted under the contract terms and (b) we recognized between $3-$5
million in income for certain projects on the books of two separate
subsidiaries. These additional allegations have also been referred to the
special committee for investigation.
We believe we have meritorious defenses to the actions described above.
We are also a party to other pending legal proceedings arising in the normal
course of business. While complete assurance cannot be given as to the
outcome of any legal claims, we believe that any financial impact would not
be material to our results of operations, financial position or cash flows.
We have commitments to pay life insurance premiums on policies on the
life of our chairman of the board and our chief executive officer totalling
$22.9 million over the next nineteen years, obligations related to
acquisitions of $4.9 million, capital leases totaling $2.3 million,
operating lease commitments of $31.3 million and revolving debt of $0.1
million.
Our operations in Brazil are subject to the risks of political,
currency, economic or social instability, including the possiblity of
expropriation, confiscatory taxation, hyper-inflation or other adverse
regulatory or legislative developments, or limitations on the repatriation
of investment income, capital and other assets. We cannot predict whether
any of these factors will occur in the future or the extent to which such
factors would have a material adverse effect on our Brazilian operations.
In certain circumstances, the Company is required to provide
performance bonds in connection with its contractual commitments.
Note 13 - Concentrations of Risk
In the course of its operations, the Company is subject to certain
risk factors, including, but not limited to risks related to rapid
technological and structural changes in the industries the Company serves,
internal growth and operating strategies, economic downturn, collectibility
of receivables, acquisition integration and financing, significant
fluctuations in quarterly results, contracts, management of growth,
dependence on key personnel, availability to qualified employees,
competition, recoverability of goodwill, and potential exposures to
environmental liabilities.
We have more than 200 clients throughout the United States, Canada and
Brazil, which include some of the largest and most prominent companies in the
communications, broadband and energy fields, as well as government agencies
such as departments of transportation. Our clients include incumbent local
exchange carriers, broadband and satellite operators, public and private
energy providers, long distance carriers, financial institutions and
wireless service providers. We grant credit, generally without collateral
to our customers. Consequently, we are subject to potential credit risk
related to changes in business and economic factors. However, we generally
are entitled to payment for work performed and have certain lien rights on
that work and concentrations of credit risk are limited due to the diversity
of the customer lease. We believe our billing and collection policies are
adequate to minimize potential credit risk. No customer accounted for more
than 10% of revenues during the years ended December 31, 2000, 2001 and 2002.
We maintain allowances for doubtful accounts for estimated losses
resulting from the inability of our clients to make required payments.
Management analyzes historical bad debt experience, client concentrations,
client credit-worthiness, the availability of mechanic's and other liens, the
existence of payment bonds and other sources of payment, and current economic
trends when evaluating the adequacy of the allowance for doubtful accounts.
If our judgments regarding the collectability of our accounts receivables
were incorrect, adjustments to the allowance may be required, which would
reduce our profitability. Prior to 2001, the allowance for doubtful
accounts had averaged approximately $3.0 to $6.0 million annually, as we
had not incurred significant bad debts or experienced significant client
bankruptcies. However, during 2001 and 2002, we recorded bad debt
provisions of $15.4 million and $185.5 million, respectively, primarily due
to the unprecedented number of clients that filed for bankruptcy protection
during the year 2001 and general economic climate of 2002. As of December
31, 2002, we had remaining receivables from clients undergoing bankruptcy
reorganization totaling $10.6 million net of $7.0 million in specific
reserves. Based on the analytical process described above, management
believes that we will recover the net amounts recorded. We maintain an
allowance for doubtful accounts of $25.8 million as of December 31, 2002 for
both specific customers and as a general reserve. There can be no assurance
that we will collect the amounts reflected on our books for these clients
as well as other clients. Should additional clients file for bankruptcy or
experience difficulties, or should anticipated recoveries in existing
bankruptcies and other workout situations fail to materialize, we could
experience reduced cash flows and losses in excess of the current allowance.
Note 14 - Other Expense, Net
For the year ended December 31, 2000 other expense, net is comprised
primarily of a $26.3 million write-down of certain non-core international
assets resulting from management's review of the carrying value of such
assets.
For the year ended December 31, 2001 other expense, net is comprised
primarily of an impairment charge of $6.5 million related to our equity
investment in a client and a $10.0 million write-down of non-core
international assets.
For the year ended December 31, 2002 other expense, net is comprised
primarily of the net of a $5.0 million gain on disposal of certain non-core
assets, investments and excess equipment and a $13.2 million valuation
allowance against assets held for sale and investments.
Note 15 - Quarterly Information (Unaudited)
The following table presents unaudited quarterly operating results for
the two years ended December 31, 2001 and 2002. We believe that all
necessary adjustments have been included in the amounts stated below to
present fairly the quarterly results when read in conjunction with the
Consolidated Financial Statements and Notes thereto for the years ended
December 31, 2001 and 2002.
2001 2002
Quarter Ended Quarter Ended
-------------------------------------- ---------------------------------------
Mar 31 Jun 30 Sep 30 Dec 31 Mar 31 Jun 30 Sep 30 Dec 31
-------- -------- -------- -------- -------- -------- -------- ---------
(in thousands, except per share data)
Revenue $337,212 $330,220 $302,243 $252,905 $203,782 $213,041 $231,758 $ 189,474
Net income (loss)
before cumulative
effect of accounting
charge $ 3,297 $ (2,162) $(75,241) $(18,247) $ 1,235 $ 1,798 $ 2,363 $(108,531)
Net income (loss) $ 3,297 $ (2,162) $(75,241) $(18,247) $(24,436) $ 1,798 $ 2,363 $(108,531)
Basic earnings (loss)
per share before
cumulative effect of
accounting charge $ 0.07 $ (0.05) $ (1.57) $ (0.38) $ 0.03 $ 0.04 $ 0.05 $ (2.26)
Diluted earnings
(loss) per share
before cumulative
effect of
accounting charge $ 0.07 $ (0.05) $ (1.57) $ (0.38) $ 0.03 $ 0.04 $ 0.05 $ (2.26)
Basic earnings (loss)
per share $ 0.07 $ (0.05) $ (1.57) $ (0.38) $ (0.51) $ 0.04 $ 0.05 $ (2.26)
Diluted earnings
(loss) per share $ 0.07 $ (0.05) $ (1.57) $ (0.38) $ (0.51) $ 0.04 $ 0.05 $ (2.26)
In the first quarter of 2001, we recorded a reserve of $13.1 million,
net of tax or $0.27 per share primarily due to clients filing for bankruptcy
protection.
In the second quarter of 2001, we recorded a reserve of $9.6 million,
net of tax or $0.20 per share primarily due to clients filing for bankruptcy
protection.
In the third quarter of 2001, we recorded charges of $81.0 million, net
of tax or $1.70 per share due to reserves relating to receivables, a write-
down of non-core international assets and severance expense.
In the fourth quarter of 2001, we recorded charges of $23.8 million,
net of tax or $0.50 per share due to reserves relating to receivables.
Note 15 - Quarterly Information (Unaudited) (cont'd)
In the first quarter of 2002, we recorded an impairment charge of $25.7
million, net of tax or $(0.54) per share resulting from the initial
implementation of FAS 142. The charge was recorded as a change in accounting
principle.
In the fourth quarter of 2002, we recorded charges of $15.4 million,
reflecting additions to reserves relating to receivables, $18.4 million in
valuation allowances and impairment losses related to certain assets held
for sale and in use, investments, and inventory and $8.2 million, including
consulting, related to restructuring. We also recorded a $79.7 million
impairment charge relating to goodwill pursuant to FAS 142. These reserves
and charges aggregated $121.7 million, ($76.8 million net of tax) or $1.60
per share.
The accompanying notes are an integral part of these consolidated financial
statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On April 26, 2002, we filed a Current Report on Form 8-K (as amended on
June 11, 2002) reporting that on April 19, 2002, the audit committee of the
board of directors dismissed PricewaterhouseCoopers LLP and engaged Ernst &
Young LLP as our independent auditors for the 2002 calendar year. The Form
8-K reported that there were no disagreements between us and
PricewaterhouseCoopers involving any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure.
The Form 8-K stated that the audit committee adopted a policy to review
the independent auditor selection on a periodic basis.
PART III
- --------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding our executive officers is included in this Annual
Report under the caption "Executive Officers." Information regarding our
directors and nominees for directors and compliance with Section 16(a) of
the Exchange Act will be contained under the captions "Election of
Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in
our proxy statement relating to the 2003 Annual Meeting of Shareholders to
be filed with the Securities and Exchange Commission on or before April 30,
2003 (the "Proxy Statement"), and is incorporated in this Annual Report by
reference.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding compensation of our executive officers will be
contained under the captions "Executive Compensation," "Compensation of
Directors" and "Stock Performance Graph" in the Proxy Statement and is
incorporated in this Annual Report by reference, except the Compensation
Committee Report contained in the Proxy Statement, which is not incorporated
in this Annual Report by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information regarding the ownership of our common stock and equity
compensation plans will be contained under the captions "Securities
Authorized for Issuance Under Equity Compensation Plans" and "Security
Ownership of Certain Beneficial Owners and Management" in the Proxy
Statement and is incorporated in this Annual Report by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions
will be contained under the caption "Certain Relationships and Related
Transactions" in the Proxy Statement and is incorporated in this Annual
Report by reference.
ITEM 14. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Our chief
executive officer and chief financial officer are responsible for
establishing and maintaining "disclosure controls and procedures"
(as defined in the Securities Exchange Act of 1934 Rules 13a-14(c)
and 15d-14(c)) for MasTec. Our disclosure controls and
procedures include "internal controls," as that term is used in
Section 302 of the Sarbanes-Oxley Act of 2002 and described in the
Securities and Exchange Commission's Release No. 34-46427 (August
29, 2002). MasTec's chief executive officer and chief financial
officer, after evaluating the effectiveness of its disclosure
controls and procedures as of a date within 90 days of the filing
date of this Form 10-K, have concluded that its disclosure
controls and procedures were effective in timely alerting them to
material information relating to MasTec (including its
consolidated subsidiaries) required to be included in its periodic
SEC filings. MasTec has undertaken software upgrades at its
numerous back office locations to improve the timeliness of
disclosure.
(b) Changes in internal controls. There were no significant changes
in MasTec's internal controls or in other factors that could
significantly affect those internal controls subsequent to the date
of the evaluation. As a result, no corrective actions were taken.
However, as mentioned above, MasTec is attempting to streamline
its back office operations to enhance its information, financial
and operational systems, which should improve its internal controls.
PART IV
- -------
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements - The financial statements and the report
of our Certified Public Accountants are listed on page 26
through 53.
2. Financial Statements Schedules - The financial statement
schedule information required by Item 14(a)(2) is included as
part of "Note 4 - Accounts Receivable" of the Notes to
Consolidated Financial Statements.
3. Exhibits including those incorporated by reference:
Exhibit
No. Description
- ------- ---------------------------------------------------------------
3.1 Articles of Incorporation, filed as Appendix B to our definitive
Proxy Statement for our 1998 Annual Meeting of Stockholders dated
April 14, 1998 and filed with the Securities and Exchange Commission
on April 14, 1998, and incorporated by reference herein.
3.2 Amended and Restated Bylaws as of April 16, 2002, filed as Exhibit
3.1 to our Form 10-Q for the quarter ended June 30, 2002 and filed
with the Commission on August 14, 2002, and incorporated by reference
herein.
4.1 7.75% Senior Subordinated Notes Due 2008 Indenture dated as of
February 4, 1998, filed as Exhibit 4.2 to our Registration Statement
on Form S-4 (file no. 333-46361) and incorporated by reference herein.
10.1 1994 Stock Incentive Plan filed as an Appendix to our definitive
Proxy Statement for our 1993 Annual and Special Meeting of
Stockholders, dated February 10, 1994 and filed with the Commission
on February 11, 1994 and incorporated by reference herein.
10.2 1994 Stock Option Plan for Non-employee Directors filed as an A
ppendix to our definitive Proxy Statement for our 1993 Annual and
Special Meeting of Stockholders, dated February 10, 1994 and filed
with the Commission on February 11, 1994 and incorporated by
reference herein.
10.3 Stock Option Agreement dated March 11, 1994 between MasTec and
Arthur B. Laffer, filed as Exhibit 10.6 to our Form 10-K for the
year ended December 31, 1995 and incorporated by reference herein.
10.4* 1999 Non-Qualified Employee Stock Option Plan, as amended
October 4, 1999.
10.5 Revolving Credit and Security Agreement dated as of January 22, 2002
between MasTec, certain of its subsidiaries, and Fleet Financial
Corporation as agent filed as Exhibit 10.2 to our Form 10-K for the
year ended December 31, 2001, and filed with the Commission on March
28, 2002 and incorporated by reference herein.
10.6 Assumption and Amendment Agreement to Revolving Credit and Security
Agreement dated February 7, 2002 filed as Exhibit 10.3 to our Form
10-K for the year ended December 31, 2001, and filed with the
Commission on March 28, 2002 and incorporated by reference herein.
10.7* Amendment No. 2 to the Revolving Credit and Security Agreement dated
as of October 25, 2002 between MasTec, Inc., certain of its
subsidiaries, and Fleet Financial Corporation as agent.
10.8* Amendment No. 3 and Consent to the Revolving Credit and Security
Agreement dated as of November 1, 2002 between MasTec, Inc., certain
of its subsidiaries, and Fleet Financial Corporation as agent.
10.9* Amendment No. 4 to the Revolving Credit and Security Agreement dated
as of March 6, 2003 between MasTec, Inc., certain of its subsidiaries,
and Fleet Financial Corporation as agent.
10.10* Amendment to Employment Agreement dated as of January 1, 2002,
between MasTec, Inc. and Carmen Sabater.
10.11 Terms and Conditions of Employment dated as of January 1, 2002
between MasTec, Inc. and Donald P. Weinstein, filed as Exhibit 10.1
to our Form 10-Q for the quarter ended March 31, 2002, and filed
with the Commission on May 15, 2002 and incorporated by reference
herein.
10.12 Employment Agreement dated July 15, 2002, between MasTec, Inc. and
Eric J. Tveter, filed as Exhibit 10.2 to our Form 10-Q for the
quarter ended September 30, 2002, and filed with the Commission on
November 14, 2002 and incorporated by reference herein.
10.13 Employment Agreement dated September 27, 2002, between MasTec, Inc.
and Austin J. Shanfelter, filed as Exhibit 10.1 to our Form 10-Q for
the quarter ended September 20, 2002, and filed with the
Commission on November 14, 2002 and incorporated by reference herein.
10.14* Severance Agreement with Jose Sariego dated as of December 31, 2002.
10.15* Split-Dollar Agreement effective August 27, 2002 between MasTec, Inc.
and Jorge Mas.
10.16* Split-Dollar Agreement effective September 13, 2002 between MasTec,
Inc. and Jorge Mas.
10.17* First Amendment to the Split-Dollar Agreement dated September 13,
2002 between MasTec, Inc. and Jorge Mas.
10.18* Split-Dollar Agreement effective September 13, 2002 between MasTec,
Inc. and Austin J. Shanfelter.
21.1* Subsidiaries of MasTec.
23.1* Consent of Independent Certified Public Accountants (Ernst &
Young LLP).
23.2* Consent of Independent Certified Public Accountants
(PricewaterhouseCoopers LLP).
24.1* Powers of Attorney (included on signature page).
- --------------------------------
* Exhibits filed with the Securities and Exchange Commission with this
Annual Report on Form 10-K.
The registrant agrees to provide these exhibits supplementally upon
request.
(b) Reports on Form 8-K:
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Miami, State of Florida, on April 7, 2003.
MASTEC, INC.
/s/ DONALD P. WEINSTEIN
------------------------
Donald P. Weinstein
Executive Vice President -
Chief Financial Officer
(Principal Financial and
Accounting Officer)
POWER OF ATTORNEY
The undersigned directors and officers of MasTec, Inc. hereby
constitute and appoint Donald Weinstein and Ivette Ruiz with full power to
act without the other and with full power of substitution and
resubstitution, our true and lawful attorneys-in-fact with full power to
execute in our name and behalf in the capacities indicated below this
Annual Report on Form 10-K and any and all amendments thereto and to file
the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission and hereby ratify
and confirm all that such attorneys-in-fact, or any of them, or their
substitutes shall lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated on April 7, 2003.
/s/ JORGE MAS /s/ JOSEPH P. KENNEDY II
- -------------------------------- --------------------------------
Jorge Mas, Chairman of the Board Joseph P. Kennedy II, Director
/s/ AUSTIN J. SHANFELTER /s/ WILLIAM N. SHIEBLER
- -------------------------------- --------------------------------
Austin J. Shanfelter, President William N. Shiebler, Director
and Chief Executive Officer
(Principal Executive Officer)
/s/ JOSE MAS /s/ JOSE S. SORZANO
- -------------------------------- --------------------------------
Jose Mas, Director Jose S. Sorzano, Director
/s/ ARTHUR B. LAFFER /s/ JULIA L. JOHNSON
- -------------------------------- --------------------------------
Arthur B. Laffer, Director Julia L. Johnson, Director
/s/ JOHN VAN HEUVELEN
- --------------------------------
John Van Heuvelen, Director
SECTION 302 CERTIFICATION
I, Austin J. Shanfelter, certify that:
1. I have reviewed this annual report on Form 10-K of MasTec, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: April 7, 2003
/s/ Austin Shanfelter
-------------------------------
Austin J. Shanfelter, President and
Chief Executive Officer
SECTION 302 CERTIFICATION
I, Donald P. Weinstein, certify that:
1. I have reviewed this annual report on Form 10-K of MasTec, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: April 7, 2003
/s/ Donald P. Weinstein
---------------------------
Donald P. Weinstein, Executive
Vice President and
Chief Financial Officer
Exhibit 10.4*
- -------------
MASTEC, INC.
1999 NON-QUALIFIED
EMPLOYEE STOCK OPTION PLAN
(AS AMENDED OCTOBER 4, 1999)
1. Purpose. The purpose of the MasTec, Inc. 1999 Non-Qualified
Employee Stock Option Plan (the "Plan") is to increase the interest of
employees of MasTec, Inc. ("MasTec") and of its subsidiaries in MasTec's
business through the added incentive created by the opportunity afforded for
stock ownership under the Plan. Such ownership will provide such employees
with a further stake in the future welfare of MasTec, and encourage them to
remain with MasTec and its subsidiaries. It is also expected that the Plan
will encourage qualified persons to seek and accept employment with MasTec
and its subsidiaries. Pursuant to the Plan, such employees will be offered
the opportunity to acquire Common Stock through the grant of non-qualified
stock options. The term "subsidiary" will mean any present or future
corporation which is or would be a "subsidiary corporation" of MasTec as the
term is defined in Section 424(f) of the Internal Revenue Code of 1986, as
amended from time to time (the "Code").
2. Administration of the Plan.
(A) Board of Directors. The Plan will be administered by the Board
of Directors of MasTec (the "Board"). The Board, however, may at any time
appoint a committee (the "Committee") of two or more Board members and
delegate to the Committee one or more of the administrative powers
allocated to the Board pursuant to the provisions of the Plan. Members of
the Committee will serve for such period of time as the Board may determine
and will be subject to removal by the Board at any time. The Board may
also at any time terminate the functions of the Committee and reassume all
powers and authority previously delegated to the Committee.
(B) Powers of the Board. Subject to the provisions of the Plan,
the Board of Directors will have the authority, in its discretion: (i) to
grant awards of non-qualified stock options; (ii) to determine the fair
market value of the Common Stock of MasTec; (iii) to determine the exercise
price per share of options to be granted; (iv) to determine the persons to
whom, and the time or times at which, options will be granted and the
number of shares to be represented by each option; (v) to determine the
vesting schedule of options to be granted; (vi) to prescribe, amend and
rescind rules and regulations relating to the Plan; (vii) to determine the
terms and provisions of each option granted under the Plan (which need not
be identical) including, without limitation, those relating to forfeiture,
payment and exercisability; (viii) to accelerate the exercise date of any
option; (ix) to authorize any person to execute on behalf of MasTec any
instrument required to effectuate the grant of an option previously granted
by the Board; (x) subject to the provisions of the Plan and subject to such
additional limitations and restrictions as the Board may impose, to
delegate to specific members of management or to a committee of management
personnel the authority to determine: (A) the persons to whom, and the time
and times at which, options will be granted and the number of shares to be
represented by each option; (B) the vesting schedule of options; and
(C) other terms and conditions of any options, provided that the Board will
not have the authority to delegate such matters with respect to options to
be granted to any person ("Insiders") subject to Section 16 of the
Securities Exchange Act of 1934, (the "Exchange Act"); and (xi) to interpret
the Plan and make all other determinations deemed necessary or advisable for
the administration of the Plan. The Board may require the voluntary
surrender of all or any portion of any option granted under the Plan as a
condition precedent to a grant of a new option to such optionee. Subject
to the provisions of the Plan, such new option will be exercisable at the
price, during the period and on such other terms and conditions as are
specified by the Board at the time the new option is granted. Upon
surrender, the options surrendered will be unexercisable and the shares
previously subject to such options will be available for the grant of other
options.
(C) Effect of the Board's Decision. All decisions, determinations
and interpretations of the Board of Directors will be final and binding on
all employees of MasTec and its subsidiaries participating or eligible to
participate in the Plan.
3. Option Agreements. Options granted pursuant to the Plan will be
evidenced by an Option Agreement (the "Agreement"). The Agreement will
not be a precondition to the granting of options; however, no person will
have any rights under any option granted under the Plan unless and until
the optionee to whom the option is granted has executed and delivered to
MasTec an Agreement. The Board will prescribe the form of all Agreements.
A fully executed original of the Agreement will be provided to both MasTec
and the optionee.
4. Compliance with Rule 16b-3. It is the intent of MasTec that this
Plan and options granted hereunder satisfy, and be interpreted in a manner
that, in the case of employees who have been granted an option under the
Plan ("Participants") who are or may be Insiders, satisfies the applicable
requirements of Rule 16b-3 of the Exchange Act, so that these persons will
be entitled to the benefits of Rule 16b-3, or other exemptive rules under
Section 16, and will not be subjected to avoidable liability thereunder. If
any provision of this or of any option would otherwise frustrate or conflict
with the intent expressed in this Section 4, that provision to the extent
possible will be interpreted and deemed amended so as to avoid such conflict.
To the extent of any remaining irreconcilable conflict with that intent, the
provision will be deemed void as applicable to Insiders.
5. Shares of Stock Subject to the Plan. The total number of shares
that may be optioned under the Plan is 2,000,000 shares of the $0.10 par
value Common Stock of MasTec (the "Common Stock"), except that the number of
shares will be adjusted as provided in Section 13. Any shares subject to an
option which for any reason expires or is terminated unexercised may again
be optioned under the Plan. Shares subject to the Plan may be either
authorized and unissued shares or issued shares acquired by MasTec or its
subsidiaries.
6. Eligibility. All employees, including officers, of MasTec and its
subsidiaries (but excluding non-employee directors) are eligible to be
granted options under the Plan. The employees who will receive options
under the Plan will be selected from time to time by the Board, in its sole
discretion, from among those eligible, which may be based upon information
furnished to the Board by MasTec's management. The Board will determine, in
its sole discretion, the number of shares to be covered by the option or
options granted to each employee selected.
7. Duration of the Plan. No option may be granted under the Plan
after January 31, 2009, but options previously granted may extend beyond
that date.
8. Terms and Conditions of Stock Options. All options granted under
this Plan will be non-qualified stock options not intended to qualify as
incentive stock options within the meaning of Section 422 of the Code. Each
option will be subject to all the applicable provisions of the Plan,
including the following terms and conditions, and to other terms and
conditions not inconsistent with the Plan as the Board may determine.
(A) The option price per share will be determined by the Board.
(B) Each stock option will be exercisable during and over such
period as may be determined by the Board and stated in the Agreement.
(C) An option will not be exercisable with respect to a
fractional share of Common Stock or with respect to the lesser of fifty
(50) shares or the full number of shares then subject to the option. No
fractional shares of Common Stock will be issued upon the exercise of an
option. If a fractional share of Common Stock will become subject to an
option by reason of a stock dividend or otherwise, the optionee will not be
entitled to exercise the option with respect to such fractional share.
(D) Each option may be exercised by giving notice to MasTec
specifying the number of shares to be purchased, which will be accompanied
by payment in full including applicable taxes, if any.
(E) The consideration to be paid for the shares of Common Stock
to be issued upon exercise of an option, including the method of payment,
will be determined by the Board and may consist entirely of cash, check,
promissory note, or other shares of MasTec's capital stock having a fair
market value on the date of surrender equal to the aggregate exercise price
of the shares as to which the option will be exercised, or any combination
of such methods of payment, or such other consideration and method of payment
for the issuance of shares as the Board may determine to the extent permitted
under applicable law. When payment of the exercise price for the shares to
be issued upon exercise of an option consists of shares of MasTec's capital
stock, such shares will not be accepted as payment without Board approval
unless the optionee has held such shares for the requisite period necessary
to avoid a charge to MasTec's earnings for financial reporting purposes.
(F) Unless otherwise determined by the Board, an option may be
exercised only if at all times during the period beginning with the date of
the granting of the option and ending on the date of such exercise, the
grantee was an employee of either MasTec or of a subsidiary of MasTec or of
another corporation referred to in Section 421(a)(2) of the Code. If
continuous employment is terminated by retirement under a retirement plan of
MasTec or a subsidiary, or because of death or permanent disability, the
option may be exercised within a period to be provided in the Agreement with
the grantee not to exceed three years after such termination of continuous
employment, but in no event later than the termination date of the option.
The Board may require medical evidence of permanent disability, including
medical examinations by physicians selected by it. Except as provided in
this paragraph, or unless otherwise provided in the Agreement, all options
granted to an optionee and not previously exercised will terminate upon
termination of employment.
(G) The option by its terms will be personal and will not be
transferable by the optionee otherwise than by will or by the laws of
descent and distribution. During the lifetime of an optionee, the option
will be exercisable only by the optionee. In the event any option is
exercised by the executors, administrators, heirs or distributees of the
estate of a deceased optionee, MasTec will be under no obligation to issue
Common Stock unless and until MasTec is satisfied that the person or persons
exercising the option are the duly appointed legal representative of the
deceased optionee's estate or the proper legatees or distributees.
9. Change in Control.
(A) In the event of a change in control of MasTec, in addition
to any action required or authorized by the terms of an Agreement, the Board
may, in its sole discretion, take any of the following actions as a result,
or in anticipation, of any such event to assure fair and equitable treatment
of Participants:
(i) accelerate time periods for purposes of vesting in, or
realizing gain from, any outstanding option made pursuant to this Plan;
(ii) offer to purchase any outstanding option made pursuant
to this Plan from the holder for its equivalent cash value, as determined
by the Board as of the date of the change in control; or
(iii) make adjustments or modifications to outstanding
options as the Board deems appropriate to maintain and protect the rights
and interests of the Participants following such change in control.
(B) Any such action will be conclusive and binding on MasTec
and all Participants.
(C) For purposes of this Section 9, a "change in control" will
be deemed to have occurred if there is consummated
(i) any consolidation or merger of MasTec in which MasTec
is not the continuing or surviving corporation or pursuant to which shares
of Common Stock are to be converted into cash, securities or other property,
provided that the consolidation or merger is not with a corporation which
was a wholly-owned subsidiary of MasTec immediately before the consolidation
or merger; or
(ii) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially
all, of the assets of MasTec; or
(iii) the shareholders of MasTec approve any plan or
proposal for the liquidation or dissolution of MasTec; or
(iv) any "person," including a "group" as determined in
accordance with Sections 13(d) and 14(d) of the Exchange Act, becomes the
beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act),
directly or indirectly, of 33% or more of the combined voting power of
MasTec's then outstanding Common Stock, provided that such person,
immediately before it becomes such 33% beneficial owner, is not (i) a
wholly-owned subsidiary of MasTec, (ii) an individual, or a spouse or a
child of such individual, that on January 1, 1999, owned greater than 20%
of the combined voting power of such Common Stock, or (iii) a trust,
foundation or other entity controlled by an individual or individuals
described in the preceding subsection; or
(v) individuals who constitute the Board on January 1,
1999 (the "Incumbent Board"), cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent
to January 1, 1999, whose election, or nomination for election by MasTec's
shareholders, was approved by a vote of at least three quarters of the
directors comprising the Incumbent Board (either by a specific vote or by
approval of the proxy statement of MasTec in which such person is named as
a nominee for director, without objection to such nomination) will be, for
purposes of this clause, considered as though such Person were a member of
the Incumbent Board.
10. Transfer, Leave of Absence. For the purpose of the Plan: (a) a
transfer of an employee from MasTec to a subsidiary or affiliate of MasTec,
whether or not incorporated, or vice versa, or from one subsidiary or
affiliate of MasTec to another, and (b) a leave of absence, duly authorized
in writing by MasTec or a subsidiary or affiliate of MasTec, will not be
deemed a termination of employment.
11. Rights of Employees.
(A) No person will have any rights or claims under the Plan
except in accordance with the provisions of the Plan and any Agreement.
(B) Nothing contained in the Plan will be deemed to give any
employee the right to be retained in the service of MasTec or its
subsidiaries.
12. Tax Withholding Obligations. The payment of taxes, if any, upon
the exercise of an option pursuant to the Plan, will be in cash at the time
of exercise or on the applicable tax date under Section 83 of the Code, if
later. Tax withholding obligations may be met by the withholding of Common
Stock otherwise deliverable to the optionee pursuant to procedures approved
by the Board.
13. Changes in Capital. Upon changes in the outstanding Common Stock
by reason of a stock dividend, stock split, reverse split, subdivision,
recapitalization, merger, consolidation (whether or not MasTec is a
surviving corporation), an extraordinary dividend payable in cash or
property, combination or exchange of shares, separation, reorganization or
liquidation, the aggregate number and class of shares available under the
Plan as to which stock options may be granted, the number and class of
shares under each option and the option price per share will be
correspondingly adjusted by the Board.
14. Miscellaneous Provisions.
(A) The Plan will be unfunded. MasTec will not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the issuance of shares upon exercise of any option under
the Plan and issuance of shares upon exercise of options will be
subordinate to the claims of MasTec's general creditors. Proceeds from the
sale of shares of Common Stock pursuant to options granted under this Plan
will constitute general funds of MasTec. The expenses of the Plan will be
borne by MasTec.
(B) It is understood that the Board may, at any time and from
time to time after the granting of an option hereunder, specify such
additional terms, conditions and restrictions with respect to such option
as may be deemed necessary or appropriate to ensure compliance with any and
all applicable laws, including, but not limited to, terms, restrictions
and conditions for compliance with federal and state securities laws and
methods of withholding or providing for the payment of required taxes.
(C) If at any time the Board will determine, in its discretion,
that the listing, registration or qualification of shares of Common Stock
upon any national securities exchange or under any state or federal law, or
the consent or approval of any governmental regulatory body, is necessary
or desirable as a condition of, or in connection with, the sale or purchase
of shares of Common Stock under this Plan, no option may be exercised in
whole or in part unless and until such listing, registration, qualification,
consent or approval will have been effected or obtained, or otherwise
provided for, free of any conditions not acceptable to the Board in the
exercise of its reasonable judgment.
(D) By accepting any benefit under the Plan, each Participant
and each person claiming under or through such person will be conclusively
deemed to have indicated his acceptance and ratification, and consent to,
any action taken under the Plan by the Board MasTec or the Board.
(E) The Plan will be governed by and construed in accordance
with the laws of the State of Florida.
15. Limits of Liability.
(A) Any liability of MasTec or a subsidiary of MasTec to any
Participant with respect to an option will be based solely upon contractual
obligations created by the Plan and the Agreement.
(B) Neither MasTec nor a subsidiary of MasTec, nor any member of
the Board, nor any other person participating in any determination of any
question under the Plan, or in the interpretation, administration or
application of the Plan, will have any liability to any party for any action
taken or not taken in connection with the Plan, except as may expressly be
provided by statute.
16. Amendments. The Board may amend, alter or discontinue the Plan
at any time, including without limitation amendments necessary to qualify
for an exemption or to comply with applicable law or regulations. No
amendment, alteration or discontinuation, however, will be made which would
impair the rights of any holder of an option theretofore granted, without
his or her written consent.
The Board may amend the terms of any option theretofore
granted, retroactively or prospectively, but no such amendment will impair
the rights of any holder without his or her written consent.
17. Duration. The Plan will terminate upon the earlier of the
following dates or events to occur:
(A) upon the adoption of a resolution of the Board terminating
the Plan; or
(B) January 31, 2009.
No termination of the Plan will affect the rights of any
Participant hereunder and all options previously granted will continue
in force and in operation after the termination of the Plan, except as
they may be otherwise terminated in accordance with the terms of the Plan.
Exhibit 10.7*
- -------------
EXECUTION VERSION
AMENDMENT NO. 2
TO REVOLVING CREDIT AND SECURITY AGREEMENT
------------------------------------------
THIS AMENDMENT NO. 2 TO REVOLVING CREDIT AND SECURITY AGREEMENT (this
"Amendment") is made and entered into as of October 25, 2002, between MasTec,
Inc., a Florida corporation("MasTec"), certain of the Subsidiaries of MasTec
identified on the signature pages hereto (together with MasTec, hereinafter
collectively referred to as the "Borrowers"), the financial institutions party
from time to time to the Loan Agreement (as hereinafter defined) as lenders
(the "Lenders") and Fleet Capital Corporation, a Rhode Island corporation, as
administrative agent (the "Administrative Agent") for the Lenders.
Recitals:
The Borrowers, the Lenders and the Administrative Agent are all of the
parties to a Revolving Credit and Security Agreement dated as of January 22,
2002, as amended by an Assumption and Amendment Agreement dated as of
February 7, 2002 (as amended and in effect, the "Loan Agreement"),
pursuant to which Lenders have made certain revolving credit loans and
letter of credit accommodations to the Borrowers.
The Borrowers have requested that the Lenders amend the Loan Agreement
to make available certain additional credit accommodations to the Borrowers
to be used to support the Borrowers' casualty and workers' compensation
insurance programs. To induce the Lenders to do so, the Borrowers have
agreed to execute and deliver and to perform their respective obligations
under this Amendment.
Upon the terms and subject to the conditions hereinafter set forth, the
Lenders have agreed so to amend the Loan Agreement.
NOW, THEREFORE, for TEN DOLLARS ($10.00) in hand paid and other good and
valuable consideration, the receipt and sufficiency of which are hereby
severally acknowledged, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. Definitions. All capitalized terms used in this Amendment, unless
otherwise defined herein, shall have the meaning ascribed to such terms in
the Loan Agreement.
2. Amendments to Loan Agreement. Subject to the provisions of Section
3 of this Amendment, the Loan Agreement is hereby amended by:
(a) amending Section 1.1 of the Loan Agreement by adding thereto the
following new definition in appropriate alphabetical order:
"Casualty Insurance Support Letter of Credit" means, collectively,
the Liberty Letter of Credit and one or more standby Letters of Credit
issued by the Issuing Bank on or after the Amendment No. 2 Effective
Date for the account of MasTec and for the benefit of a Person that
provides casualty or workers' compensation insurance to the Borrowers
(or any of them), which Letters of Credit are in an aggregate amount
of Letter of Credit Obligations at any time not greater than $41,000,000
and in respect of which FCC has or will have issued one or more Letter of
Credit Guarantees.
(b) further amending Section 1.1 by amending the following definitions
in their entireties to read as follows:
"Amendment No. 2 Effective Date" means the date on which Amendment
No. 2 to this Agreement dated as of October 25, 2002, between the Borrowers,
the Lenders and the Administrative Agent shall have become effective in
accordance with its terms.
"Insurance Letter of Credit" means each of the following Letters
of Credit: (i) Letter of Credit No. ASL-3009133-120MAT issued by the Issuing
Bank for the account of MasTec and for the benefit of Fidelity and Deposit
Company of Maryland, (ii) Letter of Credit No. 50061581 issued by the
Issuing Bank for the account of MasTec and for the benefit of Crawford and
Company, (iii) Letter of Credit No. 50061585 issued by the Issuing Bank for
the account of MasTec and for the benefit of Reliance Insurance Company,
(iv) Letter of Credit No. 50061582 issued by the Issuing Bank for the
account of MasTec and for the benefit of Insurance Company of North America,
(v) Letter of Credit No. 50061586 issued by the Issuing Bank for the account
of MasTec and for the benefit of Director of Industrial Relations, and
(vi) the Liberty Letter of Credit, in each case as amended and in effect
from time to time.
"Letter of Credit Guarantee Facility" means (a) a subfacility of
the Revolving Credit Facility providing for (i) the issuance of Letters of
Credit and Letter of Credit Guarantees as described in Article 3 in an
aggregate amount of Letter of Credit Obligations at any one time outstanding
not to exceed $20,000,000, and (ii) the issuance of the Casualty Insurance
Support Letter of Credit in accordance with the provisions of Article 3,
plus (b) the amount available to be drawn from time to time under the
Canadian Financing Letter of Credit.
"Letter of Credit Reserve" means, at any time, the aggregate Letter
of Credit Obligations at such time, other than Letter of Credit Obligations
that are fully secured by Cash Collateral. For the avoidance of doubt, at
any time that the Casualty Insurance Support Letter of Credit is outstanding,
the amount of the Letter of Credit Reserve attributable to the Casualty
Insurance Support Letter of Credit at such time shall be equal to the lesser
of (i) $41,000,000 and (ii) the greatest amount of Letter of Credit
Obligations that at any time may be outstanding thereunder in accordance
with the terms thereof (giving effect to any "step-ups" in the stated amount
thereof).
"Liberty Letter of Credit" means Letter of Credit No. ASL-
1S1295730-120MAT issued by the Issuing Bank for the account of MasTec and
for the benefit of Liberty Mutual Insurance Company, as amended and in
effect from ti me to time.
(c) amending Section 3.3 by deleting the period at the end thereof,
substituting in lieu thereof a semicolon and adding the following proviso
after such semicolon:
provided, that no Letter of Credit (other than the Casualty Insurance
Support Letter of Credit) shall be issued on or after the Amendment
No. 2 Effective Date for the benefit of any Person that provides
casualty or workers' compensation insurance to the Borrowers (or any
of them) and no increase in the amount available to be drawn under any
Insurance Letter of Credit (other than the Liberty Letter of Credit)
shall be effected.
3. Conditions to Effectiveness. The provisions of Section 2 of this
Amendment shall become effective on the date (the "Amendment No. 2 Effective
Date") on which the Administrative Agent shall have received (i) an amendment
fee in the amount of $156,250 for the Ratable account of the Lenders, which
fee is earned on the date of receipt and is not subject to refund or rebate
of any kind whatsoever, and (ii) the following documents, each of which shall
be satisfactory in form and substance to the Administrative Agent and in
sufficient copies for each Lender:
(a) this Amendment duly executed and delivered by the Borrowers,
the Lenders and the Administrative Agent;
(b) a certificate of the secretary or assistant secretary of each
Borrower having attached thereto the articles or certificate of
incorporation and bylaws of such Borrower (or containing the
certification of such secretary or assistant secretary that no
amendment or modification of such articles or certificate of
incorporation or bylaws has become effective since the last date on
which such documents were last delivered to the Lenders), and
certifying that all corporate or company action, including
shareholders' or members' approval, if necessary, has been taken by
such Borrower and/or its shareholders or members to authorize the
execution, delivery and performance of this Amendment and to the
further effect that the incumbency certificate most recently delivered
to the Lenders remains in effect, unchanged;
(c) the agreement of Liberty Mutual Insurance Company to return to
the Agent for cancellation the original standby Letter of Credit No.
1S1250005 issued by the Issuing Bank for the account of MasTec and for
the benefit of Liberty Mutual Insurance Company in the current stated
amount of $655,000, together with all original amendments thereto,
subject only to receipt by Liberty Mutual Insurance Company of an
original amendment to the Liberty Letter of Credit (as defined in
the Loan Agreement, as amended by the Amendment) in the form of Annex
A hereto; and
(d) such other documents and instruments as any Lender through the
Administrative Agent may reasonably request.
4. Representations and Warranties. To induce the Administrative Agent
and the Lenders to enter into this Amendment, each Borrower hereby makes the
following representations and warranties to the Administrative Agent and the
Lenders, which representations and warranties shall survive the delivery of
this Amendment and the making of additional Loans or other extensions of
financial accommodations under the Loan Agreement as amended hereby:
(a) Authorization of Agreements. Each Borrower has the right and
power, and has taken all necessary action to authorize it, to execute,
deliver and perform this Amendment and each other agreement contemplated
hereby to which it is a party in accordance with their respective terms.
This Amendment and each other such agreement contemplated hereby to
which it is a party has been duly executed and delivered by the duly
authorized officers of such Borrower and each is, or each when executed
and delivered in accordance with this Amendment will be, a legal, valid
and binding obligation of such Borrower, enforceable in accordance with
its terms.
(b) Compliance of Agreements with Laws. The execution, delivery and
performance of this Amendment in accordance with their respective terms
do not and will not, by the passage of time, the giving of notice or
otherwise, (i) require any Governmental Approval that has not been
obtained or violate any Applicable Law relating to such Borrower or any
of its Subsidiaries, (ii) conflict with, result in a breach of or
constitute a default under the articles or certificate of incorporation
or by-laws or other constituent documents or any shareholders' or
members' agreement of such Borrower or any of its Subsidiaries, any
material provisions of any indenture, agreement or other instrument to
which such Borrower, any of its Subsidiaries or any of such Borrower's
or such Subsidiaries' property may be bound or any Governmental Approval
relating to such Borrower or any of its Subsidiaries, or (iii) result
in or require the creation or imposition of any Lien upon or with
respect to any property now owned or hereafter acquired by such Borrower
other than the Security Interest.
(c) Representations and Warranties; Defaults and Events of Default.
Each representation and warranty of such Borrower set forth in the Loan
Agreement and the other Loan Documents is true and correct on and as of
the Amendment No. 2 Effective Date and no Default or Event of Default
has occurred and is continuing on such date.
5. Effect of Amendment. From and after the Amendment No. 2 Effective
Date, all references in the Loan Agreement and in any other Loan Document to
"this Agreement," "the Loan Agreement," "hereunder," "hereof" and words of
like import referring to the Loan Agreement, shall mean and at any time of
determination be references to the Loan Agreement as amended by this
Amendment. Except as expressly amended hereby, the Loan Agreement and all
terms, conditions and provisions thereof remain in full force and effect
and are hereby ratified and confirmed. The execution, delivery and
effectiveness of this Amendment shall not, except as expressly provided
herein, operate as a waiver of any right, power or remedy of any Lender
under any of the Loan Documents, nor constitute a waiver of any provision
of any of the Loan Documents.
6. Breach of Amendment. Any breach by any Borrower of any
representation, warranty or covenant contained herein shall constitute an
Event of Default.
7. Counterpart Execution. This Amendment may be executed in any number
of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an
original and all of which taken together shall constitute but one and the
same agreement. Delivery of an executed signature page of any party hereto
by facsimile transmission shall be as effective as delivery of a manually
delivered counterpart thereof.
8. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of Georgia without giving effect to
conflicts of law principles thereof.
9. Successors and Assigns. This Amendment shall be binding upon and
inure to the benefit of the parties hereto and their respective successors
and assigns.
10. Further Assurances. The Borrowers agree to take such further
actions as any Lender through the Administrative Agent shall reasonably
request from time to time in connection herewith to evidence or give effect
to the amendments set forth herein or any of the transactions contemplated
hereby.
11. Section Titles. Section titles and references used in this
Amendment shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreement among the parties hereto.
12. Waiver of Jury Trial. To the fullest extent permitted by applicable
law, each of the parties hereto hereby waives the right to trial by jury in
any action, suit, counterclaim or proceeding arising out of or related to
this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed under seal and delivered by their respective duly authorized
officers as of the date first written above.
FLEET CAPITAL CORPORATION,
as Administrative Agent and as a Lender
By: /s/ Dennis S. Losin
Name: Dennis S. Losin
Title: Sr. V.P.
WACHOVIA BANK, N.A., as a Lender
By: /s/ Nadine Pittman
Name: Nadine Pittman
Title: Associate
LASALLE BUSINESS CREDIT, INC.,
as a Lender
By: /s/ Bruce Denhy
Name: Bruce Denhy
Title: Group Seniorr Vice President
JPMORGAN CHASE BANK, as a Lender
By: /s/ Robert Morrow
Name: Robert Morrow
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION,
as a Lender
By: /s/ Alex M. Council IV
Name: Alex M. Council IV
Title: Vice President
BORROWERS:
MASTEC, INC.
By: /s/ Jose Sariego
Name: Jose Sariego
Title: Senior Vice President
CHURCH & TOWER, INC.
By: /s/ Jose Sariego
Name: Jose Sariego
Title: Senior Vice President
CHURCH & TOWER ENVIRONMENTAL, INC.
By: /s/ Jose Sariego
Name: Jose Sariego
Title: Senior Vice President
CRUZ-CELL, INC.
By: /s/ Jose Sariego
Name: Jose Sariego
Title: Senior Vice President
DRESSER/AREIA CONSTRUCTION, INC.
By: /s/ Jose Sariego
Name: Jose Sariego
Title: Senior Vice President
FLAIRE INCORPORATED
By: /s/ Jose Sariego
Name: Jose Sariego
Title: Senior Vice President
GMR TELCOM, L.L.C.
By: /s/ Jose Sariego
Name: Jose Sariego
Title: Senior Vice President
MASTEC INTEGRATION SYSTEMS, INC.
By: /s/ Jose Sariego
Name: Jose Sariego
Title: Senior Vice President
MASTEC NETWORK SERVICES, INC.
By: /s/ Jose Sariego
Name: Jose Sariego
Title: Senior Vice President
MASTEC NORTH AMERICA, INC.
By: /s/ Jose Sariego
Name: Jose Sariego
Title: Senior Vice President
MASTEC NORTH CAROLINA, INC.
By: /s/ Jose Sariego
Name: Jose Sariego
Title: Senior Vice President_
MASTEC TELCOM & ELECTRICAL
SERVICES, INC.
By: /s/ Jose Sariego
Name: Jose Sariego
Title: Senior Vice President__
MASTEC VIRGINA, INC.
By: /s/ Jose Sariego
Name: Jose Sariego
Title: Senior Vice President
PHASECOM AMERICA, INC.
By: /s/ Jose Sariego
Name: Jose Sariego
Title: Senior Vice President
PROTEL IND., INC.
By: /s/ Jose Sariego
Name: Jose Sariego
Title: Senior Vice President
RENEGADE OF IDAHO, INC.
By: /s/ Jose Sariego
Name: Jose Sariego
Title: Senior Vice President
S.S.S. CONSTRUCTION, INC.
By: /s/ Jose Sariego
Name: Jose Sariego
Title: Senior Vice President
UPPER VALLEY UTILITIES CORP.
By: /s/ Jose Sariego
Name: Jose Sariego
Title: Senior Vice President
WILDE HOLDING CO., INC.
By: /s/ Jose Sariego
Name: Jose Sariego
Title: Senior Vice President
WILDE ACQUISITION CO., INC.
By: /s/ Jose Sariego
Name: Jose Sariego
Title: Senior Vice President
NORTHLAND CONTRACTING, INC.
By: /s/ Jose Sariego
Name: Jose Sariego
Title: Senior Vice President
WILDE OPTICAL SERVICE, INC.
By: /s/ Jose Sariego
Name: Jose Sariego
Title: Senior Vice President
MASTEC FC, INC.
By: /s/ Jose Sariego
Name: Jose Sariego
Title: Senior Vice President
MASTEC REAL ESTATE HOLDINGS, INC.
By: /s/ Jose Sariego
Name: Jose Sariego
Title: Senior Vice President
MASTEC OF TEXAS, INC.
By: /s/ Jose Sariego
Name: Jose Sariego
Title: Senior Vice President
MASTEC TC, INC.
By: /s/ Jose Sariego
Name: Jose Sariego
Title: Senior Vice President
Exhibit 10.8*
- -------------
EXECUTION VERSION
AMENDMENT NO. 3 AND CONSENT
TO REVOLVING CREDIT AND SECURITY AGREEMENT
------------------------------------------
THIS AMENDMENT NO. 3 AND CONSENT TO REVOLVING CREDIT AND SECURITY
AGREEMENT (this "Amendment") is made and entered into as of November 1,
2002, between MasTec, Inc., a Florida corporation ("MasTec"), certain of
the Subsidiaries of MasTec identified on the signature pages hereto
(together with MasTec, hereinafter collectively referred to as the
"Borrowers"), the financial institutions party from time to time to the Loan
Agreement (as hereinafter defined) (the "Lenders") and Fleet Capital
Corporation, a Rhode Island corporation, as administrative agent (the
"Administrative Agent") for the Lenders.
Recitals:
The Borrowers, the Lenders and the Administrative Agent are parties to
a Revolving Credit and Security Agreement dated as of January 22, 2002, as
amended by an Assumption and Amendment Agreement dated as of February 7,
2002 and an Amendment No. 2 dated as of October 25, 2002 (as amended and in
effect, the "Loan Agreement"), pursuant to which Lenders have made certain
revolving credit loans and letter of credit accommodations to the Borrowers.
The Borrowers have requested that the Lenders permit the creation of
certain Liens on the Collateral, amend the Loan Agreement in certain other
respects and consent to the proposed sale by MasTec of its Miami, Florida
headquarters. To induce the Lenders to do so, the Borrowers have agreed
to execute and deliver and to perform its obligations under this Amendment.
Upon the terms and subject to the conditions hereinafter set forth,
the Lenders have agreed so to amend the Loan Agreement and to grant such
consent.
NOW, THEREFORE, for TEN DOLLARS ($10.00) in hand paid and other good
and valuable consideration, the receipt and sufficiency of which are hereby
severally acknowledged, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. Definitions. All capitalized terms used in this Amendment, unless
otherwise defined herein, shall have the meaning ascribed to such terms in
the Loan Agreement.
2. Amendments to Loan Agreement (Phase I). Subject to the provisions
of Section 5(a) of this Amendment, the Loan Agreement is hereby amended by:
(a) amending the definition "Fixed Charge Coverage Ratio" appearing in
Section 1.1 of the Loan Agreement by adding the following proviso immediately
prior to the period at the end thereof:
and, provided, further, that Capital Expenditures made by the
Borrowers during such period in connection with the implementation of
the Borrowers' Oracle management information systems (the "Oracle
Capex") shall be excluded from the calculation of Capital Expenditures
for such period in determining the Fixed Charge Coverage Ratio, to the
extent that (a) the aggregate amount of Oracle Capex so excluded during
any period ending on or prior to December 31, 2002 does not exceed the
lesser of (i) the actual amount of Oracle Capex made by the Borrowers
during such period and (ii) $5,000,000, and (b) the amount of Oracle
Capex so excluded during any period ending after December 31, 2002 and
on or prior to December 31, 2003 does not exceed the lesser of (i) the
actual amount of Oracle Capex made by the Borrowers during such period
and (ii) $10,000,000. For the avoidance of doubt, there will be no
Oracle Capex exclusions for periods ending after December 31, 2003.
(b) amending Section 10.5 by redesignating clauses (d) and (e) thereof
as new clauses (e) and (f), respectively, and inserting a new clause (d)
thereof to read as follows:
(d) with respect to any surety that has issued a payment or
performance bond for the benefit of one or more Borrowers, (i) such
surety's decision to cease considering requests by any Borrower for the
issuance of bonds generally, to the extent MasTec has knowledge thereof,
(ii) such surety's decision to take possession or control of the work
under any bonded contract in order to complete such bonded contract,
(iii) the making of any payment by such surety pursuant to a bond, and
(iv) any amendment to the indemnity agreement or any other agreement in
effect at any time between such surety and one or more Borrowers
relating to the issuance of bonds, together with a copy of such
amendment,
3. Amendments to Loan Agreement (Phase II). Subject to the provisions
of Section 5(b) of this Amendment, the Loan Agreement is hereby further
amended by:
(a) amending Section 1.1 of the Loan Agreement by adding thereto the
following new definitions in appropriate alphabetical order:
"Crum & Forster Intercreditor Agreement" means the Intercreditor
Agreement dated on or about the Phase II Effective Date between the
Crum & Forster Sureties and the Administrative Agent and acknowledged
by the Borrowers.
"Crum & Forster Sureties" means, collectively, United States
Fire Insurance Company, The North River Insurance Company, TIG
Insurance Company and Lombard General Insurance Company of Canada.
"Phase II Effective Date" means the date on which Section 3 of
Amendment No. 3 to this Agreement dated as of November 1, 2002, between
the Borrowers, the Lenders and the Administrative Agent shall have
become effective in accordance with its terms.
(b) amending Section 11.11 of the Loan Agreement by redesignating
clause (iii) thereof as clause (iv) and inserting a new clause (iii) thereof
to read as follows:
(iii) the Crum & Forster Intercreditor Agreement or, in any manner
that could reasonably be expected to be adverse to the interests of the
Lenders, the General Agreement of Indemnity dated on or about the Phase
II Effective Date between one or more Borrowers and the Crum & Forster
Sureties,
(c) further amending the Loan Agreement by deleting the first page of
Schedule 1.1B -Permitted Liens in its entirety and substituting therefor a
new first page in the form of Exhibit A hereto.
4. Consent to Sale and Leaseback of Miami, Florida Headquarters. Subject
to the provisions of Section 5 of the Amendment, the Lenders hereby consent
to (i) the sale by MasTec of its Real Estate located at 3155 N.W. 77th Avenue,
Miami, Florida 33122, consisting of MasTec's chief executive office (the
"Headquarters"), and certain office furniture and equipment currently used
by MasTec and located on such Real Estate, to the extent the consummation of
such sale would otherwise violate the provisions of Sections 8.7 and 8.9 of
the Loan Agreement, and (ii) the subsequent leasing by MasTec of the
Headquarters from the purchaser thereof to the extent the same would
otherwise violate the provisions of Section 11.10 of the Loan Agreement;
provided, that (i) such sale and leaseback is consummated by the Borrowers
on or prior to December 16, 2002, (ii) MasTec receives gross cash proceeds
from such sale in an aggregate amount not less than $3,900,000 (from which
shall be deducted commissions, estimated taxes arising out of the sale and
expenses of sale), (iii) the net cash proceeds of such sale (the amount of
which shall be certified to the Administrative Agent, for the benefit of
the Lenders, in writing, by the chief financial officer of MasTec promptly
following completion of such sale) are paid by the purchaser by wire
transfer to a Controlled Account to be applied to the outstanding Loans
of the Borrowers, and (iv) MasTec furnishes to the Administrative Agent, for
the benefit of the Lenders, such additional information with respect to such
sale and leaseback as any Lender through the Administrative Agent may
reasonably request. The Lenders hereby agree with the Borrowers that the
value of the Real Estate so sold by MasTec shall not be counted against the
aggregate amount of Collateral that may be disposed of pursuant to Section
8.7 of the Loan Agreement during Fiscal Year 2002. By its signature below,
each Lender authorizes the Administrative Agent, and the Administrative
Agent agrees, at the Borrowers' expense, to execute and deliver appropriate
release documents as reasonably requested by the Borrowers to evidence the
release of the Liens of the Administrative Agent that affect such Real Estate.
5. Conditions to Effectiveness.
(a) The provisions of Sections 2 and 4 of this Amendment shall become
effective on the date (the "Phase I Effective Date") on which the
Administrative Agent shall have received (i) an amendment fee in the amount
of $125,000 for the Ratable account of the Lenders, which fee is earned on
such date and is not subject to refund or rebate of any kind whatsoever,
and (ii) the following documents, each of which shall be satisfactory in
form and substance to the Administrative Agent and in sufficient copies for
each Lender:
(A) this Amendment duly executed and delivered by the Borrowers,
the Lenders and the Administrative Agent;
(B) a certificate of the secretary or assistant secretary of each
Borrower having attached thereto the articles or certificate of
incorporation and bylaws of such Borrower (or containing the
certification of such secretary or assistant secretary that no
amendment or modification of such articles or certificate of
incorporation or bylaws has become effective since the last date on
which such documents were last delivered to the Lenders), all corporate
action, including shareholders' approval, if necessary, has been taken
by such Borrower and/or its shareholders to authorize the execution,
delivery and performance of this Amendment and to the further effect
that the incumbency certificate most recently delivered to the Lenders
remains in effect, unchanged;
(C) a certificate of the president or chief financial officer of
MasTec stating that, to the best of his or her knowledge and based on an
examination sufficient to enable him or her to make an informed statement,
both before and after giving effect to the Amendment,
(1) all of the representations and warranties made or deemed to be
made under the Loan Agreement are true and correct on and as of the Phase I
Effective Date, and
(2) no Default or Event of Default exists; and the
Administrative Agent shall be satisfied as to the truth and accuracy thereof;
and
(D) such other documents and instruments as any Lender through the
Administrative Agent may reasonably request.
(b) The provisions of Section 3 of this Amendment shall become effective
on the date (the "Phase II Effective Date") on which the Administrative Agent
shall have received the following documents, each of which, unless otherwise
indicated below, shall be satisfactory in form and substance to the
Administrative Agent and in sufficient copies for each Lender:
(i) on or prior to December 16, 2002, the Crum & Forster Intercreditor
Agreement, duly executed and delivered by the Administrative Agent and the
Crum & Forster Sureties and acknowledged by the Borrowers, in form and
substance satisfactory to the Administrative Agent and the Lenders in their
sole discretion (capitalized terms are used herein as defined in the Loan
Agreement, after giving effect to this Amendment); and
(ii) a certificate of the president or chief financial officer of
MasTec stating that, to the best of his or her knowledge and based on an
examination sufficient to enable him or her to make an informed statement,
both before and after giving effect to the Amendment,
(A) all of the representations and warranties made or deemed to be
made under the Loan Agreement are true and correct on and as of the
Phase II Effective Date, and
(B) no Default or Event of Default exists; and the Administrative
Agent shall be satisfied as to the truth and accuracy thereof; and
(iii) such other documents and instruments as any Lender through the
Administrative Agent may reasonably request.
6. Representations and Warranties. To induce the Administrative Agent
and the Lenders to enter into this Amendment, each Borrower hereby makes
the following representations and warranties to the Administrative Agent
and the Lenders, which representations and warranties shall survive the
delivery of this Amendment and the making of additional Loans under the
Loan Agreement as amended hereby:
(a) Authorization of Agreements. Each Borrower has the right and
power, and has taken all necessary action to authorize it, to execute,
deliver and perform this Amendment and each other agreement
contemplated hereby to which it is a party in accordance with their
respective terms. This Amendment and each other such agreement
contemplated hereby to which it is a party has been duly executed and
delivered by the duly authorized officers of such Borrower and each
is, or each when executed and delivered in accordance with this
Amendment will be, a legal, valid and binding obligation of such
Borrower, enforceable in accordance with its terms.
(b) Compliance of Agreements with Laws. The execution, delivery and
performance of this Amendment in accordance with their respective terms
do not and will not, by the passage of time, the giving of notice or
otherwise,
(i) require any Governmental Approval that has not been
obtained or violate any Applicable Law relating to such Borrower
or any of its Subsidiaries,
(ii) conflict with, result in a breach of or constitute a
default under the articles or certificate of incorporation or
by-laws or other constituent documents or any shareholders' or
members' agreement of such Borrower or any of its Subsidiaries,
any material provisions of any indenture, agreement or other
instrument to which such Borrower, any of its Subsidiaries or any
of such Borrower's or such Subsidiaries' property may be bound or
any Governmental Approval relating to such Borrower or any
of its Subsidiaries, or
(iii) result in or require the creation or imposition of any
Lien upon or with respect to any property now owned or hereafter
acquired by such Borrower other than the Security Interest.
7. Effect of Amendment. From and after the Phase I Effective Date, all
references in the Loan Agreement and in any other Loan Document to "this
Agreement," "the Loan Agreement," "hereunder," "hereof" and words of like
import referring to the Loan Agreement, shall mean and at any time of
determination be references to the Loan Agreement as amended by the then
effective provisions of this Amendment. Except as expressly amended hereby,
the Loan Agreement and all terms, conditions and provisions thereof remain
in full force and effect and are hereby ratified and confirmed. The
execution, delivery and effectiveness of this Amendment shall not, except
as expressly provided herein, operate as a waiver of any right, power or
remedy of any Lender under any of the Loan Documents, nor constitute a
waiver of any provision of any of the Loan Documents.
8. Breach of Amendment. Any breach by the Borrowers of any
representation, warranty or covenant contained herein shall constitute an
Event of Default.
9. Counterpart Execution. This Amendment may be executed in any number
of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an
original and all of which taken together shall constitute but one and the
same agreement. Delivery of an executed signature page of any party hereto
by facsimile transmission shall be as effective as delivery of a manually
delivered counterpart thereof.
10. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of Georgia without giving effect to
conflicts of law principles thereof.
11. Successors and Assigns. This Amendment shall be binding upon and
inure to the benefit of the parties hereto and their respective successors
and assigns.
12. Further Assurances. The Borrowers agree to take such further
actions as any Lender through the Administrative Agent shall reasonably
request from time to time in connection herewith to evidence or give effect
to the amendments set forth herein or any of the transactions contemplated
hereby.
13. Section Titles. Section titles and references used in this Amendment
shall be without substantive meaning or content of any kind whatsoever and are
not a part of the agreement among the parties hereto.
14. Waiver of Jury Trial. To the fullest extent permitted by applicable
law, each of the parties hereto hereby waives the right to trial by jury in
any action, suit, counterclaim or proceeding arising out of or related to
this Amendment.
IN WITNESS WHEREOF, the parties her eto have caused this Amendment to
be duly executed under seal and delivered by their respective duly authorized
officers as of the date first written above.
FLEET CAPITAL CORPORATION,
as Administrative Agent and as a Lender
By: /s/ Dennis S. Losin
Name: Dennis S. Losin
Title: Sr. V.P.
WACHOVIA BANK, NATIONAL
ASSOCIATION, as a Lender
By: /s/ Dan Denton
Name: Dan Denton
Title: Vice President
LASALLE BUSINESS CREDIT, INC.,
as a Lender
By: /s/ Douglas Colletti
Name: Douglas Colletti
Title: First Vice President
JPMORGAN CHASE BANK, as a Lender
By: /s/ Robert Morrow
Name: Robert Morrow
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION,
as a Lender
By: /s/ Alex M. Council IV
Name: Alex M. Council IV
Title: Vice President
BORROWERS:
MASTEC, INC.
By: /s/ Donald Weinstein
Name: Donald Weinstein
Title: EVP & CFO
CHURCH & TOWER, INC.
By: /s/ Donald Weinstein
Name: Donald Weinstein
Title: EVP & CFO
CHURCH & TOWER ENVIRONMENTAL, INC.
By: /s/ Donald Weinstein
Name: Donald Weinstein
Title: EVP & CFO
CRUZ-CELL, INC.
By: /s/ Donald Weinstein
Name: Donald Weinstein
Title: EVP & CFO
DRESSER/AREIA CONSTRUCTION, INC.
By: /s/ Donald Weinstein
Name: Donald Weinstein
Title: EVP & CFO
FLAIRE INCORPORATED
By: /s/ Donald Weinstein
Name: Donald Weinstein
Title: EVP & CFO
GMR TELCOM, L.L.C.
By: /s/ Donald Weinstein
Name: Donald Weinstein
Title: EVP & CFO
MASTEC INTEGRATION SYSTEMS, INC.
By: /s/ Donald Weinstein
Name: Donald Weinstein
Title: EVP & CFO
MASTEC NETWORK SERVICES, INC.
By: /s/ Donald Weinstein
Name: Donald Weinstein
Title: EVP & CFO
MASTEC NORTH AMERICA, INC.
By: /s/ Donald Weinstein
Name: Donald Weinstein
Title: EVP & CFO
MASTEC NORTH CAROLINA, INC.
By: /s/ Donald Weinstein
Name: Donald Weinstein
Title: EVP & CFO
MASTEC TELCOM & ELECTRICAL
SERVICES, INC.
By: /s/ Donald Weinstein
Name: Donald Weinstein
Title: EVP & CFO
MASTEC VIRGINA, INC.
By: /s/ Donald Weinstein
Name: Donald Weinstein
Title: EVP & CFO
PHASECOM AMERICA, INC.
By: /s/ Donald Weinstein
Name: Donald Weinstein
Title: EVP & CFO
PROTEL IND., INC.
By: /s/ Donald Weinstein
Name: Donald Weinstein
Title: EVP & CFO
RENEGADE OF IDAHO, INC.
By: /s/ Donald Weinstein
Name: Donald Weinstein
Title: EVP & CFO
S.S.S. CONSTRUCTION, INC.
By: /s/ Donald Weinstein
Name: Donald Weinstein
Title: EVP & CFO
UPPER VALLEY UTILITIES CORP.
By: /s/ Donald Weinstein
Name: Donald Weinstein
Title: EVP & CFO
WILDE HOLDING CO., INC.
By: /s/ Donald Weinstein
Name: Donald Weinstein
Title: EVP & CFO
WILDE ACQUISITION CO., INC.
By: /s/ Donald Weinstein
Name: Donald Weinstein
Title: EVP & CFO
NORTHLAND CONTRACTING, INC.
By: /s/ Donald Weinstein
Name: Donald Weinstein
Title: EVP & CFO
WILDE OPTICAL SERVICE, INC.
By: /s/ Donald Weinstein
Name: Donald Weinstein
Title: EVP & CFO_
MASTEC FC, INC.
By: /s/ Donald Weinstein
Name: Donald Weinstein
Title: EVP & CFO_
MASTEC REAL ESTATE HOLDINGS, INC.
By: /s/ Donald Weinstein
Name: Donald Weinstein
Title: EVP & CFO_
MASTEC OF TEXAS, INC.
By: /s/ Donald Weinstein
Name: Donald Weinstein
Title: EVP & CFO
MASTEC TC, INC.
By: /s/ Donald Weinstein
Name: Donald Weinstein
Title: EVP & CFO
Exhibit A to
Amendment No. 3
- ---------------
SCHEDULE 1.1B
Permitted Liens
---------------
1. Liens in favor of Fleet National Bank, N.A. as Agent under that certain
Revolving Credit Agreement dated June 9, 1997 by and among MasTec, Inc.
(the "Parent") and its Subsidiaries as amended (the "Existing Credit
Facility"), which will be satisfied as of the Effective Date.
2. Liens in favor of the Bank of Nova Scotia (the "Bank") under that
certain credit facility by and among the Bank and Phasecom Systems, Inc.
(the "Borrower") dated June 29, 2001 (the "1st Canadian Facility").
3. Liens in favor of the Bank of Nova Scotia (the "Bank") under that certain
credit facility by and among the Bank and Integral Power & Telecommunications
Corporation, Ltd. (the "Borrower") dated June 29, 2001 (the "2nd Canadian
Facility").
4. Liens in favor of Liberty Mutual Insurance Company (for itself and any of
its affiliated issuers of Bonds (as defined therein), collectively,
"Liberty") under that certain General Agreement of Indemnity dated April 27,
1999, securing up to $100,000,000 of surety bonds at any one time outstanding
issued by Liberty from time to time for the benefit of one or more Borrowers,
which Liens are subordinated to the Security Interest to the extent provided
in the Intercreditor Agreement dated as of January 22, 2002 between Liberty
Mutual Insurance Company (for itself and any of its affiliated issuers of
Bonds (as defined therein)) and the Administrative Agent.
5. Liens in favor of the Crum & Forster Sureties, securing up to
$125,000,000 of surety bonds at any one time outstanding issued by the Crum
& Forster Sureties from time to time for the benefit of one or more
Borrowers, which Liens are subordinated to the Security Interest to the
extent provided in the Crum & Forster Intercreditor Agreement.
6. Attached summary - U.C.C. search results.
Exhibit 10.9*
- -------------
EXECUTION VERSION
AMENDMENT NO. 4
TO REVOLVING CREDIT AND SECURITY AGREEMENT
------------------------------------------
THIS AMENDMENT NO. 4 TO REVOLVING CREDIT AND SECURITY AGREEMENT (this
"Amendment") is made and entered into as of March 6, 2003, between MasTec,
Inc., a Florida corporation ("MasTec"), certain of the Subsidiaries of MasTec
identified on the signature pages hereto (together with MasTec, hereinafter
collectively referred to as the "Borrowers"), the financial institutions party
from time to time to the Loan Agreement (as hereinafter defined) (the
"Lenders") and Fleet Capital Corporation, a Rhode Island corporation, as
administrative agent (the "Administrative Agent") for the Lenders.
Recitals:
The Borrowers, the Lenders and the Administrative Agent are parties to
a Revolving Credit and Security Agreement dated as of January 22, 2002, as
amended by an Assumption and Amendment Agreement dated as of February 7,
2002, an Amendment No. 2 dated as of October 25, 2002 and an Amendment No.
3 and Consent dated as of November 1, 2002 (as amended and in effect, the
"Loan Agreement"), pursuant to which the Lenders have made certain revolving
credit loans and letter of credit accommodations to the Borrowers.
The Borrowers have requested that the Lenders amend, among other
things, certain financial covenants set forth in the Loan Agreement and
confirm certain understandings with respect to the ATEL Lease Transaction
(as hereinafter defined). To induce the Lenders to do so, the Borrowers have
agreed to execute and deliver and to perform its obligations under this
Amendment.
Upon the terms and subject to the conditions hereinafter set forth, the
Lenders have agreed so to amend the Loan Agreement and to provide such
confirmation.
NOW, THEREFORE, for TEN DOLLARS ($10.00) in hand paid and other good
and valuable consideration, the receipt and sufficiency of which are hereby
severally acknowledged, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. Definitions. All capitalized terms used in this Amendment, unless
otherwise defined herein, shall have the meaning ascribed to such terms in
the Loan Agreement.
2. Amendments to Loan Agreement. Subject to the provisions of Section
4 of this Amendment, the Loan Agreement is hereby amended as follows:
(a) By adding the following new definitions to Section 1.1 of the Loan
Agreement in proper alphabetical order:
"Amendment No. 4 Effective Date" means the date on which Amendment
No. 4 to this Agreement dated as of March 6, 2003, between the
Borrowers, the Lenders and the Administrative Agent shall have become
effective in accordance with its terms.
"Non-Cash Non-Recurring Charge Amounts" means amounts, not to
exceed $46,410,000 in the aggregate, deducted from Net Income for the
purpose of calculating EBITDA solely in respect of non-cash, non-
recurring charges taken by the Borrowers in the fourth Fiscal Quarter
of 2002.
"Non-Recurring Charge Amounts" means amounts, not to exceed
$78,919,000 in the aggregate, deducted from Net Income for the purpose
of calculating EBITDA in respect of cash and non-cash, non-recurring
charges taken by the Borrowers in the fourth Fiscal Quarter of 2002,
net of the after-tax effect of such non-recurring charges.
"Oracle Capex" has the meaning specified in the definition "Fixed
Charge Coverage Ratio."
(b) By amending the definition of "EBITDA Adjustment Amounts" that is
contained in Section 1.1 of the Loan Agreement to read as follows:
"EBITDA Adjustment Amounts" means, during any specified accounting
period, amounts deducted from Net Income for the purpose of calculating
EBITDA for such period in respect of the effect on MasTec's
NAOperations' Net Income of compliance with SFAS 142.
(c) By amending the definition of "Fixed Charge Coverage Ratio" that is
contained in Section 1.1 of the Loan Agreement to read as follows:
"Fixed Charge Coverage Ratio" means, for any specified accounting
period, the ratio of EBITDA of MasTec's NAOperations for such period,
adjusted, as appropriate, to add back any EBITDA Adjustment Amounts and
Non-Cash Non-Recurring Charge Amounts deducted in computing such
EBITDA, less the sum of cash income taxes paid and Restricted Payments
(other than to the extent permitted by this Agreement), Restricted
Distributions (other than to the extent permitted by this Agreement),
and Capital Expenditures (other than Financed Capex) made, on a
consolidated basis by MasTec's NAOperations during such period, to the
sum of their consolidated interest expense for such period and current
maturities of long-term Debt as of the date of determination, provided
that for any specified accounting period of less than 12 consecutive
months, current maturities of long-term Debt as of the date of
determination shall be multiplied by a fraction, the numerator of which
is the number of months included in such specified accounting period and
the denominator of which is 12 and, provided, further, that (x) Capital
Expenditures made by the Borrowers during the period of 12 consecutive
calendar months ending on December 31, 2002 in connection with the
implementation of the Borrowers' Oracle management information systems
(the "Oracle Capex") shall be excluded from the calculation of Capital
Expenditures for such period in determining the Fixed Charge Coverage
Ratio, to the extent that the aggregate amount of Oracle Capex so
excluded during such period does not exceed $5,000,000, and (y) if, and
only if, on or after the Amendment No. 4 Effective Date and on or
before March 31, 2003, MasTec receives and remits promptly to the
Administrative Agent for application to the Revolving Credit Loans then
outstanding hereunder the cash proceeds of an income tax refund in an
amount not less than $20,000,000, then Oracle Capex made by the
Borrowers during any specified accounting period ending after December
31, 2002 and prior to December 31, 2003 shall be excluded from the
calculation of Capital Expenditures for such period in determining the
Fixed Charge Coverage Ratio, to the extent that the aggregate amount of
Oracle Capex so excluded during all periods ending after December 31,
2002 and prior to December 31, 2003 does not exceed the lesser of (i)
the actual amount of Oracle Capex made by the Borrowers during such
periods and (ii) $3,500,000. For the avoidance of doubt, there will be
no Oracle Capex exclusions for periods ending on or after December 31,
2003.
(d) By amending the definition of "Tangible Net Worth" that is contained
in Section 1.1 of the Loan Agreement to read as follows:
"Tangible Net Worth" of any Person means such Person's Net Worth,
less goodwill and the value of any other intangible assets included in
such determination, less, for the purpose of determining MasTec's
NAOperations' Net Worth at any time prior to January 1, 2003, 100% of
all deferred tax assets created as a result of MasTec's NAOperations'
compliance with SFAS 142.
(e) By amending the definition of "Applicable Margin" that is contained
in Section 1.1 of the Loan Agreement to add a proviso immediately prior to
the period at the end thereof that reads as follows:
and, provided, further, that each of the percentages set forth in Annex
B shall be subject to a one-time reduction of 25 basis points (0.25%)
on the first day of the Fiscal Quarter that begins at least 10 days
after delivery by the Borrowers of the financial statements for any
Fiscal Quarter ending on or after January 31, 2004 and the related
officer's certificate in accordance with the respective provisions of
Section 10.1(b) and 10.3 which reflect (x) a Fixed Charge Coverage
Ratio (calculated without giving effect to any exclusions for Oracle
Capex) for the period of 12 consecutive calendar months ending on the
last day of such Fiscal Quarter in excess of 2.00 to 1 and (y) that no
Default or Event of Default exists.
(f) By amending clause (f) of the definition of "Net Income" that is
contained in Section 1.1 of the Loan Agreement to read as follows:
(f) any write-up or, if less than $10,000,000, any write-down of
any asset, provided that for the purpose of calculating the Fixed
Charge Coverage Ratio for any specified accounting period ending after
December 31, 2002, any write-down of any asset without limitation shall
be included in the determination of Net Income, and;
(g) By deleting the phrase "in Fiscal Year 2002" appearing in Section
10.1(b) of the Loan Agreement and by substituting therefor the phrase
"ending on or prior to March 31, 2004";
(h) By amending Section 11.1(a) in its entirety to read as follows:
(a) Tangible Net Worth. Permit consolidated Tangible Net Worth of
MasTec's NAOperations (i) at any time on or after March 31, 2002 and on
or prior to December 31, 2002, to be less than the sum of (A)
$180,000,000, plus (B) an amount equal to 50% of consolidated Net
Income (but without deduction for any Net Loss) of MasTec's NAOperations
for the period from January 1, 2002 through the date of determination,
treated as a single accounting period, provided, that the Non-Recurring
Charge Amounts may be added back to Net Income for the purpose of
calculating the consolidated Tangible Net Worth of MasTec's NAOperations
for the period from September 30, 2002 through December 31, 2002, and
(ii) at any time after December 31, 2002, to be less than the sum of
(A) the greater of the consolidated Tangible Net Worth of MasTec's
NAOperations as at December 31, 2002, as reflected in the audited
financial statements delivered to the Administrative Agent and the
Lenders in accordance with the provisions of Section 10.1(a), and
$167,000,000, minus (B) $10,000,000, plus (C) an amount equal to 50%
of consolidated Net Income (but without deduction for any Net Loss) of
MasTec's NAOperations for the period from January 1, 2003 through the
date of determination, treated as a single accounting period.
(i) By amending Section 11.1(b) in its entirety to read as follows:
(b) Fixed Charge Coverage Ratio. Permit the Fixed Charge Coverage
Ratio for (i) the period of 12 consecutive months ending on December
31, 2002, to be less than 2.00 to 1, (ii) the successive periods of
three, four and five consecutive calendar months beginning January 1,
2003, to be less than 1.10 to 1, (iii) the successive periods of six,
seven and eight consecutive calendar months beginning January 1,
2003, to be less than 1.25 to 1, (iv) the successive periods of nine,
ten and eleven consecutive calendar months beginning January 1, 2003,
to be less than 1.50 to 1, (v) the period of 12 consecutive calendar
months ending on December 31, 2003, to be less than 1.75 to 1, and (vi)
each period of 12 consecutive calendar months ending on or after
January 31, 2004, to be less than 2.00 to 1.
(j) By deleting Annex B to the Loan Agreement in its entirety and by
substituting therefor a new Annex B in the form of Exhibit A attached to
this Amendment.
3. ATEL Lease Transaction. In January 2003, MasTec North America, Inc.
and ATEL Leasing Corporation ("ATEL") consummated a leasing transaction (the
"ATEL Lease Transaction") whereby MasTec North America, Inc. leased from ATEL
approximately $4,900,000 of Equipment as more particularly described on
Schedule I to this Amendment (the "ATEL Equipment"). In connection with the
ATEL Leasing Transaction, as an accommodation to the Borrowers, the
Administrative Agent, on behalf of the Lenders, executed and delivered to
ATEL appropriate release documents to evidence of record that the
Administrative Agent does not have any Lien on or other interest in the ATEL
Equipment. At the Borrowers' request, the Administrative Agent and the
Lenders hereby ratify and reaffirm their consent to the ATEL Lease
Transaction. The Administrative Agent and the Lenders also acknowledge and
agree with the Borrowers that the dollar basket that is contained in Section
8.7 of the Loan Agreement with respect to the aggregate amount of the
Collateral that may be disposed of by the Borrowers during Fiscal Year
2003 shall not be reduced by the value of the ATEL Equipment. The Borrowers,
the Administrative Agent and the Lenders further agree, for purposes of
determining the aggregate amount of Collateral that may be released by the
Administrative Agent during Fiscal Year 2003 under Section 15.9(b) of the
Loan Agreement, that the dollar basket that is contained therein shall not
be reduced by the value of the ATEL Equipment.
4. Conditions to Effectiveness. The provisions of Sections 2(a), (b),
(c), (d), (f), (g) and (h) of this Amendment shall become effective as of
December 31, 2002 and the provisions of Sections 2(e), (i) and (j) and
Section 3 of this Amendment shall become effective as of the date hereof on
the date (the "Amendment No. 4 Effective Date") on which the Administrative
Agent shall have received (a) an amendment fee in the amount of $312,500
for the Ratable account of the Lenders, which fee is earned on such date and
is not subject to refund or rebate of any kind whatsoever, and (b) the
following documents, each of which shall be satisfactory in form and
substance to the Administrative Agent and in sufficient copies for each
Lender:
(i) this Amendment duly executed and delivered by the Borrowers,
the Lenders and the Administrative Agent;
(ii) a certificate of the secretary or assistant secretary of each
Borrower having attached thereto the articles or certificate of
incorporation and bylaws of such Borrower (or containing the
certification of such secretary or assistant secretary that no
amendment or modification of such articles or certificate of
incorporation or bylaws has become effective since the last date on
which such documents were last delivered to the Lenders), all
corporate or company action, including shareholders' or members'
approval, if necessary, has been taken by such Borrower and/or its
shareholders or members to authorize the execution, delivery and
performance of this Amendment and to the further effect that the
incumbency certificate most recently delivered to the Lenders remains
in effect, unchanged;
(iii) a certificate of the president or chief financial officer of
MasTec stating that, to the best of his or her knowledge and based on
an examination sufficient to enable him or her to make an informed
statement, after giving effect to the Amendment,
(A) all of the representations and warranties made or deemed
to be made under the Loan Agreement are true and correct on and
as of the Amendment No. 4 Effective Date, and
(B) no Default or Event of Default exists;
and the Administrative Agent shall be satisfied as to the truth
and accuracy thereof; and
(iv) such other documents and instruments as any Lender through
the Administrative Agent may reasonably request.
5. Representations and Warranties. To induce the Administrative Agent
and the Lenders to enter into this Amendment, each Borrower hereby makes the
following representations and warranties to the Administrative Agent and the
Lenders, which representations and warranties shall survive the delivery of
this Amendment and the making of additional Loans under the Loan Agreement as
amended hereby:
(a) Authorization of Agreements. Each Borrower has the right and
power, and has taken all necessary action to authorize it, to execute,
deliver and perform this Amendment and each other agreement
contemplated hereby to which it is a party in accordance with their
respective terms. This Amendment and each other such agreement
contemplated hereby to which it is a party has been duly executed and
delivered by the duly authorized officers of such Borrower and each is,
or each when executed and delivered in accordance with this Amendment
will be, a legal, valid and binding obligation of such Borrower,
enforceable in accordance with its terms.
(b) Compliance of Agreements with Laws. The execution, delivery
and performance of this Amendment in accordance with their respective
terms do not and will not, by the passage of time, the giving of notice
or otherwise,
(i) require any Governmental Approval that has not been
obtained or violate any Applicable Law relating to such Borrower
or any of its Subsidiaries,
(ii) conflict with, result in a breach of or constitute a
default under the articles or certificate of incorporation or
by-laws or other constituent documents or any shareholders' or
members' agreement of such Borrower or any of its Subsidiaries,
any material provisions of any indenture, agreement or other
instrument to which such Borrower, any of its Subsidiaries or
any of such Borrower's or such Subsidiaries' property may be
bound or any Governmental Approval relating to such Borrower or
any of its Subsidiaries, or
(iii) result in or require the creation or imposition of any
Lien upon or with respect to any property now owned or hereafter
acquired by such Borrower other than the Security Interest.
6. Effect of Amendment. From and after the Amendment No. 4 Effective
Date, all references in the Loan Agreement and in any other Loan Document to
"this Agreement," "the Loan Agreement," "hereunder," "hereof" and words of
like import referring to the Loan Agreement, shall mean and at any time of
determination be references to the Loan Agreement as amended by this
Amendment. Except as expressly amended hereby, the Loan Agreement and all
terms, conditions and provisions thereof remain in full force and effect and
are hereby ratified and confirmed. The execution, delivery and effectiveness
of this Amendment shall not, except as expressly provided herein, operate as
a waiver of any right, power or remedy of any Lender under any of the Loan
Documents, nor constitute a waiver of any provision of any of the Loan
Documents.
7. Breach of Amendment. Any breach by the Borrowers of any
representation, warranty or covenant contained herein shall constitute an
Event of Default.
8. Counterpart Execution. This Amendment may be executed in any number
of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an
original and all of which taken together shall constitute but one and the
same agreement. Delivery of an executed signature page of any party hereto
by facsimile transmission shall be as effective as delivery of a manually
delivered counterpart thereof.
9. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of Georgia without giving effect to
conflicts of law principles thereof.
10. Successors and Assigns. This Amendment shall be binding upon and
inure to the benefit of the parties hereto and their respective successors
and assigns.
11. Further Assurances. The Borrowers agree to take such further actions
as any Lender through the Administrative Agent shall reasonably request
from time to time in connection herewith to evidence or give effect to the
amendments set forth herein or any of the transactions contemplated hereby.
12. Section Titles. Section titles and references used in this Amendment
shall be without substantive meaning or content of any kind whatsoever and
are not a part of the agreement among the parties hereto.
13. Waiver of Jury Trial. To the fullest extent permitted by applicable
law, each of the parties hereto hereby waives the right to trial by jury in
any action, suit, counterclaim or proceeding arising out of or related to
this Amendment.
14. Release of Claims. To induce the Administrative Agent and the
Lenders to enter into this Amendment, each Borrower hereby releases, acquits
and forever discharges the Administrative Agent and the Lenders, and all
officers, directors, agents, employees, successors and assigns of the
Administrative Agent and the Lenders, from any and all liabilities, claims,
demands, actions or causes of action of any kind or nature (if there be any),
whether absolute or contingent, disputed or undisputed, at law or in equity,
or known or unknown, that such Borrower now has or ever had against Agent or
any Lender arising under or in connection with any of the Loan Documents or
otherwise. Each Borrower represents and warrants to the Administrative Agent
and the Lenders that such Borrower has not transferred or assigned to any
Person any claim that such Borrower ever had or claimed to have against the
Administrative Agent or any Lender.
15. Expenses of Administrative Agent. Borrowers agree to pay, on demand,
all costs and expenses incurred by the Administrative Agent in connection
with the preparation, negotiation and execution of this Amendment and any
other Loan Documents executed pursuant hereto and any and all amendments,
modifications, and supplements thereto, including, without limitation, the
costs and fees of the Administrative Agent's legal counsel and any taxes or
expenses associated with or incurred in connection with any instrument or
agreement referred to herein or contemplated hereby.
[Signatures begin on following page]
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed under seal and delivered by their respective duly authorized
officers as of the date first written above.
FLEET CAPITAL CORPORATION,
as Administrative Agent and as a Lender
By: /s/ Dennis S. Losin
Name: Dennis S. Losin
Title: Sr. V. P.
WACHOVIA BANK, NATIONAL
ASSOCIATION, as a Lender
By: /s/ Dan Denton
Name: Dan Denton
Title: Vice President
LASALLE BUSINESS CREDIT, INC.,
as a Lender
By: /s/ Douglas Colletti
Name: Douglas Colletti
Title: First Vice President
JPMORGAN CHASE BANK, as a Lender
By: /s/ Robert Morrow
Name: Robert Morrow
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION,
as a Lender
By: /s/ Alex M. Council IV
Name: Alex M. Council IV
Title: Vice President
BORROWERS:
ATTEST: MASTEC, INC.
By: /s/ Cristina Canales By: /s/ Donald Weinstein
Secretary Name: Donald Weinstein
[CORPORATE SEAL] Title: EVP & CFO
ATTEST: CHURCH & TOWER, INC.
By: /s/ Cristina Canales By: /s/ Donald Weinstein
Secretary Name: Donald Weinstein
[CORPORATE SEAL] Title: EVP & CFO
ATTEST: CHURCH & TOWER ENVIRONMENTAL, INC.
By: /s/ Cristina Canales By: /s/ Donald Weinstein
Secretary Name: Donald Weinstein
[CORPORATE SEAL] Title: EVP & CFO
ATTEST: CRUZ-CELL, INC.
By: /s/ Cristina Canales By: /s/ Donald Weinstein
Secretary Name: Donald Weinstein
[CORPORATE SEAL] Title: EVP & CFO
ATTEST: DRESSER/AREIA CONSTRUCTION, INC.
By: /s/ Cristina Canales By: /s/ Donald Weinstein
Secretary Name: Donald Weinstein
[CORPORATE SEAL] Title: EVP & CFO
ATTEST: FLAIRE INCORPORATED
By: /s/ Cristina Canales By: /s/ Donald Weinstein
Secretary Name: Donald Weinstein
[CORPORATE SEAL] Title: EVP & CFO
ATTEST: GMR TELCOM, L.L.C.
By: /s/ Cristina Canales By: /s/ Donald Weinstein
Secretary Name: Donald Weinstein
[CORPORATE SEAL] Title: EVP & CFO
ATTEST: MASTEC INTEGRATION SYSTEMS, INC.
By: /s/ Cristina Canales By: /s/ Donald Weinstein
Secretary Name: Donald Weinstein
[CORPORATE SEAL] Title: EVP & CFO
ATTEST: MASTEC NETWORK SERVICES, INC.
By: /s/ Cristina Canales By: /s/ Donald Weinstein
Secretary Name: Donald Weinstein
[CORPORATE SEAL] Title: EVP & CFO
ATTEST: MASTEC NORTH AMERICA, INC.
By: /s/ Cristina Canales By: /s/ Donald Weinstein
Secretary Name: Donald Weinstein
[CORPORATE SEAL] Title: EVP & CFO
ATTEST: MASTEC TELCOM & ELECTRICAL
SERVICES, INC.
By: /s/ Cristina Canales By: /s/ Donald Weinstein
Secretary Name: Donald Weinstein
[CORPORATE SEAL] Title: EVP & CFO
ATTEST: PHASECOM AMERICA, INC.
By: /s/ Cristina Canales By: /s/ Donald Weinstein
Secretary Name: Donald Weinstein
[CORPORATE SEAL] Title: EVP & CFO
ATTEST: PROTEL IND., INC.
By: /s/ Cristina Canales By: /s/ Donald Weinstein
Secretary Name: Donald Weinstein
[CORPORATE SEAL] Title: EVP & CFO
ATTEST: RENEGADE OF IDAHO, INC.
By: /s/ Cristina Canales By: /s/ Donald Weinstein
Secretary Name: Donald Weinstein
[CORPORATE SEAL] Title: EVP & CFO
ATTEST: S.S.S. CONSTRUCTION, INC.
By: /s/ Cristina Canales By: /s/ Donald Weinstein
Secretary Name: Donald Weinstein
[CORPORATE SEAL] Title: EVP & CFO
ATTEST: UPPER VALLEY UTILITIES CORP.
By: /s/ Cristina Canales By: /s/ Donald Weinstein
Secretary Name: Donald Weinstein
[CORPORATE SEAL] Title: EVP & CFO
ATTEST: WILDE HOLDING CO., INC.
By: /s/ Cristina Canales By: /s/ Donald Weinstein
Secretary Name: Donald Weinstein
[CORPORATE SEAL] Title: EVP & CFO
ATTEST: WILDE ACQUISITION CO., INC.
By: /s/ Cristina Canales By: /s/ Donald Weinstein
Secretary Name: Donald Weinstein
[CORPORATE SEAL] Title: EVP & CFO
ATTEST: NORTHLAND CONTRACTING, INC.
By: /s/ Cristina Canales By: /s/ Donald Weinstein
Secretary Name: Donald Weinstein
[CORPORATE SEAL] Title: EVP & CFO
ATTEST: WILDE OPTICAL SERVICE, INC.
By: /s/ Cristina Canales By: /s/ Donald Weinstein
Secretary Name: Donald Weinstein
[CORPORATE SEAL] Title: EVP & CFO
ATTEST: MASTEC FC, INC.
By: /s/ Cristina Canales By: /s/ Donald Weinstein
Secretary Name: Donald Weinstein
[CORPORATE SEAL] Title: EVP & CFO
ATTEST: MASTEC REAL ESTATE HOLDINGS, INC.
By: /s/ Cristina Canales By: /s/ Donald Weinstein
Secretary Name: Donald Weinstein
[CORPORATE SEAL] Title: EVP & CFO
ATTEST: MASTEC OF TEXAS, INC.
By: /s/ Cristina Canales By: /s/ Donald Weinstein
Secretary Name: Donald Weinstein
[CORPORATE SEAL] Title: EVP & CFO
ATTEST: MASTEC TC, INC.
By: /s/ Cristina Canales By: /s/ Donald Weinstein
Secretary Name: Donald Weinstein
[CORPORATE SEAL] Title: EVP & CFO
Exhibit A to
Amendment No. 4
- ---------------
ANNEX B
PRICING MATRIX
--------------
Level Leverage Ratio LIBOR Loans Base Rate Loans
- ----- ----------------------- ----------- ---------------
I Less than or equal to
1.50 to 1 2.25% 0.75%
II Greater than 1.50 to 1
but less than or equal
to 2.00 to 1 2.50% 1.00%
III Greater than 2.00 to 1
but less than or equal
to 2.50 to 1 2.75% 1.25%
IV Greater than 2.50 to 1
but less than or equal
to 3.00 to 1 3.00% 1.50%
V Greater than 3.00 to 1 3.25% 1.75%
Schedule I to
Amendment No. 4
- ---------------
ATEL EQUIPMENT
--------------
PLEASE SEE ATTACHMENTS
Exhibit 10.14
- -------------
AGREEMENT AND RELEASE
JOSE M. SARIEGO ("Employee") and MasTec, Inc., a Florida corporation ("MasTec")
agree as follows:
1. MasTec and Employee mutually agree that Employee will resign as Senior
Vice President, General Counsel and Secretary of MasTec and as Vice
President, General Counsel and Secretary of all of MasTec's subsidiaries
and affiliates due to MasTec's decision to outsource the MasTec Legal
Department for cost reasons, effective December 31, 2002 (the "Resignation
Date").
2. Until June 30, 2003, Employee will reasonably cooperate and assist MasTec
telephonically without further compensation other than the compensation
and other consideration described this Agreement and customary witness
fees, in connection with any legal or other similar proceeding, including
any external or internal investigation, involving MasTec or any of its
subsidiaries or affiliates, by furnishing such information (including, if
required, testimony) as may be reasonably requested by MasTec from time
to lime, so long as such cooperation and assistance does not interfere
with Employee's business or employment activities Employee will have no
other service obligations to MasTec after the Resignation Date.
3. In consideration of Employee's resignation and the other covenants of
Employee in this Agreement, MasTec will pay Employee, in addition to his
current salary through the Resignation Date, (a) $40,000 on January 3,
2003 and (b) $80,000 payable in equal bi-weekly installments in
accordance with MasTec's payroll policies through June 30, 2003, subject
to tax withholdings; provided that, if a "Change of Control" as defined
in the existing Employment Agreement between Employee and MasTec
effective as of January 1. 2001 (the 'Existing Agreement") occurs prior
to payment of all installments due under this Section 2, all unpaid
installments will become immediately due and payable as of the effective
date of the Change of Control.
4. Employee will not be entitled to any bonus or other compensation other
than salary for services tendered through December 31, 2002. Employee
acknowledges that in accordance with the incentive compensation plan
applicable to Employee, Employee would not be entitled to a bonus for
2002.
5. Employee will continue on MasTec's payroll and will continue to be
entitled to participate in MasTec's health, life insurance, accident
insurance and disability benefit programs, MasTec's 401(k) retirement
plan and MasTec's Non-Qualified Employee Stock Purchase Plan as if
employed full-time by MasTec through June 30, 2003. Employee will not,
however, be entitled to: (a) any vacation, holiday, sick or personal days
after December 31, 2002 or (b) any bonus award of any kind under any
incentive compensation plan of MasTec or its subsidiaries
6. MasTec will continue to pay the premiums on Employee's behalf under the
split dollar life insurance program in which Employee currently
participates until June 30, 2003. After that date, Employee may, at
Employee's option (a) purchase the life insurance policy for the aggregate
amount of premiums paid by MasTec under the policy through the date of
purchase or (b) terminate Employee's interest in the policy. If Employee
elects to purchase of the policy, MasTec will assign the policy to
Employee and Employee will assume all obligations of MasTec under the
policy, including the payment of any future premiums. If Employee elects
to terminate Employee's interest in the policy, (i) Employee will
provide MasTec with appropriate documentation to assign the policy and
the collateral under the policy to MasTec and (ii) in accordance with the
split dollar program, MasTec will promptly pay to Employee the excess of
the cash surrender value under the policy over the premiums paid by
MasTec, if any.
7. MasTec will pay Employee on January 3, 2003 the amounts in Employee's
deferred compensation plan as of December 31, 2002.
8. MasTec will reimburse Employee promptly for any expenses incurred by
Employee on MasTec's behalf in accordance with MasTec's expense
reimbursement policies.
9. All unvested stock options previously granted to Employee will vest as of
December 31, 2002. Employee will be entitled to retain all stock options
previously granted to Employee through the full term of the options,
subject to Employee complying with the terms of this Agreement and any
agreement under which the options were issued. If Employee violates the
terms of this Agreement or any other agreement under which the options
were issued, all outstanding options will immediately terminate and not
be exercisable by Employee.
10. Employee will be entitled to keep (a) the laptop computer that Employee
currently uses and (b) the cellular phone that Employee currently uses.
Employee will delete any confidential information (as defined below)
stored in the laptop computer. Employee will assume all obligations for
telephone service related to the cellular phone after December 31, 2002.
11. On or before December 31, 2002, Employee will deliver or cause to be
delivered to MasTec, (a) all keys, ID cards, corporate credit card,
laptop computer or other computer hardware, computer software of any kind,
electronic address book, portable phone, radio, electronic beeper or
other electronic devices, equipment and all other property belonging to
MasTec, other than the laptop computer and cellular phone being retained
by Employee as contemplated in this Agreement and the software contained
therein, and (b) all originals and copies of any drawings, books, manuals,
letters, notes, notebooks, report financial statements, business plans,
projections, data base, or documents, materials or information in
Employee's possession or control containing or describing any Confidential
Information (as defined below) or otherwise relating to MasTec or any of
its subsidiaries or affiliates.
12. In consideration for the payments and other covenants of MasTec in this
Agreement, Employee and his heirs, representatives, executors, successors
and assigns (collectively, the "Employee Releasors"), acquit, release and
forever discharge MasTec and its agents servants, officers, directors,
shareholders, employees, predecessors, subsidiaries, affiliates,
successors, assigns and other representatives (collectively, the
"MasTec Released Parties") from all claims, demands, debts, damages,
liabilities, obligations, actions or causes of action, whether known or
unknown, foreseen and unforeseen, fixed, accrued or contingent,
liquidated or unliquidated, matured or unmatured, direct or derivative or
consequential, arising from contract. tort, statute, regulation or
otherwise (collectively, "Claims"), including, without limitation (a)
Claims for fraud Intentional misconduct, simple or gross negligence,
criminal conduct, slander or libel, (b) Claims to connection with
Employee's employment (including wrongful termination breach of express
or implied contract, unpaid wages, unemployment compensation, accrued
vacation, holidays or sick days, employee benefits, or under any federal,
state, or local employment laws, regulations, or executive orders
prohibiting discrimination of any kind, including discrimination on the
basis of age, race, sex, sexual preference, marital status, national
origin, religion, handicap, and disability discrimination, such as the
Age Discrimination in Employment Act ("ADEA"); Title VII of the Civil
Rights Act of 1964, the Civil Rights Act of 1866, the Employee Retirement
Income Security Act of 1974, the Americans with Disabilities Act of 1990,
the Family and Medical Leave Act, and Florida's Civil Rights Act, and
(c) any other Claim of any kind whatsoever, arising out of, resulting
from or in any way connected with any act, omission, fact, event,
occurrence, matter, agreement, happening, representation, warranty,
promise or transaction of any kind that the Releasors ever had or may now
have against the Released Parties, from the beginning of time to the date
of this Agreement, other than the obligations of MasTec under (a) this
Agreement, (b) any stock option agreement covering the options described
in this Agreement, (c) the MasTec 401(k) plan and other benefit programs
that Employee is entitled to participate in as contemplated by this
Agreement, and (d) the indemnification and advancement of expenses
provisions of MasTec's bylaws as amended as of April 16, 2602 and the
resolutions of the MasTec Board of Directors dated October 31, 2001.
13. In consideration for the covenants of Employee in this Agreement, the
MasTec Released Parties acquit, release and forever discharge the
Employee Releasors from all Claims, other than the obligations of
Employee under (a) this Agreement and (b) the Existing Agreement.
14. The parties agree that all matters relating to this Agreement are
strictly confidential and that neither party or its representatives will
disclose or disseminate any information concerning any tern or terms
hereof to any third person or persons, unless required by law.
15. The prevailing party in any suit or other proceeding to enforce this
Agreement will be entitled to (a) attorneys' fees and court costs
incurred in enforcing this Agreement or in defending any claim brought in
violation hereof and (b) interest an any amount not paid when due at a
rate per annum equal to eighteen percent (18%) or the maximum amount
permitted by law.
16. Employee will not make any statements about or relating to MasTec or its
affiliates, its officers, directors, shareholders, agents or independent
contractors that are disparaging, critical or likely to cause
embarrassment. MasTec will not make any statements about or relating to
Employee that are disparaging, critical or likely to cause embarrassment.
No statement or other communication regarding Employee made by MasTec or
any of its representatives will be inconsistent with the reasons for the
termination of Employee's employment set forth in Section 1 of this
Agreement.
17. This Agreement will be governed by and construed and enforced in
accordance with the laws of the State of Florida, without regard to its
conflict of laws rules. MasTec and Employee each consent to the
jurisdiction of any state or federal court located within Miami-Dade
County. State of Florida, and consent that all service of process
may be made by registered or certified mail directed to the appropriate
party at the address set forth in this Agreement. Each party waives any
objection which such party may have based on lack of jurisdiction or
improper venue or forum non conveniens to any suit or proceeding
instituted by the other party under this Agreement in any state or
federal court located within Miami-Dade County, Florida and consents to
the granting of such legal or equitable relief as is deemed
appropriate by the court.
18. This Agreement represents the entire understanding and agreement between
the parties hereto with respect to the subject matter hereof and there
are no promises, agreements, conditions, undertakings. warranties, or
representations, whether written or oral, express or implied, between the
parties other than as set forth herein. This Agreement cannot be
amended, supplemented, or modified except by an instrument in writing
signed by the parties against whom enforcement of such amendment,
supplement or modification is sought.
19. 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:
a. If to Employee:
Jose Sariego
540 Bay Point Road
Miami, FL 33137
b. If to MasTec:
MasTec, Inc
3155 N.W. 77th Avenue
Miami, FL 33122-1205
Attn.: Legal Department
Telecopier: (305) 406-1907
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 will 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
20. EMPLOYEE KNOWINGLY, VOLUNTARILY, IRREVOCABLY UNCONDITIONALLY AND
INTENTIONALLY WAIVES THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED ON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT OR ANY CLAIMS COVERED BY THIS AGREEMENT, OR ANY COURSE OF
CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OF ANY PERSON OR PARTY AND RELATED TO THIS AGREEMENT OR ANY
CLAUSE, THIS IRREVOCABLE WAIVER OF THE RIGHT TO A JURY TRIAL BEING A
MATERIAL INDUCEMENT FOR MASTEC TO ENTER INTO THIS AGREEMENT
EXECUTED: as of December 1, 2002.
EMPLOYEE:
/s/ JOSE M. SARIEGO
-----------------------
NAME: JOSE M. SARIEGO
MASTEC:
MASTEC, INC.
By: /s/ Austin J. Shanfelter
-------------------------
Name: Austin J. Shanfelter
President and CEO
Exhibit 10.15
- -------------
SPLIT-DOLLAR AGREEMENT
----------------------
THIS AGREEMENT, made and entered into this 1st day of December, 2002
effective as of August 27, 2002, by and between MasTec, Inc., a Florida
corporation, with principal offices and place of business in the State of
Florida (hereinafter referred to as the "Corporation"), and Jorge Mas, an
individual residing in the State of Florida (hereinafter referred to as the
"Employee"),
WITNESSETH THAT:
WHEREAS, the Employee is employed by the Corporation; and
WHEREAS, the Employee wishes to provide life insurance protection for
his family, under policies of life insurance (hereinafter referred to
individually as a "Policy" and collectively as the "Policies"), insuring
his life and the life of his wife, Aleyda Mas (hereinafter referred to
collectively as the "Insureds"), which Policies are described in Exhibit A
attached hereto and by this reference made a part hereof, and which were
issued by Phoenix Life Insurance Company and General American Life Insurance
Company (hereinafter referred to individually as an "Insurer" and
collectively as the "Insurers"); and
WHEREAS, the Corporation is willing to pay the premiums due on the
Policies as an additional employment benefit for the Employee, on the terms
and conditions hereinafter set forth; and
WHEREAS, the Corporation is the owner of the Policies and, as such,
possesses all incidents of ownership in and to the Policies; and
WHEREAS, the Corporation wishes to retain such ownership rights, in
order to secure the repayment of the amounts which it will pay toward the
premiums on the Policies;
WHEREAS, pursuant to the interim guidance provided in Notice 2001-10,
as modified by Notice 2002-8 (the "Notices"), the parties to this
arrangement intend to have their income and gift tax consequences
determined under traditional split-dollar economic benefit concepts;
NOW, THEREFORE, in consideration of the premises and of the mutual
promises contained herein, the parties hereto agree as follows:
1. Statement of Intention. The parties hereto intend that the income
and gift tax consequences of this split-dollar arrangement be governed by
traditional split-dollar economic benefit concepts, in accordance with the
interim guidance provided in the Notices, for arrangements entered into
prior to the adoption of final regulations. The parties hereto agree to
consistently treat this arrangement in accordance with such concepts on all
tax returns and other documents filed by them in connection herewith.
2. Purchase of Policies. The Corporation has purchased the Policies
from the Insurers in the Face Amount of Insurance (as such term is defined
in each Policy) and Death Benefit Options (as such term is defined in each
Policy) described in Exhibit A attached hereto. The parties hereto have
taken all necessary action to cause the Insurers to issue the Policies, and
shall take any further action which may be necessary to cause the Policies
to conform to the provisions of this Agreement. The parties hereto agree
that the Policies shall be subject to the terms and conditions of this
Agreement and of the endorsements to each Policy filed with the Insurers.
3. Ownership of Policies.
a. The Corporation shall be the sole and absolute owner of the
Policies, and may exercise all ownership rights granted to the owner
thereof by the terms of the Policies, except as may otherwise be provided
herein; provided, however, that in no event shall the Corporation have any
right to borrow against or make withdrawals from either Policy.
b. Specifically, the Corporation shall have the sole authority to
direct the manner in which the Policy Account (as such term is defined in
each Policy) established pursuant to the terms of the Policies shall be
allocated among the various investment options from time to time available
under the Policies and to change such allocation from time to time, as
provided for in the Policies.
4. Payment of Premiums. On or before the Anniversary Date of each
Policy (as defined therein), or within the grace period provided therein,
the Corporation shall pay the full amount of each Planned Periodic Premium
(as such term is defined in the Policies) to the Insurers, during the term
hereof, and shall, upon request, promptly furnish the Employee evidence of
timely payment of such premium. Subject to the acceptance of such amount
by the Insurers, the Corporation may also, in its discretion, make
additional premium payments on the Policies. The Corporation shall
annually furnish the Employee a statement of the amount of income reportable
by the Employee for federal and state income tax purposes, as a result of the
insurance protection provided to the Employee's beneficiary hereunder.
5. Designation of Policy Beneficiary/Endorsement.
a. Contemporaneously with the execution of this Agreement, the
Corporation has executed a beneficiary designation for each Policy, under the
form used by each Insurer for such designations, naming the Corporation as
the Policy beneficiary, in order to secure the Corporation's recovery of the
amount due the Corporation hereunder.
b. The Employee may select both the settlement option for payment of
that portion of the death benefit provided under each Policy to which the
Employee is entitled hereunder and the beneficiary or beneficiaries to
receive such portion of the policy proceeds, by specifying the same in a
written notice to the Corporation. Upon receipt of such notice, the
Corporation shall execute and deliver to each Insurer a change of
beneficiary and/or Policy endorsement form necessary to elect the requested
settlement option and to designate the requested person, persons or entity
as the beneficiary or beneficiaries to receive the death proceeds of the
Policy in excess of the amount to which the Corporation is entitled
hereunder. The parties hereto agree to take the action necessary to cause
the beneficiary designation and settlement election provisions of that
portion of each Policy to which the Employee is entitled hereunder to
conform to the provisions hereof; the Corporation shall not terminate,
alter or amend such election or designation for such portion of each
Policy, without the express written consent of the Employee.
6. Limitations on Corporation's Rights in Policies. Except as
otherwise provided herein, the Corporation shall not sell, assign, transfer,
surrender or cancel the Policies, change the beneficiary designation
provision of that portion of the Policies to which the Employee is entitled
hereunder, nor change the Death Benefit Option thereof without, in any
such case, the express written consent of the Employee.
7. Collection of Death Proceeds.
a. Upon the death of the survivor of the Insureds, the Corporation
shall cooperate with the beneficiary or beneficiaries designated by the
Employee to take whatever action is necessary to collect the death benefit
provided under the Policies; when such benefit has been collected and paid
as provided herein, this Agreement shall thereupon terminate.
b. Upon the death of the survivor of the Insureds, the Corporation
shall have the unqualified right to receive a portion of such death benefit
equal to the total amount of the premiums paid by it hereunder, plus 4%,
compounded annually. The balance of the death benefit provided under the
Policies shall be paid directly to the beneficiary or beneficiaries
designated by the Corporation at the direction of the Employee, in the
manner and in the amount or amounts provided in the beneficiary designation
provision of the Policies. In no event shall the amount payable to the
Corporation hereunder exceed the Policy proceeds payable as a result of the
maturity of the Policies as a death claim. No amount shall be paid from such
death benefit to the beneficiary or beneficiaries designated by the
Corporation at the direction of the Employee, until the full amount due the
Corporation for the return of its premiums plus interest hereunder has been
paid. The parties hereto agree that the beneficiary designation provision
of the Policies shall conform to the provisions hereof.
c. Notwithstanding any provision hereof to the contrary, in the event
that, for any reason whatsoever, no death benefit is payable under the
Policies upon the death of the survivor of the Insureds and in lieu thereof
the Insurer refunds all or any part of the premiums paid for the Policies,
the Corporation shall have the unqualified right to retain such premiums.
8. Termination of the Agreement During the Lifetime of the Insureds.
a. This Agreement shall terminate while either of the Insureds is
alive, without notice, upon the occurrence of any of the following events:
(a) total cessation of the Corporation's business;
(b) bankruptcy, receivership or dissolution of the Corporation; or
(c) at any time that the collective voting securities of the Corporation
owned directly or indirectly by Jose Ramon Mas Holdings I Limited
Partnership, Jorge Mas Holdings I Limited Partnership, Mas Family
Foundation, Inc., a Florida not-for-profit corporation, Juan Carlos Mas
Holdings I Limited Partnership, Jorge L Mas Canosa Holdings I Limited
Partnership, Jorge L. Mas, Jorge Mas, Juan Carlos, Juan Ramon Mas, and their
respective ancestors and descendants, are less than 38% of the outstanding
voting securities of the Corporation (a "Change in Control").
b. In addition, the Employee may terminate this Agreement, while either
of the Insureds is alive and while no premium under the Policies is overdue,
by written notice to the Corporation. Such termination shall be effective
as of the date of such notice.
9. Disposition of the Policies on Termination of the Agreement During
the Employee's Lifetime.
a. For sixty (60) days after the date of the termination of this
Agreement during the lifetime of the Insureds, the Employee shall have the
assignable option to purchase the Policies from the Corporation. The
purchase price for each Policy shall be the greater of the total amount of
the premium payments made by the Corporation hereunder or the then cash
surrender value of the Policy. Upon receipt of such amount, the Corporation
shall transfer all of its right, title and interest in and to such Policy to
the Employee or his assignee, by the execution and delivery of an appropriate
instrument of transfer, and this Agreement shall thereupon terminate.
b. If the Employee or his assignee fails to exercise such option within
such sixty (60) day period, then the Corporation may enforce its right to be
repaid for the premiums which it paid hereunder by surrendering or canceling
the Policies for their cash surrender value, or it may change the beneficiary
designation provisions of the Policies, naming itself or any other person or
entity as revocable beneficiary thereof, or exercise any other ownership
rights in and to the Policies, without regard to the provisions hereof.
Thereafter, neither the Employee, his assignee nor their heirs, assigns or
beneficiaries shall have any further interest in and to the Policies, either
under the terms thereof or under this Agreement.
10. Insurers Not a Party. The Insurers shall be fully discharged from
their obligations under the Policies by payment of the Policy death benefit
to the beneficiary or beneficiaries named in the Policies, subject to the
terms and conditions of the Policies. In no event shall either Insurer be
considered a party to this Agreement, or any modification or amendment
hereof. No provision of this Agreement, nor of any modification or amendment
hereof, shall in any way be construed as enlarging, changing, varying or in
any other way affecting the obligations of the Insurers as expressly provided
in the Policies, except insofar as the provisions hereof are made a part of
the Policies by the beneficiary designation executed by the Corporation and
filed with the Insurers in connection herewith.
11. Assignment by Employee. Notwithstanding any provision hereof to the
contrary, the Employee shall have the right to absolutely and irrevocably
assign by gift all of his right, title and interest in and to this Agreement
and to the Policies to an assignee. This right shall be exercisable by the
execution and delivery to the Corporation of a written assignment, in
substantially the form attached hereto as Exhibit B, which by this reference
is made a part hereof. Upon receipt of such written assignment executed by
the Employee and duly accepted by the assignee thereof, the Corporation
shall consent thereto in writing, and shall thereafter treat the Employee's
assignee as the sole owner of all of the Employee's right, title and
interest in and to this Agreement and in and to the Policies. Thereafter,
the Employee shall have no right, title or interest in and to this Agreement
or the Policies, all such rights being vested in and exercisable only by
such assignee.
12. Named Fiduciary, Determination of Benefits, Claims Procedure and
Administration.
a. The Corporation is hereby designated as the named fiduciary under
this Agreement. The named fiduciary shall have authority to control and
manage the operation and administration of this Agreement, and it shall be
responsible for establishing and carrying out a funding policy and method
consistent with the objectives of this Agreement.
b. Claim. A Participant, beneficiary or other person who believes
that he or she is being denied a benefit to which he or she is entitled
(hereinafter referred to as "Claimant"), or his or her duly authorized
representative, may file a written request for such benefit with the
President of the Corporation (the "First Level Reviewer"), setting forth
his or her claim. Such claim must be addressed to the President of the
Corporation, at its then principal place of business.
c. Claim Decision. Upon receipt of a claim, the First Level Reviewer
shall advise the Claimant that a reply will be forthcoming within a
reasonable period of time, but ordinarily not later than ninety days, and
shall, in fact, deliver such reply within such period. However, the First
Level Reviewer may extend the reply period for an additional ninety days for
reasonable cause. If the reply period will be extended, the First Level
Reviewer shall advise the Claimant in writing during the initial 90-day
period indicating the special circumstances requiring an extension and the
date by which the First Level Reviewer expects to render the benefit
determination.
If the claim is denied in whole or in part, the First Level Reviewer
will render a written opinion, using language calculated to be understood
by the Claimant, setting forth:
(1) the specific reason or reasons for the denial;
(2) the specific references to pertinent Plan provisions on which the
denial is based;
(3) a description of any additional material or information necessary
for the Claimant to perfect the claim and an explanation as to why such
material or such information is necessary;
(4) appropriate information as to the steps to be taken if the Claimant
wishes to submit the claim for review, including a statement of the
Claimant's right to bring a civil action under Section 502(a) of ERISA
following an adverse benefit determination on review; and
(5) the time limits for requesting a review of the denial under
Subsection C hereof and for the actual review of the denial under
Subsection D hereof.
d. Request for Review. Within sixty days after the receipt by the
Claimant of the written opinion described above, the Claimant may request
in writing that the Secretary of the Corporation (the "Second Level
Reviewer") review the First Level Reviewer's prior determination.
Such request must be addressed to the Secretary of the Corporation, at its
then principal place of business. The Claimant or his or her duly authorized
representative may submit written comments, documents, records or other
information relating to the denied claim, which such information shall be
considered in the review under this subsection without regard to whether such
information was submitted or considered in the initial benefit determination.
The Claimant or his or her duly authorized representative shall be
provided, upon request and free of charge, reasonable access to, and copies
of, all documents, records and other information which (i) was relied upon
by the First Level Reviewer in making its initial claims decision, (ii) was
submitted, considered or generated in the course of the First Level Reviewer
making its initial claims decision, without regard to whether such instrument
was actually relied upon by the First Level Reviewer in making its decision
or (iii) demonstrates compliance by the First Level Reviewer with its
administrative processes and safeguards designed to ensure and to verify
that benefit claims determinations are made in accordance with governing
Plan documents and that, where appropriate, the Plan provisions have been
applied consistently with respect to similarly situated claimants. If the
Claimant does not request a review of the First Level Reviewer's
determination within such sixty-day period, he or she shall be barred and
estopped from challenging such determination.
e. Review of Decision. Within a reasonable period of time, ordinarily
not later than sixty days, after the Second Level Reviewer's receipt of a
request for review, it will review the First Level Reviewer's prior
determination. If special circumstances require that the sixty-day time
period be extended, the Second Level Reviewer will so notify the Claimant
within the initial 60-day period indicating the special circumstances
requiring an extension and the date by which the Second Level Reviewer
expects to render its decision on review, which shall be as soon as
possible but not later than 120 days after receipt of the request for
review. In the event that the Second Level Reviewer extends the
determination period on review due to a Claimant's failure to submit
information necessary to decide a claim, the period for making the benefit
determination on review shall not take into account the period beginning on
the date on which notification of extension is sent to the Claimant and
ending on the date on which the Claimant responds to the request for
additional information.
The Second Level Reviewer has discretionary authority to determine a
Claimant's eligibility for benefits and to interpret the terms of the Plan.
Benefits under the Plan will be paid only if the Second Level Reviewer
decides in its discretion that the Claimant is entitled to such benefits.
The decision of the Second Level Reviewer shall be final and non-reviewable,
unless found to be arbitrary and capricious by a court of competent review.
Such decision will be binding upon the Employer and the Claimant.
If the Second Level Reviewer makes an adverse benefit determination on
review, the Second Level Reviewer will render a written opinion, using
language calculated to be understood by the Claimant, setting forth:
(1) the specific reason or reasons for the denial;
(2) the specific references to pertinent Plan provisions on which
the denial is based;
(3) a statement that the Claimant is entitled to receive, upon
request and free of charge, reasonable access to, and copies of, all
documents, records and other information which (i) was relied upon by the
Second Level Reviewer in making its decision, (ii) was submitted,
considered or generated in the course of the Second Level Reviewer making
its decision, without regard to whether such instrument was actually relied
upon by the Second Level Reviewer in making its decision or (iii)
demonstrates compliance by the Second Level Reviewer with its
administrative processes and safeguards designed to ensure and to verify
that benefit claims determinations are made in accordance with governing
Plan documents, and that, where appropriate, the Plan provisions have been
applied consistently with respect to similarly situated claimants; and
(4) a statement of the Claimant's right to bring a civil action under
Section 502(a) of ERISA following the adverse benefit determination on such
review.
13. Amendment. This Agreement may not be amended, altered or modified,
except by a written instrument signed by the parties hereto, or their
respective successors or assigns, and may not be otherwise terminated except
as provided herein.
14. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the Corporation and its successors and assigns, and the
Employee, his successors, assigns, heirs, executors, administrators and
beneficiaries.
15. Notices. Any notice, consent or demand required or permitted to
be given under the provisions of this Agreement shall be in writing, and
shall be signed by the party giving or making the same. If such notice,
consent or demand is mailed to a party hereto, it shall be sent by United
States certified mail, postage prepaid, addressed to such party's last known
address as shown on the records of the Corporation. The date of such
mailing shall be deemed the date of notice, consent or demand.
16. Governing Law. This Agreement, and the rights of the parties
hereunder, shall be governed by and construed in accordance with the laws
of the State of Florida.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
in duplicate, as of the day and year first above written.
MASTEC, INC.
By: /s/ Austin Shanfelter
---------------------------
Austin Shanfelter, President
ATTEST:
/s/ Steve Davis
- --------------------------
Assistant Secretary
"Corporation"
/s/ Jorge Mas
---------------------
JORGE MAS
"Employee"
EXHIBIT A
- ---------
The following life insurance policies are subject to the attached Split-
Dollar Agreement:
Insurer: Phoenix Life Insurance Company
Insured: Jorge Mas and Aleyda Mas
Policy Number: 11203773
Face Amount: $20,000,000
Death Benefit Option: A
Date of Issue: November 25, 2002
Insurer: General American Life Insurance Company
Insured: Jorge Mas and Aleyda Mas
Policy Number: 16052149
Face Amount: $30,000,000
Death Benefit Option: A
Date of Issue: August 27, 2002
EXHIBIT B
- ---------
THIS ASSIGNMENT, dated this 1st day of December, 2002.
WITNESSETH THAT:
WHEREAS, the undersigned (the "Assignor") is the Employee under that
certain Split-Dollar Agreement between MasTec, Inc., a Florida corporation
(the "Company") and Jorge Mas dated 1st day of December, 2002, effective as
of September 13, 2002, (the "Split-Dollar Agreement"), which Split-Dollar
Agreement confers upon the undersigned certain rights and benefits with
regard to one or more policies of insurance insuring the Assignor's life; and
WHEREAS, pursuant to the provisions of said Split-Dollar Agreement, the
Assignor retained the right, exercisable by the execution and delivery to the
Company of a written form of assignment, to absolutely and irrevocably
assign all of the Assignor's right, title and interest in and to said Split-
Dollar Agreement to an assignee; and
WHEREAS, the Assignor desires to exercise said right;
NOW, THEREFORE, the Assignor, without consideration, and intending to
make a gift, hereby absolutely and irrevocably assigns, gives, grants and
transfers to JORGE MAS, IRREVOCABLE TRUST (the "Assignee"), all of the
Assignor's right, title and interest in and to the Split-Dollar Agreement
and said policies of insurance, intending that, from and after this date,
the Split-Dollar Agreement be solely between the Company and the Assignee
and that hereafter the Assignor shall neither have nor retain any right,
title or interest therein.
/s/ Jorge Mas
---------------------
Jorge Mas, Assignor
Page 2, EXHIBIT B
ACCEPTANCE OF ASSIGNMENT
------------------------
The undersigned Assignee hereby accepts the above assignment of all
right, title and interest of the Assignor therein in and to the Split-Dollar
Agreement, and the undersigned hereby agrees to be bound by all of the terms
and conditions of said Split-Dollar Agreement, as if the original Employee
thereunder.
JORGE MAS IRREVOCABLE
TRUST DATED
December 1, 2002
/s/ JRM
-------------------------------------
Trustee
Assignee
Dated: December 1, 2002
CONSENT TO ASSIGNMENT
---------------------
The undersigned Company hereby consents to the foregoing assignment of
all of the right, title and interest of the Assignor in and to the Split-
Dollar Agreement, to the Assignee designated therein. The undersigned
Company hereby agrees that, from and after the date hereof, the undersigned
Company shall look solely to such Assignee for the performance of all
obligations under said Split-Dollar Agreement which were heretofore the
responsibility of the Assignor, shall allow all rights and benefits provided
therein to the Assignor to be exercised only by said Assignee, and shall
hereafter treat said Assignee in all respects as if the original Employee
thereunder.
MASTEC, INC.
By: /s/ Austin Shanfelter
-----------------------
Austin Shanfelter, President
Dated: December 1, 2002
Exhibiit 10.16
- --------------
SPLIT-DOLLAR AGREEMENT
----------------------
THIS AGREEMENT, made and entered into this 1st day of December, 2002,
effective as of September 13, 2002, by and between MasTec, Inc., a Florida
corporation, with principal offices and place of business in the State of
Florida (hereinafter referred to as the "Corporation"), and Jorge Mas, an
individual residing in the State of Florida (hereinafter referred
to as the "Employee"),
WITNESSETH THAT:
WHEREAS, the Employee is employed by the Corporation; and
WHEREAS, the Employee wishes to provide life insurance protection for
his family in the event of his death, under a policy of life insurance
insuring his life (hereinafter referred to as the "Policy"), which is
described in Exhibit A attached hereto and by this reference made a part
hereof, and which was issued by John Hancock Variable Life Insurance Company
(hereinafter referred to as the "Insurer"); and
WHEREAS, the Corporation is willing to pay the premiums due on the
Policy as an additional employment benefit for the Employee, on the terms
and conditions hereinafter set forth; and
WHEREAS, the Corporation is the owner of the Policy and, as such,
possesses all incidents of ownership in and to the Policy; and
WHEREAS, the Corporation wishes to retain such ownership rights, in
order to secure the repayment of the amounts which it will pay toward the
premiums on the Policy;
WHEREAS, pursuant to the interim guidance provided in Notice 2001-10, as
modified by Notice 2002-8 (the "Notices"), the parties to this arrangement
intend to have its income and gift tax consequences determined under
traditional split-dollar economic benefit concepts;
NOW, THEREFORE, in consideration of the premises and of the mutual
promises contained herein, the parties hereto agree as follows:
1. Statement of Intention. The parties hereto intend that the income
and gift tax consequences of this split-dollar arrangement be governed by
traditional split-dollar economic benefit concepts, in accordance with the
interim guidance provided in the Notices, for arrangements entered into prior
to the adoption of final regulations. The parties hereto agree to
consistently treat this arrangement in accordance with such concepts on all
tax returns and other documents filed by them in connection herewith.
2. Purchase of Policy. The Corporation has purchased the Policy from
the Insurer in the Face Amount of Insurance (as such term is defined in the
Policy) of $80,000,000 and Death Benefit Option A (as such term is defined
in the Policy). One-half of the Policy is subject to this Agreement, the
balance of the Policy is key person insurance, owned by and payable to the
Corporation; all references herein to the Policy shall be to the portion
thereof which is subject hereto. The parties hereto have taken all
necessary action to cause the Insurer to issue the Policy, and shall take
any further action which may be necessary to cause the Policy to conform
to the provisions of this Agreement. The parties hereto agree that the
Policy shall be subject to the terms and conditions of this Agreement and
of the endorsement to the Policy filed with the Insurer.
3. Ownership of Policy.
a. The Corporation shall be the sole and absolute owner of the
Policy, and may exercise all ownership rights granted to the owner thereof
by the terms of the Policy, except as may otherwise be provided herein;
provided, however, that in no event shall the Corporation have any right to
borrow against or make withdrawals from the Policy.
b. Specifically, the Corporation shall have the sole authority to
direct the manner in which the Policy Account (as such term is defined in the
Policy) established pursuant to the terms of the Policy shall be allocated
among the various investment options from time to time available under the
Policy and to change such allocation from time to time, as provided for in
the Policy.
4. Payment of Premiums. On or before the Anniversary Date of the
Policy (as defined therein), or within the grace period provided therein,
the Corporation shall pay the full amount of each Planned Periodic Premium
(as such term is defined in the Policy) to the Insurer, during the term
hereof, and shall, upon request, promptly furnish the Employee evidence of
timely payment of such premium. Subject to the acceptance of such amount
by the Insurer, the Corporation may also, in its discretion, make additional
premium payments on the Policy. The Corporation shall annually furnish the
Employee a statement of the amount of income reportable by the Employee for
federal and state income tax purposes, as a result of the insurance
protection provided to the Employee's beneficiary hereunder.
5. Designation of Policy Beneficiary/Endorsement.
a. Contemporaneously with the execution of this Agreement, the
Corporation has executed a beneficiary designation for the Policy, under the
form used by the Insurer for such designations, naming the Corporation as
the Policy beneficiary, in order to secure the Corporation's recovery of the
amount due the Corporation hereunder.
b. The Employee may select both the settlement option for payment
of that portion of the death benefit provided under the Policy to which the
Employee is entitled hereunder and the beneficiary or beneficiaries to
receive such portion of the policy proceeds, by specifying the same in a
written notice to the Corporation. Upon receipt of such notice, the
Corporation shall execute and deliver to the Insurer a change of beneficiary
and/or Policy endorsement form necessary to elect the requested settlement
option and to designate the requested person, persons or entity as the
beneficiary or beneficiaries to receive the death proceeds of the Policy in
excess of the amount to which the Corporation is entitled hereunder. The
parties hereto agree to take the action necessary to cause the beneficiary
designation and settlement election provisions of that portion of the Policy
to which the Employee is entitled hereunder to conform to the provisions
hereof; the Corporation shall not terminate, alter or amend such election or
designation for such portion of the Policy, without the express written
consent of the Employee.
6. Limitations on Corporation's Rights in Policy. Except as otherwise
provided herein, the Corporation shall not sell, assign, transfer, surrender
or cancel the Policy, change the beneficiary designation provision of that
portion of the Policy to which the Employee is entitled hereunder, nor change
the Death Benefit Option thereof without, in any such case, the express
written consent of the Employee.
7. Collection of Death Proceeds.
a. Upon the death of the Employee, the Corporation shall cooperate
with the beneficiary or beneficiaries designated by the Employee to take
whatever action is necessary to collect the death benefit provided under the
Policy; when such benefit has been collected and paid as provided herein,
this Agreement shall thereupon terminate.
b. Upon the death of the Employee, the Corporation shall have the
unqualified right to receive a portion of such death benefit equal to the
total amount of the premiums paid by it hereunder, plus 4%, compounded
annually. The next $40,00,000 of the death benefit provided under the
Policy shall be paid directly to the beneficiary or beneficiaries designated
by the Corporation at the direction of the Employee, in the manner and in
the amount or amounts provided in the beneficiary designation provision of
the Policy. The Corporation shall have the unqualified right to receive the
balance, if any, of the death benefit provided under the Policy. In no
event shall the amount payable to the Corporation hereunder exceed the
Policy proceeds payable at the death of the Employee. No amount shall be
paid from such death benefit to the beneficiary or beneficiaries designated
by the Corporation at the direction of the Employee, until the full amount
due the Corporation for the return of its premiums plus interest hereunder
has been paid. The parties hereto agree that the beneficiary designation
provision of the Policy shall conform to the provisions hereof.
c. Notwithstanding any provision hereof to the contrary, in the
event that, for any reason whatsoever, no death benefit is payable under
the Policy upon the death of the Employee and in lieu thereof the Insurer
refunds all or any part of the premiums paid for the Policy, the
Corporation shall have the unqualified right to retain such premiums.
8. Termination of the Agreement During the Employee's Lifetime.
a. This Agreement shall terminate, during the Employee's
lifetime, without notice, upon the occurrence of any of the following
events: (a) total cessation of the Corporation's business; (b) bankruptcy,
receivership or dissolution of the Corporation; or (c) at any time that the
collective voting securities of the Corporation owned directly or indirectly
by Jorge L. Mas, Jorge Mas, Juan Carlos, Juan Ramon Mas, and their
respective ancestors and descendants are less than 38% of the outstanding
voting securities of the Corporation (a "Change in Control").
b. In addition, the Employee may terminate this Agreement, while
no premium under the Policy is overdue, by written notice to the Corporation.
Such termination shall be effective as of the date of such notice.
9. Disposition of the Policy on Termination of the Agreement During
the Employee's Lifetime.
a. For sixty (60) days after the date of the termination of this
Agreement during the Employee's lifetime, the Employee shall have the
assignable option to purchase the Policy from the Corporation. The purchase
price for the Policy shall be the greater of the total amount of the
premium payments made by the Corporation hereunder or the then cash surrender
value of the Policy. Upon receipt of such amount, the Corporation shall
transfer all of its right, title and interest in and to the Policy to the
Employee or his assignee, by the execution and delivery of an appropriate
instrument of transfer, and this Agreement shall thereupon terminate.
b. If the Employee or his assignee fails to exercise such option
within such sixty (60) day period, then the Corporation may enforce its right
to be repaid for the premiums which it paid hereunder by surrendering or
canceling the Policy for its cash surrender value, or it may change the
beneficiary designation provisions of the Policy, naming itself or any other
person or entity as revocable beneficiary thereof, or exercise any other
ownership rights in and to the Policy, without regard to the provisions
hereof. Thereafter, neither the Employee, his assignee nor their heirs,
assigns or beneficiaries shall have any further interest in and to the
Policy, either under the terms thereof or under this Agreement.
10. Insurer Not a Party. The Insurer shall be fully discharged from
its obligations under the Policy by payment of the Policy death benefit to
the beneficiary or beneficiaries named in the Policy, subject to the terms
and conditions of the Policy. In no event shall the Insurer be considered
a party to this Agreement, or any modification or amendment hereof. No
provision of this Agreement, nor of any modification or amendment hereof,
shall in any way be construed as enlarging, changing, varying or in any other
way affecting the obligations of the Insurer as expressly provided in the
Policy, except insofar as the provisions hereof are made a part of the
Policy by the beneficiary designation executed by the Corporation and
filed with the Insurer in connection herewith.
11. Assignment by Employee. Notwithstanding any provision hereof to
the contrary, the Employee shall have the right to absolutely and
irrevocably assign by gift all of his right, title and interest in and to
this Agreement and to the Policy to an assignee. This right shall be
exercisable by the execution and delivery to the Corporation of a written
assignment, in substantially the form attached hereto as Exhibit B, which
by this reference is made a part hereof. Upon receipt of such written
assignment executed by the Employee and duly accepted by the assignee
thereof, the Corporation shall consent thereto in writing, and shall
thereafter treat the Employee's assignee as the sole owner of all of the
Employee's right, title and interest in and to this Agreement and in and
to the Policy. Thereafter, the Employee shall have no right, title or
interest in and to this Agreement or the Policy, all such rights being
vested in and exercisable only by such assignee.
12. Named Fiduciary, Determination of Benefits, Claims Procedure and
Administration.
a. The Corporation is hereby designated as the named fiduciary
under this Agreement. The named fiduciary shall have authority to control
and manage the operation and administration of this Agreement, and it shall
be responsible for establishing and carrying out a funding policy and method
consistent with the objectives of this Agreement.
b. Claim. A Participant, beneficiary or other person who believes
that he or she is being denied a benefit to which he or she is entitled
(hereinafter referred to as "Claimant"), or his or her duly authorized
representative, may file a written request for such benefit with the
President of the Corporation (the "First Level Reviewer"), setting forth his
or her claim. Such claim must be addressed to the President of the
Corporation, at its then principal place of business.
c. Claim Decision. Upon receipt of a claim, the First Level
Reviewer shall advise the Claimant that a reply will be forthcoming within
a reasonable period of time, but ordinarily not later than ninety days, and
shall, in fact, deliver such reply within such period. However, the First
Level Reviewer may extend the reply period for an additional ninety days for
reasonable cause. If the reply period will be extended, the First Level
Reviewer shall advise the Claimant in writing during the initial 90-day
period indicating the special circumstances requiring an extension and the
date by which the First Level Reviewer expects to render the benefit
determination.
If the claim is denied in whole or in part, the First Level Reviewer
will render a written opinion, using language calculated to be understood
by the Claimant, setting forth:
(1) the specific reason or reasons for the denial;
(2) the specific references to pertinent Plan provisions on which
the denial is based;
(3) a description of any additional material or information
necessary for the Claimant to perfect the claim and an explanation as to why
such material or such information is necessary;
(4) appropriate information as to the steps to be taken if the
Claimant wishes to submit the claim for review, including a statement of the
Claimant's right to bring a civil action under Section 502(a) of ERISA
following an adverse benefit determination on review; and
(5) the time limits for requesting a review of the denial under
Subsection C hereof and for the actual review of the denial under Subsection
D hereof.
d. Request for Review. Within sixty days after the receipt by
the Claimant of the written opinion described above, the Claimant may
request in writing that the Secretary of the Corporation (the "Second Level
Reviewer") review the First Level Reviewer's prior determination. Such
request must be addressed to the Secretary of the Corporation, at its then
principal place of business. The Claimant or his or her duly authorized
representative may submit written comments, documents, records or other
information relating to the denied claim, which such information shall be
considered in the review under this subsection without regard to whether
such information was submitted or considered in the initial benefit
determination.
The Claimant or his or her duly authorized representative shall be
provided, upon request and free of charge, reasonable access to, and copies
of, all documents, records and other information which (i) was relied upon
by the First Level Reviewer in making its initial claims decision, (ii) was
submitted, considered or generated in the course of the First Level Reviewer
making its initial claims decision, without regard to whether such instrument
was actually relied upon by the First Level Reviewer in making its decision
or (iii) demonstrates compliance by the First Level Reviewer with its
administrative processes and safeguards designed to ensure and to verify that
benefit claims determinations are made in accordance with governing Plan
documents and that, where appropriate, the Plan provisions have been applied
consistently with respect to similarly situated claimants. If the Claimant
does not request a review of the First Level Reviewer's determination within
such sixty-day period, he or she shall be barred and estopped from
challenging such determination.
e. Review of Decision. Within a reasonable period of time,
ordinarily not later than sixty days, after the Second Level Reviewer's
receipt of a request for review, it will review the First Level Reviewer's
prior determination. If special circumstances require that the sixty-day
time period be extended, the Second Level Reviewer will so notify the
Claimant within the initial 60-day period indicating the special
circumstances requiring an extension and the date by which the Second Level
Reviewer expects to render its decision on review, which shall be as soon
as possible but not later than 120 days after receipt of the request for
review. In the event that the Second Level Reviewer extends the
determination period on review due to a Claimant's failure to submit
information necessary to decide a claim, the period for making the benefit
determination on review shall not take into account the period beginning on
the date on which notification of extension is sent to the Claimant and
ending on the date on which the Claimant responds to the request for
additional information.
The Second Level Reviewer has discretionary authority to determine
a Claimant's eligibility for benefits and to interpret the terms of the
Plan. Benefits under the Plan will be paid only if the Second Level
Reviewer decides in its discretion that the Claimant is entitled to such
benefits. The decision of the Second Level Reviewer shall be final and
non-reviewable, unless found to be arbitrary and capricious by a court of
competent review. Such decision will be binding upon the Employer and the
Claimant.
If the Second Level Reviewer makes an adverse benefit
determination on review, the Second Level Reviewer will render a written
opinion, using language calculated to be understood by the Claimant, setting
forth:
(1) the specific reason or reasons for the denial;
(2) the specific references to pertinent Plan provisions on which
the denial is based;
(3) a statement that the Claimant is entitled to receive, upon
request and free of charge, reasonable access to, and copies of, all
documents, records and other information which (i) was relied upon by the
Second Level Reviewer in making its decision, (ii) was submitted, considered
or generated in the course of the Second Level Reviewer making its decision,
without regard to whether such instrument was actually relied upon by the
Second Level Reviewer in making its decision or (iii) demonstrates
compliance by the Second Level Reviewer with its administrative processes
and safeguards designed to ensure and to verify that benefit claims
determinations are made in accordance with governing Plan documents, and
that, where appropriate, the Plan provisions have been applied consistently
with respect to similarly situated claimants; and
(4) a statement of the Claimant's right to bring a civil action
under Section 502(a) of ERISA following the adverse benefit determination on
such review.
13. Amendment. This Agreement may not be amended, altered or modified,
except by a written instrument signed by the parties hereto, or their
respective successors or assigns, and may not be otherwise terminated except
as provided herein.
14. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the Corporation and its successors and assigns, and the
Employee, his successors, assigns, heirs, executors, administrators and
beneficiaries.
15. Notices. Any notice, consent or demand required or permitted to
be given under the provisions of this Agreement shall be in writing, and
shall be signed by the party giving or making the same. If such notice,
consent or demand is mailed to a party hereto, it shall be sent by United
States certified mail, postage prepaid, addressed to such party's last known
address as shown on the records of the Corporation. The date of such
mailing shall be deemed the date of notice, consent or demand.
16. Governing Law. This Agreement, and the rights of the parties
hereunder, shall be governed by and construed in accordance with the laws
of the State of Florida.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
in duplicate, as of the day and year first above written.
MASTEC, INC.
By: /s/ Austin Shanfelter
-----------------------
Austin Shanfelter, President
ATTEST:
/s/ Christy Canales
- --------------------
Secretary
"Corporation"
/s/ Jorge Mas
------------------
JORGE MAS
"Employee"
EXHIBIT A
- ---------
The following life insurance policy is subject to the attached Split-Dollar
Agreement:
Insurer: John Hancock Variable Life Insurance Company
Insured: Jorge Mas
Policy Number: 59 416 001
Face Amount: $40,000,000 of the $80,000,000 face amount of the Policy
Death Benefit Option: A
Date of Issue: August 27, 2002
EXHIBIT B
- ---------
THIS ASSIGNMENT, dated this 1st day of December, 2002.
WITNESSETH THAT:
WHEREAS, the undersigned (the "Assignor") is the Employee under
that certain Split-Dollar Agreement between MasTec, Inc., a Florida
corporation (the "Company") and Jorge Mas dated 1st day of December, 2002,
effective as of September 13, 2002 (the "Split-Dollar Agreement"), which
Split-Dollar Agreement confers upon the undersigned certain rights and
benefits with regard to one or more policies of insurance insuring the
Assignor's life; and
WHEREAS, pursuant to the provisions of said Split-Dollar
Agreement, the Assignor retained the right, exercisable by the execution
and delivery to the Company of a written form of assignment, to absolutely
and irrevocably assign all of the Assignor's right, title and interest in
and to said Split-Dollar Agreement to an assignee; and
WHEREAS, the Assignor desires to exercise said right;
NOW, THEREFORE, the Assignor, without consideration, and
intending to make a gift, hereby absolutely and irrevocably assigns, gives,
grants and transfers to JORGE MAS IRREVOCABLE TRUST (the "Assignee"), all of
the Assignor's right, title and interest in and to the Split-Dollar
Agreement and said policies of insurance, intending that, from and after
this date, the Split-Dollar Agreement be solely between the Company and
the Assignee and that hereafter the Assignor shall neither have nor retain
any right, title or interest therein.
/s/ Jorge Mas
------------------------
Jorge Mas, Assignor
Page 2, EXHIBIT B
ACCEPTANCE OF ASSIGNMENT
------------------------
The undersigned Assignee hereby accepts the above assignment of all
right, title and interest of the Assignor therein in and to the Split-Dollar
Agreement, and the undersigned hereby agrees to be bound by all of the terms
and conditions of said Split-Dollar Agreement, as if the original Employee
thereunder.
JORGE MAS IRREVOCABLE
TRUST DATED
December 1st, 2002
/s/ JRM
--------------------
Trustee Assignee
Dated: December 1, 2002
CONSENT TO ASSIGNMENT
---------------------
The undersigned Company hereby consents to the foregoing assignment of
all of the right, title and interest of the Assignor in and to the Split-
Dollar Agreement, to the Assignee designated therein. The undersigned
Company hereby agrees that, from and after the date hereof, the undersigned
Company shall look solely to such Assignee for the performance of all
obligations under said Split-Dollar Agreement which were heretofore the
responsibility of the Assignor, shall allow all rights and benefits provided
therein to the Assignor to be exercised only by said Assignee, and shall
hereafter treat said Assignee in all respects as if the original
Employee thereunder.
MASTEC, INC.
By: /s/ Austin Shanfelter
-----------------------
Austin Shanfelter, President
Dated: December 1, 2002
Exhibit 10.17
- -------------
FIRST AMENDMENT TO SPLIT-DOLLAR AGREEMENT BETWEEN
MASTEC, INC. AND JORGE MAS
WHEREAS, MasTec, Inc., a Florida corporation, with principal offices in
the State of Florida (the "Corporation"), and Jorge Mas, an individual
residing in the State of Florida (the "Employee"), entered into a Split-
Dollar Agreement on December 1, 2002, effective as of September 13, 2002
(the "Agreement") to govern the rights and obligations of the parties with
respect to that certain life insurance policy issued by John Hancock Variable
Life Insurance Company insuring the life of the Employee (the "Policy");
WHEREAS the parties hereto wish to amend the Agreement to provide that
$60,000,000 of the $80,000,000 face amount of the Policy will be subject to
the Agreement;
NOW THEREFORE, in consideration of the premises and of the mutual
promises contained herein, the parties hereto hereby amend the Agreement,
as follows:
1. Section 2 of the Agreement is hereby deleted in its entirety and the
following is substituted therefor:
"2. Purchase of Policy. The Corporation has purchased the Policy
from the Insurer in the Face Amount of Insurance (as such term is defined in
the Policy) of $80,000,000 and Death Benefit Option A (as such term is defined
in the Policy). Three-fourths of the Policy is subject to this Agreement,
the balance of the Policy is key person insurance, owned by and payable to
the Corporation; all references herein to the Policy shall be to the portion
thereof which is subject hereto. The parties hereto have taken all
necessary action to cause the Insurer to issue the Policy, and shall take
any further action which may be necessary to cause the Policy to conform to
the provisions of this Agreement. The parties hereto agree that the Policy
shall be subject to the terms and conditions of this Agreement and of the
endorsement to the Policy filed with the Insurer."
2. Section 7.b. of the Agreement is hereby deleted in its entirety and
the following is substituted therefor:
"b. Upon the death of the Employee, the Corporation shall have
the unqualified right to receive a portion of such death benefit equal to
the total amount of the premiums paid by it hereunder, plus 4%, compounded
annually. The next $60,000,000 of the death benefit provided under the
Policy shall be paid directly to the beneficiary or beneficiaries designated
by the Corporation at the direction of the Employee, in the manner and in
the amount or amounts provided in the beneficiary designation provision of
the Policy. The Corporation shall have the unqualified right to receive the
balance, if any, of the death benefit provided under the Policy. In no event
shall the amount payable to the Corporation hereunder exceed the Policy
proceeds payable at the death of the Employee. No amount shall be paid from
such death benefit to the beneficiary or beneficiaries designated by the
Corporation at the direction of the Employee, until the full amount due the
Corporation for the return of its premiums plus interest hereunder has been
paid. The parties hereto agree that the beneficiary designation
provision of the Policy shall conform to the provisions hereof."
3. Section 8.a. of the Agreement is hereby deleted in its entirety and
the following is substituted therefor:
"a. This Agreement shall terminate, during the Employee's
lifetime, without notice, upon the occurrence of any of the following events:
(a) total cessation of the Corporation's business; (b) bankruptcy,
receivership or dissolution of the Corporation; or (c) at any time that the
collective voting securities of the Corporation owned directly or indirectly
by Jose Ramon Mas Holdings I Limited Partnership, Jorge Mas Holdings I
Limited Partnership, Mas Family Foundation, Inc., a Florida not-for-profit
corporation, Juan Carlos Mas Holdings I Limited Partnership, Jorge L Mas
Canosa Holdings I Limited Partnership, Jorge L. Mas, Jorge Mas, Juan Carlos,
Juan Ramon Mas, and their respective ancestors and descendants, are less
than 38% of the outstanding voting securities of the Corporation (a
"Change in Control").
4. Exhibit A of the Agreement is hereby deleted in its entirety and the
following is substituted therefor:
"Exhibit A
- ----------
Insurer: John Hancock Variable Life Insurance Company
Insured: Jorge Mas
Policy Number: 59 416 001
Face Amount: $60,000,000 of the $80,000,000 face
amount of the Policy
Death Benefit Option: Option A
Date of Issue August 27, 2002"
5. Except as herein amended, the parties hereby ratify and confirm
the Agreement in all respects.
IN WITNESS WHEREOF, the parties hereto have executed multiple original
copies of this First Amendment to Split-Dollar Agreement this 1st day of
December, 2003.
MASTEC, INC.
By: /s/ Austin Shanfelter
---------------------------
Austin Shanfelter, President
ATTEST:
/s/ Steve Davis
- -----------------------
Assistant Secretary
"Corporation"
/s/ Jorge Mas
------------------------
JORGE MAS
"Employee"
2
Exhibit 10.18
- -------------
SPLIT-DOLLAR AGREEMENT
----------------------
THIS AGREEMENT, made and entered into this 1st day of November, 2002, by
and between MasTec, Inc., a Florida corporation, with principal offices and
place of business in the State of Florida (hereinafter referred to as the
"Corporation"), and Austin Shanfelter, an individual residing in the State of
Florida (hereinafter referred to as the "Employee"),
WITNESSETH THAT:
WHEREAS, the Employee is employed by the Corporation; and
WHEREAS, the Employee wishes to provide life insurance protection for
his family, under a policy of life insurance (hereinafter referred to as the
"Policy"), insuring his life and the life of his wife, Pam Shanfelter
(hereinafter jointly referred to as the "Insureds"), which Policy is
described in Exhibit A attached hereto and by this reference made a part
hereof, and which is being issued by John Hancock Variable Life Insurance
Company (hereinafter referred to as the "Insurer"); and
WHEREAS, the Corporation is willing to pay the premiums due on the
Policy as an additional employment benefit for the Employee, on the terms and
conditions hereinafter set forth; and
WHEREAS, the Corporation is the owner of the Policy and, as such,
possesses all incidents of ownership in and to the Policy; and
WHEREAS, the Corporation wishes to retain such ownership rights, in
order to secure the repayment of the amounts which it will pay toward the
premiums on the Policy;
WHEREAS, pursuant to the interim guidance provided in Notice 2001-10,
as modified by Notice 2002-8 (the "Notices"), the parties to this arrangement
intend to have its income and gift tax consequences determined under
traditional split-dollar economic benefit concepts;
NOW, THEREFORE, in consideration of the premises and of the mutual
promises contained herein, the parties hereto agree as follows:
1. Statement of Intention. The parties hereto intend that the income
and gift tax consequences of this split-dollar arrangement be governed by
traditional split-dollar economic benefit concepts, in accordance with the
interim guidance provided in the Notices, for arrangements entered into
prior to the adoption of final regulations. The parties hereto agree to
consistently treat this arrangement in accordance with such concepts on
all tax returns and other documents filed by them in connection herewith.
2. Purchase of Policy. The Corporation will contemporaneously purchase
the Policy from the Insurer in the Face Amount of Insurance (as such term is
defined in the Policy) of $18,000,000 and Death Benefit Option A (as such
term is defined in the Policy). The parties hereto agree that they will
take all necessary action to cause the Insurer to issue the Policy, and shall
take any further action which may be necessary to cause the Policy to conform
to the provisions of this Agreement. The parties hereto agree that the
Policy shall be subject to the terms and conditions of this Agreement and of
the endorsement to the Policy filed with the Insurer.
3. Ownership of Policy.
a. The Corporation shall be the sole and absolute owner of the Policy,
and may exercise all ownership rights granted to the owner thereof by the
terms of the Policy, except as may otherwise be provided herein; provided,
however, that in no event shall the Corporation have any right to borrow
against or make withdrawals from the Policy.
b. Specifically, the Corporation shall have the sole authority to
direct the manner in which the Policy Account (as such term is defined in
the Policy) established pursuant to the terms of the Policy shall be
allocated among the various investment options from time to time available
under the Policy and to change such allocation from time to time, as
provided for in the Policy.
4. Payment of Premiums. On or before the Anniversary Date of the
Policy (as defined therein), or within the grace period provided therein,
the Corporation shall pay the full amount of each Planned Periodic Premium
(as such term is defined in the Policy) to the Insurer, during the term
hereof, and shall, upon request, promptly furnish the Employee evidence
of timely payment of such premium. Subject to the acceptance of such amount
by the Insurer, the Corporation may also, in its discretion, make additional
premium payments on the Policy. The Corporation shall annually furnish the
Employee a statement of the amount of income reportable by the Employee for
federal and state income tax purposes, as a result of the insurance
protection provided to the Employee's beneficiary hereunder.
5. Designation of Policy Beneficiary/Endorsement.
a. Contemporaneously with the execution of this Agreement, the
Corporation has executed a beneficiary designation for the Policy, under the
form used by the Insurer for such designations, naming the Corporation as
the Policy beneficiary, in order to secure the Corporation's recovery of the
amount due the Corporation hereunder.
b. The Employee may select both the settlement option for payment
of the death benefit provided under the Policy to which the Employee's
beneficiary is entitled hereunder and the beneficiary or beneficiaries to
receive such portion of the policy proceeds, by specifying the same in a
written notice to the Corporation. Upon receipt of such notice, the
Corporation shall execute and deliver to the Insurer a change of
beneficiary and/or Policy endorsement form necessary to elect the requested
settlement option and to designate the requested person, persons or entity
as the beneficiary or beneficiaries to receive the death proceeds of the
Policy in excess of the amount to which the Corporation is entitled
hereunder. The parties hereto agree to take the action necessary to cause
the beneficiary designation and settlement election provisions to conform
to the provisions hereof; the Corporation shall not terminate, alter or
amend such election or designation without the express written consent of
the Employee.
6. Limitations on Corporation's Rights in Policy. Except as otherwise
provided herein, the Corporation shall not sell, assign, transfer, surrender
or cancel the Policy, nor change the beneficiary designation or the
settlement option selected by the Employee, without, in any such case, the
express written consent of the Employee.
7. Collection of Death Proceeds.
a. Upon the death of the Employee, the Corporation shall cooperate
with the beneficiary or beneficiaries designated by the Employee to take
whatever action is necessary to collect the death benefit provided under
the Policy; when such benefit has been collected and paid as provided
herein, this Agreement shall thereupon terminate.
b. Upon the death of the Employee, the Corporation shall have the
unqualified right to receive a portion of such death benefit equal to the
total amount of the premiums paid by it hereunder, plus 4%, compounded
annually. The balance of the death benefit provided under the Policy shall
be paid directly to the beneficiary or beneficiaries designated by the
Corporation at the direction of the Employee, in the manner and in the
amount or amounts provided in the beneficiary designation provision of the
Policy. The Corporation shall have the unqualified right to receive the
balance, if any, of the death benefit provided under the Policy. In no event
shall the amount payable to the Corporation hereunder exceed the Policy
proceeds payable at the death of the Employee. No amount shall be paid from
such death benefit to the beneficiary or beneficiaries designated by the
Corporation at the direction of the Employee, until the full amount due the
Corporation for the return of its premiums plus interest hereunder has
been paid. The parties hereto agree that the beneficiary designation
provision of the Policy shall conform to the provisions hereof.
c. Notwithstanding any provision hereof to the contrary, in the event
that, for any reason whatsoever, no death benefit is payable under the
Policy upon the death of the Employee and in lieu thereof the Insurer
refunds all or any part of the premiums paid for the Policy, the Corporation
shall have the unqualified right to retain such premiums.
8. Termination of the Agreement During the Employee's Lifetime.
a. This Agreement shall terminate, during the Employee's lifetime,
without notice, upon the occurrence of any of the following events: (a)
total cessation of the Corporation's business; (b) bankruptcy, receivership
or dissolution of the Corporation; or (c) the six (6) year anniversary of
this Agreement.
b. In the event that there is a Change in Control of the Corporation on
or before the four (4) year anniversary of this Agreement, the Corporation
shall take whatever action is necessary to assure that the premium payments
required to be made pursuant to Section 4 hereof continue through said
anniversary. For purposes hereof, a Change in Control shall be deemed to
occur if at any time the collective voting securities of the Corporation
owned directly or indirectly by Jorge L. Mas, Jorge Mas, Juan Carlos, Juan
Ramon Mas, and their respective ancestors and descendants in the Corporation
are less than 38% of the outstanding voting securities of the Corporation.
c. In addition, the Employee may terminate this Agreement, while no
premium under the Policy is overdue, by written notice to the Corporation.
Such termination shall be effective as of the date of such notice.
9. Disposition of the Policy on Termination of the Agreement During
the Employee's Lifetime.
a. For sixty (60) days after the date of the termination of this
Agreement during the Employee's lifetime, the Employee shall have the
assignable option to purchase the Policy from the Corporation. The
purchase price for the Policy shall be the total amount of the premium
payments made by the Corporation hereunder, plus 4%, compounded annually.
Upon receipt of such amount, the Corporation shall transfer all of its
right, title and interest in and to the Policy to the Employee or his
assignee, by the execution and delivery of an appropriate instrument of
transfer, and this Agreement shall thereupon terminate.
b. If the Employee or his assignee fails to exercise such option within
such sixty (60) day period, then the Corporation may enforce its right to be
repaid for the premiums which it paid hereunder by surrendering or canceling
the Policy for its cash surrender value, or it may change the beneficiary
designation provisions of the Policy, naming itself or any other person or
entity as revocable beneficiary thereof, or exercise any other ownership
rights in and to the Policy, without regard to the provisions hereof.
Thereafter, neither the Employee, his assignee nor their heirs, assigns or
beneficiaries shall have any further interest in and to the Policy, either
under the terms thereof or under this Agreement.
10. Insurer Not a Party. The Insurer shall be fully discharged from
its obligations under the Policy by payment of the Policy death benefit to
the beneficiary or beneficiaries named in the Policy, subject to the terms
and conditions of the Policy. In no event shall the Insurer be considered
a party to this Agreement, or any modification or amendment hereof. No
provision of this Agreement, nor of any modification or amendment hereof,
shall in any way be construed as enlarging, changing, varying or in any
other way affecting the obligations of the Insurer as expressly provided in
the Policy, except insofar as the provisions hereof are made a part of the
Policy by the beneficiary designation executed by the Corporation and filed
with the Insurer in connection herewith.
11. Assignment by Employee. Notwithstanding any provision hereof to
the contrary, the Employee shall have the right to absolutely and
irrevocably assign by gift all of his right, title and interest in and to
this Agreement and to the Policy to an assignee. This right shall be
exercisable by the execution and delivery to the Corporation of a written
assignment, in substantially the form attached hereto as Exhibit B, which by
this reference is made a part hereof. Upon receipt of such written
assignment executed by the Employee and duly accepted by the assignee
thereof, the Corporation shall consent thereto in writing, and shall
thereafter treat the Employee's assignee as the sole owner of all of the
Employee's right, title and interest in and to this Agreement and in and to
the Policy. Thereafter, the Employee shall have no right, title or interest
in and to this Agreement or the Policy, all such rights being vested in and
exercisable only by such assignee.
12. Named Fiduciary, Determination of Benefits, Claims Procedure and
Administration.
a. The Corporation is hereby designated as the named fiduciary under
this Agreement. The named fiduciary shall have authority to control and
manage the operation and administration of this Agreement, and it shall be
responsible for establishing and carrying out a funding policy and method
consistent with the objectives of this Agreement.
b. Claim. A Participant, beneficiary or other person who believes
that he or she is being denied a benefit to which he or she is entitled
(hereinafter referred to as "Claimant"), or his or her duly authorized
representative, may file a written request for such benefit with the
President of the Corporation (the "First Level Reviewer"), setting forth
his or her claim. Such claim must be addressed to the President of the
Corporation, at its then principal place of business.
c. Claim Decision. Upon receipt of a claim, the First Level Reviewer
shall advise the Claimant that a reply will be forthcoming within a
reasonable period of time, but ordinarily not later than ninety days, and
shall, in fact, deliver such reply within such period. However, the First
Level Reviewer may extend the reply period for an additional ninety days for
reasonable cause. If the reply period will be extended, the First Level
Reviewer shall advise the Claimant in writing during the initial 90-day
period indicating the special circumstances requiring an extension and the
date by which the First Level Reviewer expects to render the benefit
determination.
If the claim is denied in whole or in part, the First Level Reviewer
will render a written opinion, using language calculated to be understood
by the Claimant, setting forth:
(1) the specific reason or reasons for the denial;
(2) the specific references to pertinent Plan provisions on which
the denial is based;
(3) a description of any additional material or information
necessary for the Claimant to perfect the claim and an explanation as to
why such material or such information is necessary;
(4) appropriate information as to the steps to be taken if the
Claimant wishes to submit the claim for review, including a statement of
the Claimant's right to bring a civil action under Section 502(a) of
ERISA following an adverse benefit determination on review; and
(5) the time limits for requesting a review of the denial under
Subsection C hereof and for the actual review of the denial under
Subsection D hereof.
d. Request for Review. Within sixty days after the receipt by the
Claimant of the written opinion described above, the Claimant may request in
writing that the Secretary of the Corporation (the "Second Level Reviewer")
review the First Level Reviewer's prior determination. Such request must be
addressed to the Secretary of the Corporation, at its then principal place
of business. The Claimant or his or her duly authorized representative may
submit written comments, documents, records or other information relating
to the denied claim, which such information shall be considered in the
review under this subsection without regard to whether such information was
submitted or considered in the initial benefit determination.
The Claimant or his or her duly authorized representative shall be
provided, upon request and free of charge, reasonable access to, and copies
of, all documents, records and other information which (i) was relied upon
by the First Level Reviewer in making its initial claims decision, (ii) was
submitted, considered or generated in the course of the First Level Reviewer
making its initial claims decision, without regard to whether such instrument
was actually relied upon by the First Level Reviewer in making its decision
or (iii) demonstrates compliance by the First Level Reviewer with its
administrative processes and safeguards designed to ensure and to verify that
benefit claims determinations are made in accordance with governing Plan
documents and that, where appropriate, the Plan provisions have been applied
consistently with respect to similarly situated claimants. If the Claimant
does not request a review of the First Level Reviewer's determination within
such sixty-day period, he or she shall be barred and estopped from
challenging such determination.
e. Review of Decision. Within a reasonable period of time,
ordinarily not later than sixty days, after the Second Level Reviewer's
receipt of a request for review, it will review the First Level Reviewer's
prior determination. If special circumstances require that the sixty-day
time period be extended, the Second Level Reviewer will so notify the
Claimant within the initial 60-day period indicating the special
circumstances requiring an extension and the date by which the Second Level
Reviewer expects to render its decision on review, which shall be as soon
as possible but not later than 120 days after receipt of the request for
review. In the event that the Second Level Reviewer extends the
determination period on review due to a Claimant's failure to submit
information necessary to decide a claim, the period for making the benefit
determination on review shall not take into account the period beginning
on the date on which notification of extension is sent to the Claimant
and ending on the date on which the Claimant responds to the request for
additional information.
The Second Level Reviewer has discretionary authority to determine a
Claimant's eligibility for benefits and to interpret the terms of the Plan.
Benefits under the Plan will be paid only if the Second Level Reviewer
decides in its discretion that the Claimant is entitled to such benefits.
The decision of the Second Level Reviewer shall be final and non-reviewable,
unless found to be arbitrary and capricious by a court of competent review.
Such decision will be binding upon the Employer and the Claimant.
If the Second Level Reviewer makes an adverse benefit determination
on review, the Second Level Reviewer will render a written opinion, using
language calculated to be understood by the Claimant, setting forth:
(1) the specific reason or reasons for the denial;
(2) the specific references to pertinent Plan provisions on which
the denial is based;
(3) a statement that the Claimant is entitled to receive, upon request
and free of charge, reasonable access to, and copies of, all documents,
records and other information which (i) was relied upon by the Second Level
Reviewer in making its decision, (ii) was submitted, considered or generated
in the course of the Second Level Reviewer making its decision, without
regard to whether such instrument was actually relied upon by the Second
Level Reviewer in making its decision or (iii) demonstrates compliance by
the Second Level Reviewer with its administrative processes and safeguards
designed to ensure and to verify that benefit claims determinations are made
in accordance with governing Plan documents, and that, where appropriate,
the Plan provisions have been applied consistently with respect to similarly
situated claimants; and
(4) a statement of the Claimant's right to bring a civil action under
Section 502(a) of ERISA following the adverse benefit determination on such
review.
13. Amendment. This Agreement may not be amended, altered or modified,
except by a written instrument signed by the parties hereto, or their
respective successors or assigns, and may not be otherwise terminated except
as provided herein.
14. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the Corporation and its successors and assigns, and the
Employee, his successors, assigns, heirs, executors, administrators and
beneficiaries.
15. Notices. Any notice, consent or demand required or permitted to be
given under the provisions of this Agreement shall be in writing, and shall
be signed by the party giving or making the same. If such notice, consent
or demand is mailed to a party hereto, it shall be sent by United States
certified mail, postage prepaid, addressed to such party's last known
address as shown on the records of the Corporation. The date of such
mailing shall be deemed the date of notice, consent or demand.
16. Governing Law. This Agreement, and the rights of the parties
hereunder, shall be governed by and construed in accordance with the laws
of the State of Florida.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
in duplicate, as of the day and year first above written.
MASTEC, INC.
By: /s/ Austin Shanfelter
---------------------
Austin Shanfelter, President
ATTEST:
/s/ Steve Davis
- --------------------
Assistant Secretary
"Corporation"
/s/ Austin Shanfelter
--------------------------
AUSTIN SHANFELTER
"Employee"
EXHIBIT A
- ---------
The following life insurance policy is subject to the attached
Split-Dollar Agreement:
Insurer: John Hancock Variable Life Insurance Company
Insureds: Austin Shanfelter and Pam Shanfelter
Policy Number: 20075875
Face Amount: $18,000,000
Death Benefit Option: A
Date of Issue: October 24, 2002
EXHIBIT B
- ---------
THIS ASSIGNMENT, dated this 1st day of December 2002.
WITNESSETH THAT:
WHEREAS, the undersigned (the "Assignor") is the Employee under that
certain Split-Dollar Agreement between MasTec, Inc., a Florida corporation
(the "Company") and Austin Shanfelter dated 1st day of December, 2002 (the
"Split-Dollar Agreement"), which Split-Dollar Agreement confers upon the
undersigned certain rights and benefits with regard to one or more policies
of insurance insuring the Assignor's life; and
WHEREAS, pursuant to the provisions of said Split-Dollar Agreement, the
Assignor retained the right, exercisable by the execution and delivery to
the Company of a written form of assignment, to absolutely and irrevocably
assign all of the Assignor's right, title and interest in and to said
Split-Dollar Agreement to an assignee; and
WHEREAS, the Assignor desires to exercise said right;
NOW, THEREFORE, the Assignor, without consideration, and intending to
make a gift, hereby absolutely and irrevocably assigns, gives, grants and
transfers to MasTec, Inc. (the "Assignee"), all of the Assignor's right,
title and interest in and to the Split-Dollar Agreement and said policies
of insurance, intending that, from and after this date, the Split-Dollar
Agreement be solely between the Company and the Assignee and that hereafter
the Assignor shall neither have nor retain any right, title or interest
therein.
/s/ Austin Shanfelter
---------------------
Assignor
Page 2, EXHIBIT B
ACCEPTANCE OF ASSIGNMENT
------------------------
The undersigned Assignee hereby accepts the above assignment of all
right, title and interest of the Assignor therein in and to the Split-
Dollar Agreement, and the undersigned hereby agrees to be bound by all of
the terms and conditions of said Split-Dollar Agreement, as if the original
Employee thereunder.
AUSTIN SHANFELTER IRREVOCABLE
TRUST DATED
December 1st, 2002
/s/ Thomas Luongo
---------------------------
Trustee
---------------------------
Assignee
Dated: 1st day of December, 2002
CONSENT TO ASSIGNMENT
---------------------
The undersigned Company hereby consents to the foregoing assignment of
all of the right, title and interest of the Assignor in and to the Split-
Dollar Agreement, to the Assignee designated therein. The undersigned
Company hereby agrees that, from and after the date hereof, the undersigned
Company shall look solely to such Assignee for the performance of all
obligations under said Split-Dollar Agreement which were heretofore the
responsibility of the Assignor, shall allow all rights and benefits
provided therein to the Assignor to be exercised only by said Assignee, and
shall hereafter treat said Assignee in all respects as if the original
Employee thereunder.
MASTEC, INC.
By: /s/ Austin Shanfelter
-------------------------
Austin Shanfelter, President
/s/ Donald Weinstein
-------------------------
Donald Weinstein,
Exec VP and CFO
NOTARIZED
Dated: 1st day of December, 2002
Exhibit 21.1
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MasTec, Inc.
AFFILIATED ENTITIES
January 2003
NORTH AMERICA
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Church & Tower, Inc.(FL) (100% owned by MasTec, Inc.)
Church & Tower Environmental, Inc.(DE) (100% owned by MasTec, Inc.)
Cruz-Cell, Inc. (IN) (100% owned by MasTec North America, Inc.)
Dresser/Areia Construction, Inc. (CA)(100% owned by MasTec North America, Inc.)
Flaire Incorporated (MO) (100% owned by MasTec North America, Inc.)
GMR Telecom, L.L.C. (VA) (100% owned by MasTec North America, Inc.)
Integral Power & Telecommunications
Incorporated (Canadian) (100% owned by Phasecom Systems, Inc.)
MasTec Asset Management Company, Inc. (NV) (100% owned by MasTec, Inc)
MasTec Contracting Company, Inc. (NV) (100% owned by MasTec, Inc)
MasTec Integration Systems, Inc. (CA) (100% owned by MasTec, Inc.)
f/k/a Aidco Systems, Inc.
MasTec Minnesota SW, LLC (NV) (100% MasTec Services Company, Inc.)
MasTec Network Services, Inc. (CA) (100% owned by MasTec, Inc.)
f/k/a Aidco, Inc.
MasTec North America, Inc. (FL) (100% owned by MasTec, Inc.)
MasTec Services Company, Inc. (FL)
f/k/a Central America Construction, Inc. (100% owned by MasTec, Inc.)
MasTec Minnesota SW, LLC (NV) (100% MasTec Services Company, Inc.)
MasTec Telcom & Electrical
Services, Inc. (NY) (100% owned by MasTec North America, Inc.)
f/k/a Alert Electrical Contracting Co., Inc.
Phasecom Systems Inc. (Canadian) (100% owned by MasTec, Inc.)
Phasecom America Inc. (FL) (100% owned by MasTec North America, Inc.)
Protel Ind., Inc. (FL) (100% owned by MasTec North America, Inc.)
Renegade of Idaho, Inc. (FL) (100% owned by MasTec, Inc.)
S.S.S. Construction, Inc. (MN) (100% owned by MasTec, Inc.)
Upper Valley Utilities Corp. (UT) (100% owned by MasTec North America, Inc.)
Wilde Holding Co., Inc.(DE) (100% owned by MasTec, Inc.)
Wilde Acquisition Co., Inc. (DE) (100% owned by Wilde Holding Co.,Inc)
Northland Contracting, Inc. (MN)(100% owned by Wilde Acquisition Co.,Inc.)
Wilde Optical Service, Inc. (MN) (100% owned by MasTec, Inc.)
Holding Companies
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MasTec FC, Inc. (NV) (100 % owned by MasTec, Inc.)
MasTec Real Estate Holdings, Inc. (FL) (100% owned by MasTec, Inc.)
Stackhouse Real Estate Holdings, Inc. (100% owned by MasTec North
(f/k/a H-W Acquisition II, Inc. (DE) America, Inc.)
MasTec of Texas, Inc. (TX) (100% owned by MasTec, Inc.)
MasTec TC, Inc. (NV) (100% owned by MasTec, Inc.)
INTERNATIONAL
Latin America
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Aidco de Mexico, S.A. de C.V. (Mex.) (98% owned by MasTec, Inc.)
(2% owned by MasTec International Holdings, Inc.)
MasTec Latin America, Inc. (DE) (100% owned by MasTec, Inc.)
Acietel Mexicana, S.A. (Mex.) (99% owned by Dresser Acquisition Company)
(1% owned by MasTec International Holdings, Inc.)
MasTec Brasil S/A (Brazil) (88% owned by MasTec Latin America, Inc.)
CIDE Engenharia, Ltda. (Brazil) (100% owned by MasTec Brasil S/A)
Mastec Participacoes Do Brasil LTDA (100% owned by MasTec, Inc.)
MasTelecom Europe I APS (Denmark) (100% owned by MasTec, Inc.)
MasTelecom Europe II BV (Netherlands) (100% owned by MasTelecom Europe I APS)
MasTelecom Services S. DE R.L. (100% owned by MasTelecom Europe II BV)
DE CV (Mexico)
MasTelecom S. DE R.L. DE C.V (100% owned by MasTelecom Europe II BV)
(Mexico)
Pantel Inversiones de Venezuela, CA (100% owned by MasTec Venezuela, Inc.)
(Venezuela)
Burntel Telecommunications, C.A. (50% owned by Pantel Inversiones)
Holding Companies
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MasTec Brazil, Inc. (FL) (100% owned by MasTec, Inc.)
MasTec Brazil II, Inc. (FL) (100% owned by MasTec, Inc.)
MasTec Ecuador, Inc. (FL) (100% owned by MasTec, Inc.)
Mastec International Holdings, Inc. (FL) (100% owned by MasTec, Inc.)
MasTec Venezuela, Inc. (FL) (100% owned by MasTec, Inc.)
MasTec Spain, Inc. (FL) (100% owned by MasTec, Inc.)
Dresser Acquisition Company (FL) (100% owned by MasTec North America, Inc.)
INTERNATIONAL INVESTMENTS
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Latlink Corporation (DE) (100% owned by MasTec, Inc.)
Telecomunicaciones Publicas y
Privadas, S.A. de C.V. (Mex.) (10% owned by LatLink Corporation)
Latlink Argentina, Inc. (DE) (100% owned by Latlink Corporation)
Supercanal Holding, S.A.(Arg.) (28.8% owned indirectly by
LatLink Argentina, Inc.)
Consorcio Ecuatoriano de
Telecomunicaciones S.A.
(Ecuador) (4% owned indirectly by MasTec Ecuador, Inc.)
Exhibit 23.1
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CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 333-64568, 333-38940, 333-38932, 333-77823, 333-47003,
333-30647, 033-22465, and 033-55327, Form S-4 No. 33-09607, and Form S-3
Nos. 333-90027 and 333-46067) pertaining to MasTec, Inc. of our report dated
March 10, 2003, with respect to the consolidated financial statements of
MasTec, Inc. included in the Annual Report (Form 10-K) for the year ended
December 31, 2002.
/s/ Ernst & Young LLP
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Miami, Florida
April 3, 2003
Exhibit 23.2
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CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
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We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (Nos. 333-46067 and 333-90027), S-4 (Nos. 333-09607
and 333-30645), and S-8 (Nos. 033-55327, 333-22465, 333-30647, 333-47003,
333-77823, 333-38932, 333-38940 and 333-64568) of MasTec, Inc. of our report
dated February 18, 2002 relating to the financial statements, which appears
in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
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Miami, Florida
April 3, 2003