Definitive Proxy Solicitation Material — Merger or Acquisition — Schedule 14A
Filing Table of Contents
Document/Exhibit Description Pages Size
1: DEFM14A Proxy Statement 179 481K
2: EX-2 Exhibit 2 - Appendix A - Agreement 59 177K
3: EX-2 First Amendment 4 18K
4: EX-2 Second Amendment 3 15K
5: EX-2 Third Amendment 4 16K
6: EX-3 Ex-3(A) Exhibit A to Appendix A 10 28K
13: EX-3 Exhibit-3(A) Appendix D 10 28K
9: EX-5 Exhibit D to Appendix A 2 9K
10: EX-5 Exhibit E to Appendix A 3 14K
12: EX-10 Exhibit 10 - Appendix C 14 29K
14: EX-10 Exhibit 10(B) - Appendix E 12 40K
15: EX-10 Exhibit 10(C) - Appendix F 15 50K
7: EX-10 Exhibit B to Appendix A 4 16K
8: EX-10 Exhibit C to Appendix A 1 5K
11: EX-99 Exhibit 99 - Appendix B 3 18K
THIS DOCUMENT IS A COPY OF THE DEFINITIVE PROXY MATERIALS FILED ON
FEBRUARY 14, 1994 PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION.
BURNUP & SIMS INC.
The undersigned hereby appoints Nick A. Caporella and George R.
Bracken, or either of them, each with the power to appoint his substitute,
proxies to represent the undersigned and to vote as designated below all
of the shares of Common Stock of Burnup & Sims Inc. (the "Company") held
of record by the undersigned on January 31, 1994 at the Annual and Special
Meeting of Stockholders (the "Meeting") to be held on March 11, 1994 and
at any adjournment or postponement thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
1. ELECTION OF SAMUEL C. HATHORN, JR. AS DIRECTOR.
/__/ FOR the nominee listed above
/__/ WITHHOLD AUTHORITY to vote for the nominee listed above
2. TO APPROVE THE TERMS OF AN AGREEMENT DATED AS OF OCTOBER 15,
1993, AS AMENDED, PURSUANT TO WHICH, AMONG OTHER THINGS, (i) THE COMPANY
WILL ACQUIRE (THE "ACQUISITION") ALL OF THE OUTSTANDING CAPITAL STOCK OF
CHURCH & TOWER, INC. ("CT") AND CHURCH & TOWER OF FLORIDA, INC. ("CTF")
FOR $58.8 MILLION IN EXCHANGE FOR 10,250,000 SHARES OF COMMON STOCK OF THE
COMPANY AND (ii) IMMEDIATELY THEREAFTER, THE COMPANY WILL REDEEM
3,153,847 SHARES OF COMMON STOCK OF THE COMPANY OWNED BY NATIONAL BEVERAGE
CORP. ("NBC") IN CONSIDERATION FOR THE CANCELLATION OF $18,092,313 OF
INDEBTEDNESS OWED BY NBC TO THE COMPANY.
/__/ FOR /__/ AGAINST /__/ ABSTAIN
MI1-52505.1
3. TO APPROVE AN AMENDMENT TO THE COMPANY'S CERTIFICATE OF
INCORPORATION (THE "CERTIFICATE") CHANGING THE NAME OF THE COMPANY TO
MASTEC INC.
/__/ FOR /__/ AGAINST /__/ ABSTAIN
4. TO APPROVE AN AMENDMENT TO THE CERTIFICATE INCREASING THE TOTAL
NUMBER OF SHARES OF COMMON STOCK WHICH THE COMPANY IS AUTHORIZED TO ISSUE
FROM 25,000,000 TO 50,000,000.
/__/ FOR /__/ AGAINST /__/ ABSTAIN
5. TO APPROVE AN AMENDMENT TO THE CERTIFICATE TO ELIMINATE ALL
DESIGNATIONS, POWERS, PREFERENCES, RIGHTS, QUALIFICATIONS, LIMITATIONS AND
RESTRICTIONS PRESCRIBED IN THE CERTIFICATE RELATING TO THE 5,000,000
SHARES OF PREFERRED STOCK AUTHORIZED BY THE CERTIFICATE AND WHICH MAY IN
THE FUTURE BE ISSUED BY THE COMPANY.
/__/ FOR /__/ AGAINST /__/ ABSTAIN
6. TO APPROVE AN AMENDMENT TO THE CERTIFICATE TO ADOPT THE
PROVISIONS OF SECTION 102(b)(7) OF THE DELAWARE GENERAL CORPORATION LAW
("DGCL") RELATING TO THE LIABILITY OF DIRECTORS.
/__/ FOR /__/ AGAINST /__/ ABSTAIN
7. TO APPROVE AN AMENDMENT TO THE CERTIFICATE TO BROADEN THE
CORPORATE POWERS OF THE COMPANY TO THE MAXIMUM EXTENT PERMITTED BY THE
DGCL AND MAKE CERTAIN OTHER CLARIFICATIONS TO THE CERTIFICATE.
/__/ FOR /__/ AGAINST /__/ ABSTAIN
8. TO APPROVE THE COMPANY'S 1994 STOCK OPTION PLAN FOR NON-EMPLOYEE
DIRECTORS.
/__/ FOR /__/ AGAINST /__/ ABSTAIN
9. TO APPROVE THE COMPANY'S 1994 STOCK INCENTIVE PLAN.
/__/ FOR /__/ AGAINST /__/ ABSTAIN
AS A CONDITION TO THE CONSUMMATION OF THE ACQUISITION, THE
STOCKHOLDERS OF THE COMPANY ARE REQUIRED TO HAVE APPROVED EACH OF THE
FOREGOING AMENDMENTS TO THE CERTIFICATE (PROPOSALS NOS. 3 THROUGH 7),
PROPOSED BY THE STOCKHOLDERS OF CT AND CTF. IF EACH OF THE PROPOSED
AMENDMENTS TO THE CERTIFICATE ARE NOT APPROVED BY THE REQUISITE NUMBER OF
STOCKHOLDER VOTES, THE ACQUISITION MAY NOT BE CONSUMMATED EVEN IF THE
TERMS OF THE ACQUISITION AGREEMENT ARE APPROVED BY THE STOCKHOLDERS OF THE
COMPANY. ADDITIONALLY, THE PROPOSALS TO (i) APPROVE THE AMENDMENTS TO THE
COMPANY'S CERTIFICATE, (ii) APPROVE THE COMPANY'S 1994 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS AND (iii) APPROVE THE COMPANY'S 1994 STOCK
INCENTIVE PLAN ARE CONDITIONED UPON THE APPROVAL OF THE TERMS OF THE
ACQUISITION AGREEMENT. ACCORDINGLY, IF THE ACQUISITION AGREEMENT IS NOT
APPROVED, THESE PROPOSALS, EVEN IF APPROVED BY THE STOCKHOLDERS, WILL NOT
BE EFFECTED.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE,
THIS PROXY WILL BE VOTED, "FOR" PROPOSALS 1 THROUGH 9, AND WILL BE VOTED
AT THE DISCRETION OF THE PROXIES ON ANY OTHER MATTER THAT MAY PROPERLY
COME BEFORE THE MEETING.
Dated ________________________________, 1994
__________________________________________
Signature
__________________________________________
Signature if held jointly
Please sign exactly as name appears
opposite. When shares are held by joint
tenants, both should sign. When signing as
attorney, executor, administrator, trustee
or guardian, please give full title as such.
If a corporation, please sign in full
corporate name by President or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY
PROMPTLY USING ENCLOSED ENVELOPE
NOTICE OF 1993 ANNUAL AND SPECIAL MEETING OF STOCKHOLDERS -
BURNUP & SIMS INC.
TIME: 2:00 p.m. local time
DATE: March 11, 1994
PLACE: Palm Beach Gardens Marriott
4000 RCA Boulevard
Palm Beach Gardens, Florida 33410
At the 1993 Annual and Special Meeting of Stockholders of Burnup &
Sims Inc. (the "Company"), and any adjournments or postponements thereof
(the "Meeting"), the following proposals are on the agenda for action by
the stockholders:
. To elect one director to serve as a Class II director.
. To approve the terms of an Agreement, dated as of October 15,
1993, as amended (the "Acquisition Agreement"), by and among the
Company, and the stockholders of Church & Tower, Inc., a Florida
corporation ("CT"), and Church & Tower of Florida, Inc., a
Florida corporation ("CTF"), pursuant to which, among other
things, (i) the Company will acquire (the "Acquisition") all of
the issued and outstanding capital stock of CT and CTF for $58.8
million in exchange for 10,250,000 shares of the Company's
Common Stock, par value $.10 per share ("Common Stock"), and
(ii) immediately thereafter, the Company will redeem (the
"Redemption") 3,153,847 shares of Common Stock owned by National
Beverage Corp. ("NBC"), in consideration for the cancellation of
$18,092,313 of indebtedness owed by NBC to the Company.
. To approve an amendment to the Company's Certificate of
Incorporation (the "Certificate") changing the name of the
Company to MasTec Inc.
. To approve an amendment to the Certificate increasing the total
number of shares of Common Stock which the Company is authorized
to issue from 25,000,000 to 50,000,000.
. To approve an amendment to the Certificate to eliminate all
designations, powers, preferences, rights, qualifications,
limitations and restrictions prescribed in the Certificate
relating to the 5,000,000 shares of preferred stock authorized
by the Certificate and which may in the future be issued by the
Company.
. To approve an amendment to the Certificate to adopt the
provisions of Section 102(b)(7) of the Delaware General
Corporation Law ("DGCL") relating to the liability of
directors.
. To approve an amendment to the Certificate to broaden the
corporate powers of the Company to the maximum extent permitted
by the DGCL and make certain other clarifications to the
Certificate.
. To approve the Company's 1994 Stock Option Plan for Non-Employee
Directors.
. To approve the Company's 1994 Stock Incentive Plan.
. To transact such other business as may properly come before the
Meeting.
The Redemption will not be consummated unless the Acquisition shall
have occurred. Accordingly, assuming satisfaction of all other conditions
to the consummation of the Acquisition, approval by stockholders of the
Acquisition Agreement shall result in consummation of the Redemption. A
vote in favor of the Acquisition Agreement may preclude a stockholder from
challenging the Acquisition, the Redemption and the other transactions
described in the accompanying Proxy Statement and from participating in,
and receiving damages, if any, as a result of any action which has been or
may be filed on behalf of any or all of the stockholders with respect to
such transaction, including the class action and derivative complaint
filed by a stockholder of the Company relating to, among other things, the
Acquisition, the Redemption and certain other transactions described in
the Proxy Statement.
Upon consummation of the Acquisition and the transactions
contemplated thereby, the former stockholders of CT and CTF will own
approximately 65% of the issued and outstanding shares of Common Stock of
the Company. Accordingly, to the extent they act in concert, the former
stockholders of CT and CTF will have the ability to control the affairs of
the Company and control the election of the Company's directors regardless
of how the other stockholders may vote. Furthermore, such persons will
have the ability to control other actions requiring stockholder approval,
including certain fundamental corporate transactions such as a merger or
sale of substantially all of the assets of the Company, regardless of how
the other stockholders may vote. This ability may be enhanced by the
adoption of the proposed amendments to the Certificate, including those
which would (i) increase the number of authorized shares of Common Stock
from twenty-five million (25,000,000) to fifty million (50,000,000), and
(ii) eliminate all designations, powers, preferences, rights,
qualifications, limitations and restrictions in the Certificate relating
to the Company's preferred stock.
These proposed amendments to the Certificate may be deemed to have
the effect of making more difficult the acquisition of control of the
Company after the consummation of the Acquisition by means of a hostile
tender offer, open market purchases, a proxy contest or otherwise. On the
one hand, these amendments may be seen as encouraging persons seeking to
acquire control of the Company to initiate such an acquisition through
arm's-length negotiations with the Company; on the other hand, the
amendments may have the effect of discouraging a third party from making a
tender offer or otherwise attempting to obtain control of the Company,
even though such an attempt may be economically beneficial to the Company
and its stockholders. Furthermore, the proposed amendments to the
Certificate and the fact that the CT and CTF stockholders will own
approximately 65% of the Common Stock after the consummation of the
Acquisition and the Redemption may have a negative effect on the market
price and liquidity of the Common Stock.
Only holders of record of Common Stock of the Company at the close of
business on January 31, 1994 are entitled to notice of, and to vote at,
the Meeting.
A complete list of the stockholders entitled to vote at the Meeting
will be open to examination by any stockholder, for any proper purpose,
during ordinary business hours for a period of ten days prior to the
Meeting at the corporate offices of the Company at One North University
Drive, Fort Lauderdale, Florida 33324. This list will also be kept at the
Meeting and may be inspected by any stockholder present.
A Proxy Statement, setting forth certain additional information, and
the Company's Annual Report on Form 10-K for the fiscal year ended April
30, 1993 and Quarterly Report on Form 10-Q for the fiscal quarter ended
October 31, 1993, as amended, accompany this Notice of Annual and Special
Meeting.
All stockholders are cordially invited to attend the Meeting in
person. Please complete and return the proxy in the enclosed envelope
addressed to the Company, since a majority of the outstanding shares
entitled to vote at the Meeting must be represented at the Meeting in
order to transact business. Stockholders have the power to revoke any
such proxy at any time before it is voted and the giving of such proxy
will not affect the right to vote in person if the Meeting is attended.
Your vote is important.
By Order of the Board of Directors,
/s/ Nick A. Caporella
________________________________
Nick A. Caporella
Chairman of the Board,
President and Chief Executive Officer
February 10, 1994
Fort Lauderdale, Florida
Table of Contents
INFORMATION CONCERNING PROXY . . . . . . . . . . . . . . . . . . . . 1
PURPOSES OF THE MEETING . . . . . . . . . . . . . . . . . . . . . . . 2
SUMMARY OF THE ACQUISITION AND RELATED MATTERS . . . . . . . . . . . 4
PROPOSAL TO APPROVE ACQUISITION AGREEMENT
WITH CHURCH & TOWER, INC. AND
CHURCH & TOWER OF FLORIDA, INC. . . . . . . . . . . . . . . . . . . . 10
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Background of CT and CTF . . . . . . . . . . . . . . . . . . . . 10
Background of Transaction . . . . . . . . . . . . . . . . . . . 11
Reasons for Engaging in the Acquisition . . . . . . . . . . . . 17
Report and Opinion of Financial Advisor . . . . . . . . . . . . 20
Terms of the Acquisition Agreement . . . . . . . . . . . . . . . 25
Certain Effects of the Acquisition . . . . . . . . . . . . . . . 26
Interest of Certain Persons in Matters to be Acted Upon . . . . 28
Operations Following the Acquisition . . . . . . . . . . . . . . 29
Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . 30
Restrictions on Resales of Burnup Shares to be
Issued in the Acquisition. . . . . . . . . . . . . . . . . . . 30
Certain Expenses of the Acquisition . . . . . . . . . . . . . . 30
Memorandum of Understanding . . . . . . . . . . . . . . . . . . 30
PROPOSAL TO APPROVE AMENDMENTS TO THE
COMPANY'S CERTIFICATE OF INCORPORATION . . . . . . . . . . . . . . . 32
PROPOSAL TO APPROVE 1994 STOCK OPTION
PLAN FOR NON-EMPLOYEE DIRECTORS . . . . . . . . . . . . . . . . . . . 38
Summary of Directors' Plan . . . . . . . . . . . . . . . . . . . 38
Federal Income Tax Consequences . . . . . . . . . . . . . . . . 40
PROPOSAL TO APPROVE
1994 STOCK INCENTIVE PLAN . . . . . . . . . . . . . . . . . . . . . . 41
Summary of Incentive Plan . . . . . . . . . . . . . . . . . . . 41
i
Federal Income Tax Consequences . . . . . . . . . . . . . . . . 44
ELECTION OF DIRECTOR . . . . . . . . . . . . . . . . . . . . . . . . 47
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Information as to Nominees and Other Directorships . . . . . . . 47
Nominee for Director . . . . . . . . . . . . . . . . . . . . . . 47
Directors Whose Terms of Office will Continue After
the Annual Meeting . . . . . . . . . . . . . . . . . . . . . . 48
Executive Officers . . . . . . . . . . . . . . . . . . . . . . . 49
Proposed Directors and Executive Officers . . . . . . . . . . . 49
Directors Following Consummation of the Acquisition . . . . . . 51
Meetings and Committees of the Board of Directors . . . . . . . 51
Director Compensation . . . . . . . . . . . . . . . . . . . . . 52
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . 52
Summary Compensation Table . . . . . . . . . . . . . . . . . . . 52
Options Granted in Last Fiscal Year . . . . . . . . . . . . . . 53
Aggregate Fiscal Year-End Stock Option Value Table . . . . . . . 53
Long-Term Incentive and Pension Plans . . . . . . . . . . . . . 53
Report of the Compensation and Stock Option Committee . . . . . 54
Executive Compensation Subsequent to the Acquisition . . . . . . 55
PERFORMANCE GRAPH . . . . . . . . . . . . . . . . . . . . . . . . . . 55
CERTAIN TRANSACTIONS AND LITIGATION . . . . . . . . . . . . . . . . . 56
CERTAIN CT AND CTF TRANSACTIONS . . . . . . . . . . . . . . . . . . . 57
SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . 59
THE COMPANY, CT AND CTF UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . 62
CT AND CTF'S MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION . . . . . . 68
Results of Operations . . . . . . . . . . . . . . . . . . . . . 68
ii
Liquidity and Capital Resources . . . . . . . . . . . . . . . . 69
OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS . . . . . . . . . . . 71
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF . . . . . . . . . . . 72
Security Ownership of Certain Beneficial Owners . . . . . . . . 72
Security Ownership of Management . . . . . . . . . . . . . . . . 73
Compliance with Section 16(a) of the Securities
Exchange Act of 1934 . . . . . . . . . . . . . . . . . . . . . 74
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . F-1
STOCKHOLDER PROPOSALS FOR ANNUAL MEETING . . . . . . . . . . . . . . 75
INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . 75
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 75
INCORPORATION BY REFERENCE . . . . . . . . . . . . . . . . . . . . . 76
APPENDICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
iii
1993 ANNUAL AND SPECIAL MEETING OF STOCKHOLDERS
OF
BURNUP & SIMS INC.
____________________
PROXY STATEMENT
___________________
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors (the "Board of Directors" or the "Board") of
Burnup & Sims Inc., a Delaware corporation ("Burnup & Sims" or the
"Company"), of proxies from the holders of the Company's Common Stock, par
value $.10 per share (the "Common Stock"), for use at the 1993 Annual and
Special Meeting of Stockholders of the Company to be held at the Palm
Beach Gardens Marriott, 4000 RCA Boulevard, Palm Beach Gardens, Florida
33410 on March 11, 1994 at 2:00 p.m., local time and any adjournments or
postponements thereof (the "Meeting").
The approximate date on which this Proxy Statement and the enclosed
form of proxy are first being sent to stockholders is February 10, 1994.
Stockholders should review the information provided herein in conjunction
with the Annual Report on Form 10-K of the Company for the fiscal year
ended April 30, 1993 (the "Annual Report"), and the Quarterly Report on
Form 10-Q of the Company for the six months ended October 31, 1993, as
amended, which accompany this Proxy Statement.
INFORMATION CONCERNING PROXY
The giving of a proxy does not preclude the right to vote in person
should any stockholder giving a proxy so desire. The mailing address of
the principal executive offices of the Company is P.O. Box 15070, Fort
Lauderdale, Florida 33318. A stockholder who gives a proxy may revoke it
at any time before it is exercised, either in person at the Meeting or by
filing with Ms. Margaret M. Madden, Vice President and Corporate Secretary
of the Company, at the address of the executive offices set forth above, a
1
written revocation or a duly executed proxy bearing a later date than the
date of the proxy being revoked.
The cost of preparing, assembling and mailing this Proxy Statement,
the Notice of Annual and Special Meeting of Stockholders and the enclosed
proxy will be borne by the Company. In addition to the use of mail,
officers, directors and employees of the Company may solicit proxies
personally and by telephone. The Company's officers, directors and
employees will receive no compensation for soliciting proxies other than
their regular salaries. The Company has retained Hill & Knowlton to
assist in soliciting proxies for use at the Meeting for an aggregate fee
of $8,000 plus reimbursement of reasonable out-of-pocket expenses. The
Company may request banks, brokers and other custodians, nominees and
fiduciaries to forward copies of the proxy material to the beneficial
owners on whose behalf they are holding shares of Common Stock and to
request authority for the execution of proxies. The Company may reimburse
such persons for their expenses in so doing.
2
PURPOSES OF THE MEETING
At the Meeting, the Company's stockholders will consider and vote
upon the following matters:
1. The election of one member to the Company's Board of Directors
to serve as a Class II director.
2. The approval of the terms of an Agreement, dated as of October
15, 1993 by and among the Company and the stockholders of Church & Tower,
Inc., a Florida corporation ("CT"), and Church & Tower of Florida, Inc., a
Florida corporation ("CTF"), as amended (the "Acquisition Agreement"),
pursuant to which, among other things, (i) the Company will acquire all of
the issued and outstanding capital stock of CT and CTF (collectively, the
"CT and CTF Shares") for $58.8 million in exchange for 10,250,000 shares
of Common Stock (the "Burnup Shares"), and (ii) immediately thereafter,
the Company will redeem (the "Redemption") 3,153,847 shares of Common
Stock owned by National Beverage Corp. ("NBC"), in consideration for the
cancellation of $18,092,313 of indebtedness owed by NBC to the Company.
The acquisition of CT and CTF by the Company pursuant to the terms of the
Acquisition Agreement is sometimes herein referred to as the
"Acquisition."
3. The approval of an amendment to the Company's Certificate of
Incorporation (the "Certificate") changing the name of the Company to
MasTec Inc.
4. The approval of an amendment to the Certificate increasing the
total number of shares of Common Stock which the Company is authorized to
issue from 25,000,000 to 50,000,000.
5. The approval of an amendment to the Certificate to eliminate all
designations, powers, preferences, rights, qualifications, limitations and
restrictions prescribed in the Certificate relating to the 5,000,000
shares of preferred stock authorized by the Certificate and which may in
the future be issued by the Company.
3
6. The approval of an amendment to the Certificate to adopt the
provisions of Section 102(b)(7) of the Delaware General Corporation Law
(the "DGCL") relating to the liability of directors.
7. The approval of an amendment to the Certificate to broaden the
corporate powers of the Company to the maximum extent permitted by the
DGCL and make certain other clarifications to the Certificate.
8. The approval of the Company's 1994 Stock Option Plan for Non-
Employee Directors.
9. The approval of the Company's 1994 Stock Incentive Plan.
10. The transaction of such other business as may properly come
before the Meeting and any adjournments or postponements thereof.
As a condition to the consummation of the Acquisition, the
stockholders of the Company are required to have approved each of the
foregoing amendments to the Certificate, proposed by the stockholders of
CT and CTF. If each of the proposed amendments to the Certificate are not
approved by the requisite number of stockholder votes, the Acquisition may
not be consummated even if the terms of the Acquisition Agreement are
approved by the stockholders of the Company. Additionally, the proposals
to (i) approve such amendments to the Company's Certificate, (ii) approve
the Company's 1994 Stock Option Plan for Non-Employee Directors and
(iii) approve the Company's 1994 Stock Incentive Plan are conditioned upon
the approval of the terms of the Acquisition Agreement. Accordingly, if
the Acquisition Agreement is not approved, these proposals, even if
approved by the stockholders, will not be effected.
Unless a stockholder otherwise specifies therein, all shares
represented by valid proxies will be voted FOR the election as director of
the Company of the person named under the caption "Election of Director,"
FOR the adoption of the Acquisition Agreement, FOR each of the amendments
to the Company's Certificate, FOR approval of the Company's 1994 Stock
Option Plan for Non-Employee Directors and FOR approval of the Company's
1994 Stock Incentive Plan, and will be voted at the discretion of the
4
proxies on any other matter that may properly come before the Meeting.
Where a stockholder has specified how a proxy is to be voted, it will be
voted accordingly. The Board of Directors does not know of any action to
be taken at the Meeting other than the foregoing.
5
SUMMARY OF THE ACQUISITION AND RELATED MATTERS
The following is a summary of certain information contained in this
Proxy Statement concerning the Acquisition and matters related thereto.
This summary is provided for your convenience, should not be considered
complete, and is qualified in its entirety by the detailed discussions
contained elsewhere in this Proxy Statement, the Financial Statements and
Notes thereto included herein or incorporated by reference herein and by
reference to the Acquisition Agreement, a copy of which is attached hereto
as Appendix A. Certain terms which are used in this Proxy Statement are
defined in the summary. THE COMPANY'S STOCKHOLDERS ARE URGED TO READ THE
ENTIRE PROXY STATEMENT CAREFULLY, INCLUDING ALL APPENDICES HERETO AND ALL
DOCUMENTS INCORPORATED HEREIN BY REFERENCE.
The Company. The Company is a corporation incorporated under the
laws of the state of Delaware with its principal offices located at One
North University Drive, Fort Lauderdale, Florida 33324. Where
appropriate, the term the Company shall mean and include Burnup & Sims
Inc. and its subsidiaries. The Company's telephone number is (305) 587-
4512.
The Company was founded in 1929 and currently provides a wide range
of cable design, installation and maintenance services to telephone, CATV
and utility services throughout the United States. These services are
rendered through various subsidiary companies located principally in
California, Florida, Georgia, Mississippi, North Carolina and Texas. In
addition, the Company manufactures power supplies for the CATV industry,
operates a motion picture theater chain in the southeastern U.S. and also
provides commercial printing and graphic arts services.
CT and CTF. CT and CTF provide a broad range of services to the
telecommunications industry and are engaged in providing construction and
design services to government and industry, in South Florida. CTF is
principally involved in providing engineering, construction and
6
maintenance services to local utility companies under master contracts.
CT is a subcontractor of CTF and engages in selected construction projects
in the public and private sectors. CT and CTF are sometimes collectively
referred to herein as the "CT Group." See "PROPOSAL TO APPROVE
ACQUISITION AGREEMENT WITH CHURCH & TOWER, INC. AND CHURCH & TOWER OF
FLORIDA, INC. - Background of CT and CTF."
The Proposed Acquisition. Pursuant to the terms of the Acquisition
Agreement, the Company will acquire the CT and CTF Shares for $58.8
million in exchange for 10,250,000 shares of Common Stock issued to the
present stockholders of CT and CTF. As a result of the Acquisition, CT
and CTF will become wholly-owned subsidiaries of the Company. The
Acquisition will become effective immediately following receipt of
stockholder approval and satisfaction or waiver of all other conditions
set forth in the Acquisition Agreement (the "Closing Date" or the
"Closing"). See "PROPOSAL TO APPROVE ACQUISITION AGREEMENT WITH CHURCH &
TOWER, INC. AND CHURCH & TOWER OF FLORIDA, INC - Terms of the Acquisition
Agreement."
Change of Control. As a result of transactions contemplated by and
in connection with the Acquisition, the present stockholders of CT and CTF
will own approximately 65% of the Common Stock outstanding immediately
after consummation of the Acquisition and the Redemption. See
"MANAGEMENT-Proposed Directors and Executive Officers." To the extent
such persons act in concert, they will be controlling stockholders of the
Company and will have the ability to control the election of the Company's
directors and certain fundamental corporate transactions regardless of how
the other stockholders may vote. See "PROPOSAL TO APPROVE ACQUISITION
AGREEMENT WITH CHURCH & TOWER, INC. AND CHURCH & TOWER OF FLORIDA, INC. -
Certain Effects of the Acquisition - Change of Control."
Requirements for Stockholder Approval. The listing requirements of
The National Association of Securities Dealers Automated Quotation System
("NASDAQ") require stockholder approval of any transaction, such as the
Acquisition, in which the issuer proposes to issue new shares of a listed
7
class of securities constituting 20% or more of the outstanding shares of
such class prior to the date of issuance. The Burnup Shares will
constitute approximately 65% of the outstanding Common Stock following
consummation of the Acquisition and the Redemption. Accordingly, it is a
condition to the consummation of the Acquisition that holders of a
majority of the outstanding Common Stock approve the terms of the
Acquisition Agreement. The terms of the Acquisition Agreement were
reviewed and approved by the Special Transaction Committee of the Board of
Directors of the Company (the "Special Transaction Committee") on behalf
of the stockholders of the Company (other than NBC and its affiliates).
See "MANAGEMENT - Meetings and Committees of Board of Directors" for the
names of the members of the Special Transaction Committee and the
functions of such committee.
The vote of a majority of the unaffiliated stockholders of the
Company is not required to approve the Acquisition Agreement. NBC, which
currently holds approximately 36% of the shares of outstanding Common
Stock, will vote in connection with the proposal to approve the
Acquisition Agreement. The Redemption will not be consummated unless the
Acquisition shall have occurred. Accordingly, assuming satisfaction of
all other conditions to the consummation of the Acquisition, approval by
stockholders of the Acquisition Agreement shall result in consummation of
the Redemption. A vote in favor of the Acquisition Agreement may preclude
a stockholder of the Company from challenging the Acquisition, the
Redemption and the other transactions described in this Proxy Statement
and from participating in, and receiving damages, if any, as a result of
any action which has been or may be filed on behalf of any or all of the
stockholders with respect to such transactions. See "CERTAIN TRANSACTIONS
AND LITIGATION" for a description of a class action and derivative
complaint relating to, among other things, the Acquisition, the Redemption
and certain other transactions described in this Proxy Statement. On
November 16, 1993, the Board of Directors of the Company approved the
Acquisition.
8
The Redemption. The Acquisition Agreement provides as a condition to
the consummation of the Acquisition by the stockholders of CT and CTF and
the Company that (i) the Company shall have entered into a written
agreement with NBC pursuant to which the Company shall have agreed to
redeem 3,153,847 shares of Common Stock owned by NBC, (ii) all of the
conditions to the consummation of the Redemption shall have been satisfied
or waived, except the condition requiring consummation of the Acquisition,
and (iii) the stockholders of CT and CTF shall have received a written
certificate from the Chief Executive Officer and Chief Financial Officer
of the Company that all of the conditions to the consummation of the
Redemption shall have been satisfied or waived, except the condition to
the Redemption that the Acquisition shall have occurred, which certificate
shall be supported by a certificate from the Chief Executive Officer of
NBC, to the same effect. Accordingly, the Acquisition will be consummated
prior to the Redemption. The Acquisition and Redemption are sometimes
referred to herein as the "Transaction."
The Redemption was negotiated and approved by the Special Transaction
Committee on behalf of the stockholders of the Company (other than NBC and
its affiliates). The consideration for the Redemption will be the
cancellation of $18,092,313 of indebtedness owed by NBC to the Company,
consisting of (x) the outstanding principal of $17,500,000 of a 14%
Subordinated Debenture (the "Subordinated Debenture") owed to the Company
by NBC and (y) a credit of the next succeeding principal payments in the
amount of $592,313 of a promissory note with an outstanding principal
amount of $1,371,430 owed to the Company by NBC (the "Other
Indebtedness"). Nick A. Caporella, the Chairman of the Board of
Directors, President and Chief Executive Officer of the Company is also
the Chairman of the Board of Directors, President, Chief Executive Officer
and controlling stockholder of NBC. On November 16, 1993, the Board of
Directors of the Company approved the Redemption. The Board of Directors
of NBC has not yet approved the terms of the Redemption. See "PROPOSAL TO
APPROVE ACQUISITION AGREEMENT WITH CHURCH & TOWER, INC. AND CHURCH & TOWER
OF FLORIDA, INC. - Interest of Certain Persons in Matters to be Acted
Upon", and "CERTAIN TRANSACTIONS AND LITIGATION."
9
Fairness Opinion. The Special Transaction Committee has retained
PaineWebber Incorporated ("PaineWebber") as a financial advisor in
connection with the Acquisition and the transactions contemplated thereby
to render an opinion to the Special Transaction Committee as to the
fairness from a financial point of view of the Transaction. On
November 16, 1993, representatives of PaineWebber advised the Special
Transaction Committee of its valuation analysis and indicated that they
were not aware of any facts on such date that would preclude such
representatives from recommending to PaineWebber's fairness opinion
committee that on such date, the Transaction is fair, from a financial
point of view to the Company and the holders of Common Stock other than
NBC and its affiliates. On January 18, 1994, PaineWebber delivered their
written opinion which is attached hereto as Appendix B indicating that
each of the Acquisition, Redemption and Transaction is fair, from a
financial point of view to the Company and the holders of Common Stock,
other than NBC and its affiliates. The opinion of PaineWebber sets forth
the assumptions made, the matters considered and the scope of the review.
PaineWebber will reaffirm its opinion immediately prior to the Meeting.
See "PROPOSAL TO APPROVE ACQUISITION AGREEMENT WITH CHURCH & TOWER, INC.
AND CHURCH & TOWER OF FLORIDA, INC. - Report and Opinion of Financial
Advisor."
Outstanding Stock Options. Pursuant to the terms of the Acquisition
Agreement, the Company is required to take all necessary action to cause
the acceleration, in certain instances, of the vesting periods of options
and rights to elect alternative settlement methods issued pursuant to the
Company's 1976 Stock Option Plan and 1978 Stock Option Plan. See
"PROPOSAL TO APPROVE ACQUISITION AGREEMENT WITH CHURCH & TOWER, INC. AND
CHURCH & TOWER OF FLORIDA, INC. -Certain Effects of the Acquisition --
Outstanding Stock Options."
Conditions to Acquisition. There are a number of conditions which
must be satisfied prior to or simultaneous with the Acquisition, including
certain matters relating to the Redemption. See "PROPOSAL TO APPROVE
ACQUISITION AGREEMENT WITH CHURCH & TOWER, INC. AND CHURCH & TOWER OF
10
FLORIDA, INC. -Terms of the Acquisition Agreement -- Conditions of the
Acquisition."
Reasons for the Acquisition. In determining to recommend the
approval of the Acquisition Agreement and the transactions contemplated
thereby (including the Redemption) to the Board of Directors, and in
approving the Acquisition Agreement and the transactions contemplated
thereby (including the Redemption) and recommending that stockholders
approve and adopt the Acquisition Agreement and the transactions
contemplated thereby (including the Redemption), the Special Transaction
Committee and the Board, respectively, considered and based their opinion
as to the fairness of the transactions contemplated by the Acquisition
Agreement, on a number of factors, including the following: (i) the
belief of the Board and Special Transaction Committee that the combination
of the Company, CT and CTF is an attractive business opportunity because
the Company's financial condition, business prospects and senior
management will be strengthened through the consummation of the
Acquisition and greater economies of scale and synergies will be created;
(ii) the belief of the Board and Special Transaction Committee that
significant favorable recent developments are taking place in the domestic
and international telecommunications industry and the combined entity will
be better able to compete in the global marketplace; and (iii) the oral
and written presentations and the written opinion of PaineWebber as to the
fairness from a financial point of view of the Transaction to the Company
and the holders of Common Stock other than NBC and its affiliates. See
"PROPOSAL TO APPROVE ACQUISITION AGREEMENT WITH CHURCH & TOWER, INC. AND
CHURCH & TOWER OF FLORIDA, INC. - Background of Transaction; Reasons for
Engaging in the Acquisition."
Directors and Management of the Company Following the Acquisition.
The Acquisition Agreement provides that upon consummation of the
Acquisition and the transactions contemplated thereby, the Board of
Directors will hold a meeting at which (i) Jorge Mas will be elected as
President and Chief Executive Officer of the Company and the Board will
determine his compensation and (ii) the size of the Board will be expanded
11
from five to seven members. The directors intend to appoint Jorge L. Mas
Canosa as a Class II director and Jorge Mas as a Class I director. Prior
to the conducting of any other business at such meeting, Nick A. Caporella
(a Class I Director) and Leo J. Hussey (a Class III Director) will resign
from the Board of Directors. The remaining directors will appoint Eliot
C. Abbott as a Class II Director and Arthur B. Laffer as a Class III
Director to fill the resulting vacancies. Messrs. Mas Canosa and Mas are
controlling stockholders of CTF and CT, respectively. See "MANAGEMENT -
Proposed Directors and Executive Officers" and "EXECUTIVE COMPENSATION -
Report of the Compensation and Stock Option Committee."
Appraisal Rights. The holders of Common Stock are not entitled to
appraisal rights under Delaware law with respect to the Acquisition or any
transactions contemplated by the Acquisition Agreement.
Restrictions on Resales of Burnup Shares. The Burnup Shares received
by the stockholders of CT and CTF in connection with the Acquisition will
be subject to certain restrictions on transfer. Pursuant to the
Acquisition Agreement, however, the Company has agreed, under certain
circumstances, to register the Burnup Shares. See "PROPOSAL TO APPROVE
ACQUISITION AGREEMENT WITH CHURCH & TOWER, INC. AND CHURCH & TOWER OF
FLORIDA, INC. - Terms of the Acquisition Agreement -- Registration Rights"
and "PROPOSAL TO APPROVE ACQUISITION AGREEMENT WITH CHURCH & TOWER, INC.
AND CHURCH & TOWER OF FLORIDA, INC. -Restrictions on Resales of Burnup
Shares to be Issued in the Acquisition."
Indemnification. The Acquisition Agreement provides that in certain
circumstances (i) the Company will indemnify and hold harmless CT, CTF and
their respective stockholders, and (ii) the CT and CTF stockholders will
indemnify and hold harmless the Company, its subsidiaries and their
respective officers and directors. The aggregate liability of the CT and
CTF stockholders is limited to the sum of $1,000,000 plus the aggregate
fair market value of 350,000 Burnup Shares on the date of payment. The
Company's aggregate liability is limited to the sum of $2,500,000. The
Acquisition Agreement also provides that at Closing, the Company will
12
enter into an Indemnification Agreement with certain current and former
directors and officers of the Company pursuant to which the Company will
be obligated to indemnify and hold harmless such directors and officers to
the fullest extent permitted under Delaware law, subject to certain
limitations, for a period of six years after Closing for all damages and
costs which they suffer or incur by reason of the fact that they were or
are a director or officer of the Company. See "PROPOSAL TO APPROVE
ACQUISITION AGREEMENT WITH CHURCH & TOWER, INC. AND CHURCH & TOWER OF
FLORIDA, INC. - Terms of the Acquisition Agreement - Indemnification."
Accounting Treatment. The Acquisition will be accounted for as a
"purchase", as such term is used under generally accepted accounting
principles, for accounting and financial reporting purposes. Because of
certain factors, including the fact that the stockholders of the CT Group
will hold a majority of the Common Stock subsequent to the Closing and
that they or their designees will constitute a majority of the Board of
Directors, it is anticipated that the Acquisition will be treated as a
"reverse acquisition", with the CT Group considered to be the acquiring
entity. See "PROPOSAL TO APPROVE ACQUISITION AGREEMENT WITH CHURCH &
TOWER, INC. AND CHURCH & TOWER OF FLORIDA, INC. - Certain Effects of the
Acquisition -- Accounting Treatment."
Certain Federal Income Tax Considerations. The stockholders of CT
and CTF have received an opinion from Price Waterhouse substantially to
the effect that, on the basis of the facts in existence at the Closing
Date, the Acquisition constitutes a tax-free reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code"). See "PROPOSAL TO APPROVE ACQUISITION AGREEMENT WITH CHURCH
& TOWER, INC. AND CHURCH & TOWER OF FLORIDA, INC. - Certain Effects of the
Acquisition -- Federal Income Tax Considerations."
Other Approvals. The Acquisition is subject to the requirements of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), and the rules and regulations thereunder. On January 21,
1994, the Company and the CT Group made the necessary filings under the
13
HSR Act with the Federal Trade Commission and Justice Department and on
February 2, 1994, the Company was notified that early termination of the
waiting period had been granted. Additionally, under certain of the loan
documents between the Company and its senior bank lender, and between the
CT Group and its bank lender (which is the same as the Company's lender),
the written consent of such lender is required to consummate the
Acquisition. Such lender has orally indicated to each of the Company and
the CT Group that it intends to provide its written consent for
consummation of the Acquisition, subject to certain conditions. The
Company and the CT Group are not currently aware of any other material
permits, approvals, consents or similar actions that are required for
consummation of the Acquisition.
Approval by CT and CTF Stockholders. The stockholders of each of CT
and CTF have unanimously approved the Acquisition Agreement.
Amendments to the Company's Certificate. As a condition to the
consummation of the Acquisition, the Company is required to have approved
certain amendments to the Certificate proposed by the CT Group. See
"PROPOSAL TO APPROVE AMENDMENTS TO THE COMPANY'S CERTIFICATE OF
INCORPORATION." The affirmative votes of the holders of a majority of the
outstanding Common Stock will be required for approval of each amendment
to the Certificate. The proposed amendments to the Certificate are
contingent upon the consummation of the Acquisition and, as such, will not
be effected unless the terms of the Acquisition Agreement are approved at
the Meeting.
The Proposal to Approve the Company's 1994 Stock Option Plan for Non-
Employee Directors. The CT and CTF stockholders have proposed, subject to
approval by the holders of the Common Stock, the 1994 Stock Option Plan
for Non-Employee Directors (the "Directors' Plan"). There will be 400,000
shares of Common Stock reserved for issuance pursuant to the Directors'
Plan. The members of the Special Transaction Committee have agreed not to
participate in the Directors' Plan. See "PROPOSAL TO APPROVE 1994 STOCK
OPTION PLAN FOR NON-EMPLOYEE DIRECTORS."
14
The Proposal to Approve 1994 Stock Incentive Plan. The CT and CTF
stockholders have proposed, subject to approval by the holders of Common
Stock, the 1994 Stock Incentive Plan (the "Incentive Plan") for key
employees of the Company and its subsidiaries to replace the existing 1976
Stock Option Plan (the "Current Plan"). There will be 800,000 shares of
Common Stock reserved for issuance pursuant to the Incentive Plan. See
"PROPOSAL TO APPROVE 1994 STOCK INCENTIVE PLAN."
Operations Following the Acquisition. Following consummation of the
Acquisition, each of CT and CTF will become a wholly-owned subsidiary of
the Company. Other than as described herein, it is the present intention
of the CT and CTF stockholders to operate the subsidiaries of the Company
under their present names and related trade names in substantially the
same manner following consummation of the Acquisition as currently being
operated. The proposed Board of Directors will, upon consummation of the
Acquisition, review additional information about the Company and, upon
completion of such review, may develop or propose plans which may result
in changes in the operations of the Company. See "PROPOSAL TO APPROVE
ACQUISITION AGREEMENT WITH CHURCH & TOWER, INC. AND CHURCH & TOWER OF
FLORIDA, INC. - Operations Following the Acquisition."
15
PROPOSAL TO APPROVE ACQUISITION AGREEMENT
WITH CHURCH & TOWER, INC. AND
CHURCH & TOWER OF FLORIDA, INC.
General
A copy of the Acquisition Agreement is attached to this Proxy
Statement as Appendix A and incorporated herein by reference. The
following summary of the material terms of the Acquisition Agreement, and
the potential consequences thereof does not purport to be complete. The
discussion of the Acquisition Agreement is qualified in its entirety by
reference to the text of the Acquisition Agreement. The Company's
stockholders are urged to read the entire proxy statement carefully,
including all appendices hereto and all documents incorporated herein by
reference.
The Closing under the Acquisition Agreement will occur immediately
following receipt of stockholder approval and satisfaction or waiver of
all other conditions set forth in the Acquisition Agreement. As a result,
each of CT and CTF will become wholly-owned subsidiaries of the Company
and the former stockholders of CT and CTF will own approximately 65% of
the outstanding Common Stock after giving effect to the Acquisition and
the Redemption and, to the extent they act in concert, will be controlling
stockholders of the Company. See " - Certain Effects of the Acquisition -
Change in Control."
The listing requirements of NASDAQ require stockholder approval of
any acquisition transaction in which the issuer proposes to issue new
shares of a listed class of securities constituting 20% or more of the
outstanding shares of such class prior to the date of issuance. The
Burnup Shares will constitute 65% of the outstanding Common Stock
following consummation of the Acquisition and the Redemption contemplated
thereby. Accordingly, it is a condition to the Acquisition that holders
of a majority of the outstanding Common Stock of the Company approve the
terms of the Acquisition Agreement.
16
The terms of the Acquisition Agreement were reviewed and approved by
the Special Transaction Committee on behalf of the stockholders of the
Company (other than NBC and its affiliates). The vote of a majority of
the unaffiliated stockholders of the Company is not required to approve
the Acquisition Agreement. NBC, which currently holds approximately 36%
of the shares of outstanding Common Stock, will vote in connection with
the proposal to approve the Acquisition Agreement. A vote in favor of the
Acquisition Agreement may preclude a stockholder of the Company from
challenging the Acquisition, the Redemption and the other transactions
described in this Proxy Statement and from participating in, and receiving
damages, if any, as a result of any action which has been or may be filed
on behalf of any or all of the stockholders with respect to such
transactions. See "CERTAIN TRANSACTIONS AND LITIGATION" for a description
of a class action and derivative complaint relating to, among other
things, the Acquisition, the Redemption and certain other transactions
described in this Proxy Statement.
Background of CT and CTF
CTF was incorporated under the laws of Florida in 1968. Since 1969,
CTF has performed engineering, construction and maintenance services on
behalf of Southern Bell, an affiliate of BellSouth, pursuant to master
contracts covering outside plant work. CTF currently holds three such
master contracts, expiring at various times through 1996, for Dade County
and south Broward County, Florida. The revenues generated under such
contracts constitute approximately 70% of its total combined revenues.
CTF also provides construction and maintenance services under individual
contracts to local utilities, including the Miami-Dade Water and Sewer
Department.
CT was incorporated under the laws of Florida in 1990 to engage in
selected construction projects in the public and private sectors. In
1990, a joint venture (the "9001 Joint Venture") of which CT is the
majority partner was established for the purpose of constructing a
detention facility in Dade County with a capacity of approximately 2,500
beds which was completed in 1993. In September, 1990, CT entered into a
17
joint venture (the "OCT Joint Venture") of which CT is a 20% minority
partner with Constructora Norberto Odebrecht, an international
construction contractor, to construct governmental projects. The OCT
Joint Venture has completed the Brickell Extension Project of the City of
Miami's Metro Mover, an elevated transportation system, and has begun
construction of a landfill in south Dade County.
In May 1992, CT merged with Communication Contractors, Inc., an
affiliate of CTF engaged primarily in providing manpower and equipment to
CTF. Since the merger, work under the Southern Bell master contracts has
been subcontracted to CT. The principal offices of CT and CTF are located
at 8600 N.W. 36th Street, Miami, Florida 33178 and their telephone number
is (305) 599-1800.
Background of Transaction
The acquisition by the Company of CT and CTF represents the
culmination of the Company's efforts to implement a transactional solution
to the operational and strategic challenges resulting from the impact of
the recession on the Company's core operations.
The recent recession resulted in the deferral or cancellation of
construction projects and a general contraction in the market for the
services comprising the Company's core business. The Company believed
that while it had adequate resources to participate in renewed growth in
the market expected to occur following the recession's anticipated end,
its ability to participate in that growth would be enhanced if it combined
with a strategic partner. It was the Company's view that an appropriate
partner would be one which conducted substantial business in the
telecommunications services industry, had strong operational management
and a history of positive operating results. The Company's management and
Board recognized that the search for a strategic partner would have to be
conducted with sensitivity to the possible detrimental effects that such a
search could have on the Company's core business.
In February 1992, the Company announced that it had entered into an
agreement with certain stockholders of Dycom Industries, Inc. ("Dycom"), a
18
company engaged in the telecommunications industry, pursuant to which,
among other things, the Company acquired an option to purchase
approximately 9.9% of the outstanding common stock of Dycom. At the time,
the Company was seeking to effect a merger or business combination with
Dycom. The Company believed that the combined entity would result in cost
saving efficiencies that would enhance earnings. Over the course of the
next few months, representatives of the Company unsuccessfully attempted
to commence discussions with members of senior management of Dycom, as
well as its Board of Directors. On December 3, 1992, the Company
announced that the agreement had expired pursuant to its terms.
In August 1992, after numerous attempts to negotiate with Dycom had
failed, a meeting of the Special Transaction Committee of the Board of
Directors was held to consider alternatives in light of the decline in
profitability. The members of the Special Transaction Committee are
Messrs. Conlee, Morse and Hathorn. During the course of the meeting,
representatives of PaineWebber discussed with members of the Committee a
variety of alternatives to enhance stockholder value, including a merger,
sale of all or substantially all of the assets or other business
combination. In addition, the Committee discussed the lack of any
expression of interest by third parties to engage in a business
combination with the Company in spite of the Company's public
announcements that it was seeking to effect such a transaction. The
difficulty of managing the Company's business during any attempt to seek
strategic partners was also discussed. Prior to conclusion of the
meeting, the Special Transaction Committee requested PaineWebber to
prepare a proposal for the Committee's review with respect to engaging
PaineWebber as financial advisor in connection with the sale or merger of
the Company.
In October 1992, the Board of Directors of the Company held a meeting
to discuss the engagement of PaineWebber by the Special Transaction
Committee to explore strategic alternatives for the Company, including the
sale of part or all of the Company. Although PaineWebber was not formally
engaged by the Special Transaction Committee, PaineWebber reflected upon
strategic merger and acquisition alternatives and attempted to identify
likely candidates for merger, joint ventures and/or partners for all or
19
part of the Company. While PaineWebber considered certain companies as
potential candidates, preliminary analysis and efforts by PaineWebber led
it to conclude that there was a very low likelihood of effecting a
transaction with any such candidates. In the course of its activities,
PaineWebber noted that the impact of the economic recession on the
industry of which the Company is a part substantially reduced the
likelihood of successfully concluding a transaction, both because of
effects of that recession on the Company's performance and the effects of
the recession on potential other parties to a transaction. In addition,
the interrelationship between the Company and NBC increased the difficulty
of effecting a transaction.
In April 1993, representatives of the Company were contacted by Jorge
Mas, President of CT, who expressed an interest in meeting with the
Company to discuss a possible business combination with the Company. From
late April 1993 through July 1993, Nick A. Caporella, Chairman of the
Board, President and Chief Executive Officer of the Company, met with
representatives of the CT Group and discussed in conceptual terms the
possibility of such a transaction. At these meetings, which were informal
and general in nature, various structural possibilities pursuant to which
the companies could be combined were explored.
On July 10, 1993, a meeting of the Executive Strategic Planning
Committee of the Board of Directors (the "Strategic Planning Committee")
of the Company (which includes the members of the Special Transaction
Committee) was held. The members of the Strategic Planning Committee, who
had been advised from time to time of the discussions with CT Group prior
to the meeting, were informed of the nature of the business of CT and CTF,
their management and financial results and the impact an acquisition would
have on the operations of the Company. Mr. Caporella informed the members
of the Strategic Planning Committee of the discussions he had held with
representatives of the CT Group and explored with the members of the
Strategic Planning Committee the possibility of a business combination
transaction. Mr. Caporella also advised the Strategic Planning Committee
that the CT Group indicated that it may require that the repurchase of the
Company's stock held by NBC be a condition to any such acquisition. Mr.
Caporella also noted that a likely result of the transaction would be that
20
the stockholders of the CT Group would become significant stockholders of
the Company. Mr. Caporella also indicated that in light of a condition
requiring repurchase of Common Stock from NBC, the terms of any such
transaction would require the review and approval of the Special
Transaction Committee of the Board of Directors. Mr. Caporella further
indicated that stockholder approval would be required for such an
acquisition in accordance with the rules of NASDAQ. The Strategic
Planning Committee then discussed the various alternatives available to
the Company, including the lack of any viable alternatives which could
maximize stockholder value, such as a recapitalization, extraordinary
dividend, or sale of assets to other third parties. The Strategic Planning
Committee noted that previous attempts to find a strategic partner for the
Company were unsuccessful and that a recapitalization or extraordinary
dividend could not be effectuated in light of the losses being reported by
the Company, the effect such a transaction would have on the Company's
cash flow and the inability of the Company to obtain sufficient borrowings
to fund such transactions. At the conclusion of the meeting, the
Strategic Planning Committee determined that Mr. Caporella should hold
further meetings with the CT Group and report his progress to the
Strategic Planning Committee or the full Board at a later date.
From late July through mid August 1993, the parties and their
respective advisors negotiated the terms of a letter agreement (the
"Letter Agreement"). On August 18, 1993, a meeting was held among
representatives of the Company and the stockholders of the CT Group and
their advisors at which time the Letter Agreement was executed. The
Letter Agreement provided a format to proceed forward with a possible
transaction pursuant to which the stockholders of the CT Group would
exchange the CT and CTF Shares for shares of Common Stock of the Company
and contained a number of conditions, including satisfactory completion of
due diligence, an agreement as to the number of shares of Common Stock to
be issued in the Acquisition, the requirement by the CT Group that the
ownership by NBC of Common Stock of the Company be reduced or eliminated
on terms acceptable to the Company and the stockholders of the CT Group
and approval of the transaction by the stockholders and Board of Directors
of the Company. During the meeting, the parties also discussed the due
21
diligence process, regulatory requirements and fiduciary obligations
applicable to such a transaction.
Effective August 1, 1993, PaineWebber was retained by the Special
Transaction Committee for the purpose of acting as its financial adviser
to render an opinion with respect to the terms of the Acquisition. See
"PROPOSAL TO APPROVE ACQUISITION AGREEMENT WITH CHURCH & TOWER, INC. AND
CHURCH & TOWER OF FLORIDA, INC. - Report and Opinion of Financial
Advisor."
In September 1993, representatives of the Company and the CT Group
commenced negotiations of the terms of the Acquisition Agreement. Various
issues regarding the structure of the transaction, indemnification
obligations, conditions to the transaction and other material terms of the
Acquisition Agreement were discussed and reviewed.
In September 1993, representatives of PaineWebber met with management
of the Company and management of the CT Group to review the respective
businesses, operations and prospects of each of the Company, CT and CTF.
Thereafter, numerous discussions were held among PaineWebber, the Company
and CT Group with respect to the financial results of each company.
On September 20, 1993, a meeting of the Board of Directors of the
Company was held to discuss the status of the negotiations with the CT
Group as well as financial due diligence . During the meeting,
representatives of PaineWebber, at the request of the Special Transaction
Committee, provided an overview of the due diligence that had been
conducted to date by PaineWebber. The Committee also held lengthy
discussions concerning the negotiations that had taken place to date with
respect to the terms of the transaction. The Board discussed the desire
to promptly pursue negotiations with representatives of the CT Group and
the need to engage in negotiations which would result in the most
favorable transaction for stockholders of the Company. The Board noted
that the initial negotiations were held between management of each company
and concluded that engaging outside advisors to negotiate the transaction
would only increase the costs and length of time to complete the
transaction and negatively impact the relationship which had been
22
established between the managements of each company. The Board authorized
management of the Company, in consultation with the advisors to the
Special Transaction Committee, to proceed forward with its negotiations
based upon the matters discussed at the meeting and to review with the
Board the final terms of the Acquisition Agreement prior to its execution.
Subsequent to this meeting, the Special Transaction Committee engaged
outside counsel to represent it in connection with the transaction.
On September 23, 1993, the Company issued a press release announcing
its negotiations with the CT Group. The high and low sales prices for the
Common Stock as quoted on NASDAQ as of September 22, 1993 were $3.25 and
$3.00, respectively.
On October 18, 1993, a meeting of the Board of Directors was held to
discuss the terms of the Acquisition Agreement and other related matters.
During the meeting, the Board reviewed the terms of the Acquisition
Agreement as well as the financial results of the CT Group. The Board
also discussed the number of shares of Common Stock that would be issued
by the Company to the stockholders of the CT Group, including the fact
that the CT Group had made known its intentions to be a significant
stockholder following consummation of the Acquisition and the transactions
contemplated thereby.
Later that day, a meeting of the Special Transaction Committee was
held for the purpose of reviewing the terms of the Acquisition Agreement
and for representatives of PaineWebber to present its preliminary
valuation analysis. During the meeting, PaineWebber reviewed for the
Committee its financial analysis, including background, operating and
financial information of the Company and the CT Group, based upon various
valuation analyses. PaineWebber advised the Committee that, subject to
completion of its due diligence, the CT Group would have a preliminary
range of value between approximately $45 million to $55 million, depending
upon the amount of the distribution the CT Group makes to its stockholders
prior to closing the Acquisition for previously taxed earnings not
distributed to such stockholders. In addition, the Committee was informed
by PaineWebber that a preliminary range of value for the shares of the
23
Company's Common Stock was between $4.50 to $6.00 per share. For
information concerning the analysis undertaken by PaineWebber see
"PROPOSAL TO APPROVE ACQUISITION AGREEMENT WITH CHURCH & TOWER, INC. AND
CHURCH & TOWER OF FLORIDA, INC. - Report and Opinion of Financial
Advisor." It was also noted that since September 23, 1993, the date
negotiations with the CT Group were publicly disclosed, no offers or
expressions of interest had been received by the Company from other third
parties with respect to a potential business combination or other
significant transaction.
The Committee also discussed the manner in which to negotiate the
exchange ratio with the CT Group. The Committee indicated that the
exchange ratio should be arrived at based upon an agreed upon valuation
for the CT Group and the percentage of stock to be held by the
stockholders of the CT Group following the Acquisition. PaineWebber
advised the Committee that, based upon its preliminary analysis
approximately 56% to 67% of the outstanding Common Stock could be held by
the stockholders of the CT Group following the Acquisition and the
transactions contemplated thereby. This analysis was based upon the
relative values of the Company and the CT Group utilizing various
valuation analyses. The Committee authorized Mr. Caporella to negotiate
the terms of the exchange ratio with representatives of the CT Group
within the parameters discussed by the Committee and in consultation with
the members of the Special Transaction Committee and its legal and
financial advisors. The Committee required that the exchange ratio for
purposes of the Redemption would not be negotiated unless and until an
agreement was reached with the CT Group. See "PROPOSAL TO APPROVE
ACQUISITION AGREEMENT WITH CHURCH & TOWER, INC. AND CHURCH & TOWER OF
FLORIDA, INC. - Report and Opinion of Financial Advisor."
The Committee also reviewed the terms of the Acquisition Agreement
with its special counsel. The Committee reviewed the overall structure of
the transaction and certain material terms of the Acquisition Agreement,
including: (i) the terms of the Memorandum of Understanding and the
requirement that the memoranda be executed prior to execution and approval
of the Acquisition Agreement, (ii) the provisions permitting the Board to
review other proposals received by the Company with respect to an
24
acquisition proposal, (iii) the right to terminate the Acquisition
Agreement without the Company being liable for "break-up" fees in excess
of $500,000, (iv) the requirement for stockholder approval and delivery of
a fairness opinion from PaineWebber, and (v) the fact that the Redemption
would not occur unless and until the Acquisition was consummated.
After conclusion of the meeting of the Special Transaction Committee,
a reconvened meeting of the Board of Directors was held. During the
meeting, the Special Transaction Committee updated the Board concerning
the discussions held at the Special Transaction Committee meeting. After
discussing the terms of the Acquisition Agreement, the Board approved the
execution of the Memorandum of Understanding and the Acquisition
Agreement, subject to a number of conditions, including satisfactory
conclusion of the negotiation of the valuation of the CT Group and the
number of shares of Common Stock to be issued by the Company, approval by
the stockholders and Special Transaction Committee of the Company and
receipt of a written fairness opinion from PaineWebber.
On October 19, 1993, the Company, CT and CTF issued a press release
announcing the execution of the Acquisition Agreement. The high and low
sales price for the Common Stock as quoted on NASDAQ as of October 18,
1993, was $4.00 and $3.75, respectively.
Pursuant to the terms of the Acquisition Agreement, the parties
completed their respective due diligence by November 1, 1993.
During the period from late October 1993 through November 4, 1993,
representatives of the parties engaged in lengthy negotiations concerning
the relative values of the Company and the CT Group for the purpose of
determining the number of shares of Common Stock to be owned by the CT
Group following consummation of the Acquisition and the Redemption.
During this period, there were differing views regarding the proper
relative valuations of the Company and the CT Group. On November 4, 1993,
the Company and CT Group reached an agreement pursuant to which 10,250,000
shares of Common Stock would be exchanged for the CT and CTF Shares. In
addition, in light of the fact that the CT Group would no longer be
afforded Subchapter S status under the Internal Revenue Code of 1986, an
25
aggregate distribution of $11.5 million in the form of cash and notes
would be made to the stockholders of the CT Group for undistributed
earnings on which the stockholders of the CT Group had paid income taxes
(a portion of which distribution was made during the period ended
September 30, 1993). In a press release issued on November 5, 1993, the
parties announced that 10,250,000 shares of Common Stock would be issued
to the stockholders of CT and CTF upon consummation of the Acquisition
subject to, among other things, receipt of financial advisory opinions,
ratification by the Board of Directors of the Company, approval by the
stockholders of the Company, and execution of an agreement with NBC
regarding the Redemption.
In November, 1993, a purported class action and derivative suit was
filed against the Company, the members of the Board of Directors, CT, CTF,
Jorge Mas Canosa, Jorge Mas and Juan Carlos Mas with respect to the
Acquisition Agreement and the transactions contemplated thereby. See
"CERTAIN TRANSACTIONS AND LITIGATION."
At a meeting of the Special Transaction Committee on November 9,
1993, the status of the Acquisition was reviewed by the Committee and the
terms of the Redemption were discussed among the members of the Committee
and their financial and legal advisors. It was indicated that a proposal
had been received from NBC subsequent to November 4, 1993 pursuant to
which (i) the Company would redeem the shares of Common Stock owned by NBC
for $6.00 per share or a total redemption price of $18,923,082, and (ii)
the Company would cancel (x) the Subordinated Debenture, having a book
value of 17,291,000, at an amount equal to $17,250,000 and (y) the
remaining balance outstanding under the Other Indebtedness. The Committee
expressed the view that the per share redemption price should not exceed
the value negotiated for the shares of Common Stock being issued in the
Acquisition.
On November 10, 1993, discussions were held between PaineWebber and
representatives of NBC with respect to the terms of the Redemption.
During these discussions, the relative values of the Company, the
Subordinated Debenture and the Other Indebtedness were analyzed by the
respective parties. Later that evening, a meeting of the Special
26
Transaction Committee was held. PaineWebber indicated to the Committee
that NBC was prepared to accept the per share value arrived at in the
Acquisition, but was insistent on discounting the Subordinated Debenture.
In addition, NBC had requested that all interest cease accruing on the
Subordinated Debenture commencing December 1, 1993. PaineWebber then
answered numerous questions concerning the terms proposed by NBC,
including an analysis of the valuation of the Subordinated Debenture and
Other Indebtedness. A discussion also ensued concerning the preferred
stock of NBC owned by the Company and whether all or a portion of such
preferred stock should be utilized in the Redemption. The Special
Transaction Committee's advisers stated that NBC indicated it would not
accept any terms requiring NBC to retire its preferred stock. The
Committee concluded that it would be inappropriate to discount the
Subordinated Debenture in connection with the Redemption and directed
PaineWebber to propose the following to NBC: (i) the Company would
redeem the 3,153,847 shares of Common Stock owned by NBC at $5.74 per
share (the per share value of the Acquisition), (ii) the Company would
cancel the Subordinated Debenture at its face value of $17,500,000, and
(iii) the balance of $592,313 would be applied to reduce the Other
Indebtedness.
Discussions continued on November 11, 1993 between PaineWebber and
representatives of NBC. At a meeting of the Special Transaction Committee
later that day, PaineWebber advised the Committee that representatives of
NBC were prepared to recommend to the Board of Directors of NBC the
Special Transaction Committee's proposal made by PaineWebber earlier in
the day; provided all collateral underlying the Other Indebtedness was
released by the Company. PaineWebber then reviewed for the Committee the
terms of the Other Indebtedness and the security underlying the
obligations. The Committee concluded that it would not agree to release
any collateral and would not alter from its previous proposal and directed
PaineWebber to communicate the Committee's position to representatives of
NBC.
On November 16, 1993, a meeting of the Special Transaction Committee
was held. During the meeting, an overview of the negotiations was
presented as well as the historical and pro forma financial results of the
27
CT Group and the Company. Representatives from PaineWebber answered
questions and discussed in detail the structure of the transaction and the
valuations utilized to negotiate the Acquisition and Redemption. During
the meeting, PaineWebber advised the Committee of its valuation analysis
and indicated that they were not aware of any facts on such date that
would preclude such representatives from recommending to PaineWebber's
fairness opinion committee that on such date, the Transaction is fair,
from a financial point of view, to the Company and the holders of Common
Stock other than NBC and its affiliates. The Committee's counsel then
discussed legal issues concerning the Transaction and answered the
questions of members of the Special Transaction Committee. The Special
Transaction Committee then adopted a resolution to unanimously recommend
that the Board approve the Acquisition Agreement and the transactions
contemplated thereby (including the Redemption), subject to, among other
things, receipt of stockholder approval and an amendment to the
Acquisition Agreement described below. At a meeting held immediately
thereafter, the Board, by the unanimous vote of all directors (other than,
Mr. Caporella, who abstained with respect to the Redemption), concluded
that the transactions contemplated by the Acquisition Agreement was in the
best interest of the Company's stockholders, and approved the Acquisition
Agreement and the transactions contemplated thereby (including the
Redemption), subject to receipt of a written fairness opinion from
PaineWebber, an executed Amendment to the Acquisition Agreement described
below, waiver by the CT Group of its rights to terminate the Acquisition
Agreement as a result of the filing of the 1993 Complaint (see, "CERTAIN
TRANSACTIONS AND LITIGATION") and the execution of the agreement between
the Company and NBC with respect to the Redemption. The Board also
resolved to recommend that the stockholders approve and adopt the
Acquisition Agreement and the transactions contemplated thereby (including
the Redemption).
On November 23, 1993, the stockholders of the CT Group and the
Company executed the First Amendment to the Acquisition Agreement (the
"First Amendment") which provided for, among other things: (i) the
exchange ratio of the CT and CTF Shares for the Burnup Shares, (ii) the
waiver by the stockholders of the CT Group of their rights with respect to
the 1993 Complaint and (iii) the amount and manner of payment of the
28
distribution to the stockholders of the CT Group. In addition, a Second
Amendment to the Acquisition Agreement was executed by the parties,
effective November 23, 1993, to clarify a mutual mistake in the First
Amendment with respect to the calculation of the distribution to be made
to the stockholders of the CT Group by CT and CTF. The parties have
agreed to execute a Third Amendment to the Acquisition Agreement which
provides for, among other things, (i) the extension of the termination
date from February 28, 1994 to March 31, 1994, (ii) the elimination of
certain conditions to the Closing, and (iii) the elimination of the
provision relating to liquidated damages in the event of termination of
the Acquisition Agreement.
On January 18, 1994, PaineWebber delivered its written fairness
opinion to the Special Transaction Committee that each of the Acquisition,
the Redemption and Transaction is fair, from a financial point of view, to
the Company and the stockholders of the Company, other than NBC and its
affiliates. The high and low sales price for the Common Stock as quoted
on NASDAQ as of such date was $7.00 and $6.625, respectively.
Reasons for Engaging in the Acquisition
In determining to recommend the approval of the Acquisition Agreement
and the transactions contemplated thereby (including the Redemption) to
the Board of Directors, and in approving the Acquisition Agreement and the
transactions contemplated thereby and recommending that stockholders
approve and adopt the Acquisition Agreement and the transactions
contemplated thereby (including the Redemption), the Special Transaction
Committee and the Board, respectively, considered and based their opinion
as to the fairness of the transactions contemplated by the Acquisition
Agreement, on a number of factors, including the following: (i) the
belief of Board and the Special Transaction Committee, that the
combination of the Company and the CT Group is an attractive business
opportunity because the Company's core business operations, business
prospects and senior operating management will be strengthened through the
consummation of the Acquisition and greater economies of scale and
synergies will be created through the Acquisition; (ii) the belief of the
Board and the Special Transaction Committee that significant favorable
29
recent developments are taking place in the domestic and international
telecommunications industry and that the combined entity will be better
able to compete in the global marketplace; (iii) the fact that the
transactions contemplated by the Acquisition Agreement require the
approval of the stockholders of the Company; (iv) information with respect
to the financial condition, results of operations, business and prospects
of CT and CTF and the Company and current industry, economic and market
conditions as well as the risks involved in achieving those prospects; (v)
the possible alternatives to the Acquisition, including the prospects of
the Company continuing to successfully operate as an independent entity,
and in particular, the potential adverse consequences to the Company,
including its business prospects and its ability to retain and attract
talented operating management, in the event the Acquisition were not to
occur; (vi) the fact that, notwithstanding the Company's objective to
effect a business combination and the significant possibility of the
Company being sold or a change in control of the Company occurring, no
expressions of interest or proposals from third parties which might be
interested in acquiring the Company were received by the Board of
Directors; (vii) the fact that the Acquisition is not structured to
preclude additional bona fide offers to acquire the Company and that the
Acquisition Agreement permits the Board of Directors of the Company in the
exercise of its fiduciary obligations under applicable law, to review and
accept proposals from third parties relating to any acquisition of the
Company; and (viii) the oral and written presentations of PaineWebber
described under "Report and Opinion of Financial Advisor" and the written
opinion of PaineWebber to the effect that, as of the date of its opinion,
each of the Acquisition, the Redemption, and the Transaction, is fair from
a financial point of view to the Company and the stockholders of the
Company other than NBC and its affiliates.
In view of the wide variety of factors considered in connection with
its evaluation of the transaction neither the Special Transaction
Committee nor the Board found it practicable to and did not, quantify or
otherwise attempt to assign relative weights to the specific factors in
reaching its determination, although it viewed the matters set forth in
(i), (ii), (iii), (iv) (v), (vi), (vii) and (viii) as favorable to its
decision. Moreover, the Special Transaction Committee and the Board
30
placed special emphasis on the financial terms of the Acquisition and the
transactions contemplated thereby (including the Redemption) and the
absence of any other proposals from third parties to acquire the Company.
The factors discussed above were considered by the Special Transaction
Committee and the Board in the manner set below:
(i) As noted above, the Special Transaction Committee and the Board
considered favorable the matters set forth in item (i). The Special
Transaction Committee and the Board reviewed the financial results of the
Company, including a three-year revenue decline and losses incurred during
that period, and compared such results to the historical financial results
of the CT Group and pro forma combined financial results of the Company
and the CT Group. The Board and Special Transaction Committee noted that
the CT Group results were obtained within a more contained geographic
area. The Board and Special Transaction Committee also noted that
recently the Company had been required to obtain waivers of certain
violations of its loan documents. The Special Transaction Committee and
the Board considered the synergies that would result from combining the
companies, and concluded that increased economies of scale are attainable
through the Acquisition, primarily due to the more efficient use of
equipment and personnel and the elimination of certain administrative
redundancies. In addition, the combination of the financial strength and
operational capabilities of the CT Group along with the potential
increased efficiencies that would result from the Acquisition were
considered by the Special Transaction Committee and the Board as being
favorable to the development of business prospects. The Special
Transaction Committee and Board noted the closing stock price of the
Common Stock on NASDAQ had increased approximately 44% since the initial
announcement of the transaction through November 15, 1993 and interpreted
the increase as a favorable perception of the combined entities by the
investment community. The Board and the Special Transaction Committee
also considered as favorable the potential strengthening of senior
operating management through the consummation of the Acquisition. The
attraction and retention of management personnel who are experienced
within the telecommunications industry and have demonstrated knowledge of
the business, the customer base, and operating efficiencies as
demonstrated by the strong operating margins attained by the CT Group was
31
considered important to the growth of the Company, particularly in view of
anticipated capital spending programs expected to occur in the domestic
and international telephone and cable industries.
(ii) As noted above, the Special Transaction Committee and the Board
considered as favorable the matters set forth in item (ii). The Special
Transaction Committee and the Board discussed the various opportunities
which are available to the telecommunications industry in view of recent
legislation allowing the formation of alliances between cable television
and telephone companies and concluded that a business combination with the
CT Group would result in the enhancement of earnings and stockholder
value. Additionally, the Special Transaction Committee and the Board
considered as favorable the combination of experience and customer
contacts of management of the Company and the CT Group relative to
international opportunities and the potential for further significant
development of the Company's international telecommunications customer
base resulting from the Acquisition, and concluded the combined entity
would be better equipped and financially able to compete in the global
marketplace. The Special Transaction Committee also noted the probable
need for additional capital in order to take advantage of the projected
expansion of telecommunications construction and the likelihood of the
Company obtaining such capital as a stand alone entity.
(iii) As noted above, the Special Transaction Committee and the Board
considered as favorable the matters set forth in item (iii).
Specifically, the Special Transaction Committee and the Board viewed as
favorable the requirement that the transactions contemplated by the
Acquisition Agreement required the approval of holders of a majority of
the outstanding Common Stock.
(iv) As noted above, the Special Transaction Committee and the Board
considered as favorable the matters set forth in item (iv). The Special
Transaction Committee and the Board reviewed the information provided in
presentations by the Company's advisors and management, including summary
historical financial information for both the Company and the CT Group and
pro forma financial information for the combined entity. The Special
Transaction Committee and the Board also reviewed the historical
32
volatility of the Company's financial performance and the demands placed
on the Company and other large, telecommunications companies to compete
effectively, particularly in view of the past prolonged economic
pressures. On the basis of such review, the Special Transaction Committee
and the Board reconfirmed their understanding of the Company's and the CT
Group's historical financial and business results and prospects, the
necessity to stabilize and strengthen the Company's financial performance,
and to increase the Company's presence in the global telecommunications
marketplace. The Special Transaction Committee also reviewed such risks
as currency and political risks associated with international
opportunities and the potential returns to be realized if global business
development can be efficiently implemented.
(v) As noted above, the Special Transaction Committee and the Board
considered as favorable the matters set forth in item (v). Possible
alternatives to the transactions contemplated by the Acquisition Agreement
were discussed at various meetings of the Special Transaction Committee
and the Board. In that connection, members of the Special Transaction
Committee were advised of alternative transaction structures which had
been discussed and rejected or withdrawn during the period from 1990
through 1993. Alternative transactions included the Company's entering
into an agreement to acquire beneficial ownership of certain shares and
other interests in Dycom for the purpose of effecting a merger with Dycom.
See "Background of Transaction." The members of the Special Transaction
Committee and the Board also explored the alternatives which may or may
not be available to the Company in the event that the transactions
contemplated by the Acquisition Agreement were not consummated, including
the possible further deterioration in the Company's financial results.
Based on its understanding of the potentially adverse consequences to the
Company, including the potential loss of certain business opportunities
and the Company's current ability to retain and attract talented operating
management, the Special Transaction Committee considered favorably the
terms of the Acquisition Agreement and the transactions contemplated
thereby and recommended that the stockholders of the Company approve and
adopt the Acquisition Agreement.
33
(vi) As noted above, the Special Transaction Committee and the Board
considered as favorable the matters set forth in item (vi). In connection
with their consideration of such matters, the Special Transaction
Committee and the Board reviewed the fact that, notwithstanding the fact
that several press releases and newspaper articles were disseminated to
the public concerning the Company's desire to enhance stockholder value
through a business combination as well as the announcement of the
negotiations between the Company and the CT Group and the execution of the
Acquisition Agreement, no proposals from third parties which might be
interested in acquiring the Company have been received by the Board of
Directors.
(vii) As noted above, the Special Transaction Committee and the Board
considered as favorable the matters set forth in item (vii).
Specifically, the fact that the Acquisition is not structured to preclude
consideration of additional bona fide offers by third parties to acquire
the Company and the Acquisition Agreement permits the Special Transaction
Committee to provide information and to accept, review and negotiate with
such parties prior to the Closing is fair to the stockholders of the
Company. The Special Transaction Committee and the Board required that
the terms of the Acquisition Agreement not preclude the Company from
terminating the Acquisition Agreement if a more favorable transaction were
to be proposed as a result of the Company's public announcement of the
Acquisition and noted that no "lock-up" arrangements were entered into in
connection with the Acquisition nor would break-up fees in excess of
$500,000 be payable in the event the Acquisition were terminated.
(viii) As noted above, the Special Transaction Committee and the Board
considered as favorable the matter set forth in Item (viii). In
connection with their consideration of such matters, the Special
Transaction Committee and the Board relied in part on the presentation of
PaineWebber described under "Report and Opinion of Financial Advisor" and
adopted as reasonable both PaineWebber's presentations and analysis of
various factors described therein. In addition, the Special Transaction
Committee and Board considered the fairness of the process undertaken in
approving the Acquisition Agreement and recommending its approval to
stockholders of the Company. The Special Transaction Committee and Board
34
viewed as favorable the retention by the Special Transaction Committee of
a financial advisor and legal counsel to assist it in reviewing and
approving the Acquisition and negotiating and approving the Redemption.
In addition, the Special Transaction Committee and Board considered the
length and detail of the negotiations and manner in which the Acquisition
and Redemption were independently negotiated. Moreover, the fact that no
other third party offers were received by the Company or the Special
Transaction Committee despite the Company's attempts to identify a
strategic partner and following the announcement of the negotiations with
CT and CTF in September 1993 were considered favorable in analyzing the
negotiating process.
Report and Opinion of Financial Advisor
The Special Transaction Committee has retained PaineWebber as its
financial advisor in connection with the Acquisition and to render a
fairness opinion to the Special Transaction Committee with respect to the
Company and the holders of Common Stock, other than NBC and its
affiliates.
On November 16, 1993, in connection with the evaluation of the
Acquisition, the Redemption and the transactions contemplated thereby by
the Board of Directors and the Special Transaction Committee,
representatives of PaineWebber advised the Special Transaction Committee
of its valuation analysis and indicated that they were not aware of any
facts on such date that would preclude such representatives from
recommending to PaineWebber's fairness opinion committee that on such
date, the Transaction is fair from a financial point of view to the
Company and holders of Common Stock, other than NBC and its affiliates.
On January 18, 1994, PaineWebber delivered its written opinion to the
Special Transaction Committee indicating that each of the Acquisition, the
Redemption and the Transaction is fair from a financial point of view to
Company and the holders of Common Stock, other than NBC and its
affiliates. Stockholders are urged to read such opinion in its entirety
for a discussion of the assumptions made, the matters considered and the
scope of the review undertaken in rendering such opinion. The fairness
opinion will be updated by PaineWebber immediately prior to the Meeting.
35
A copy of the opinion letter of PaineWebber is attached as Appendix B and
should be read carefully and in its entirety by the holders of Common
Stock.
In rendering its written opinion to the Special Transaction
Committee, PaineWebber: (i) reviewed the audited financial statements for
CT and CTF for the three fiscal years ended December 31, 1992, and
reviewed the unaudited financial statements for CT and CTF for the six
months ended June 30, 1993; (ii) reviewed the combined audited financial
statements for the CT Group for the three years ended December 31, 1992,
and reviewed the unaudited financial statements for the CT Group for the
nine months ended September 30, 1993; (iii) reviewed the Company's Annual
Reports, Forms 10-K and related financial information for the three fiscal
years ended April 30, 1993 and the Company's Form 10-Q and the related
unaudited financial information for the six months ended October 31, 1993;
(iv) reviewed an estimated income statement for the CT Group for the year
ended December 31, 1993 and an estimated income statement for the Company
for the year ended April 30, 1994; (v) conducted discussions with members
of senior management of the CT Group and the Company concerning their
respective businesses and prospects; (vi) reviewed the summary appraisal
reports dated June and July of 1991 and an updated market analysis dated
August 12, 1993 prepared by an outside appraisal firm with respect to
certain of the Company's real estate assets; (vii) reviewed the historical
market prices and trading activity of the Company's Common Stock and
compared them with that of certain publicly traded companies which
PaineWebber deemed to be reasonably similar to the Company; (viii)
compared the results of operations of the CT Group and the Company and
compared them with that of certain publicly traded companies which
PaineWebber deemed to be reasonably similar to the CT Group and the
Company, respectively; (ix) reviewed the terms of the Subordinated
Debenture and Other Indebtedness; (x) reviewed the Acquisition Agreement;
and (xi) reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters as
PaineWebber deemed necessary, including PaineWebber's assessment of
general economic, market and monetary conditions.
36
In preparing its opinion, PaineWebber relied on the accuracy and
completeness of all information supplied or otherwise made available to
PaineWebber by the Company, CT and CTF and assumed that estimates have
been reasonably prepared on bases reflecting the best currently available
information and judgments of the managements of the Company, CT and CTF as
to the expected future financial performance of their respective
companies. PaineWebber did not independently verify such information or
assumptions, including estimates, or undertake an independent appraisal of
the assets of the Company, CT or CTF. PaineWebber's opinion is based upon
market, economic, financial and other conditions as they exist and can be
evaluated as of the date of the opinion. PaineWebber's opinion does not
constitute a recommendation to any holder of Common Stock of the Company
as to how any such holder of Common Stock should vote on the Acquisition.
The opinion does not address the relative merits of the Transaction and
any other transactions or business strategies discussed by the Board of
Directors of the Company as alternatives to the Transaction or the
decision of the Board of Directors of the Company to proceed with the
Transaction. Although various estimates of value were developed with
respect to the combined entities, no opinion is expressed by PaineWebber
as to the price at which the securities to be issued in the Transaction
may trade at any time.
PaineWebber assumed that there had been no material change in the
Company's, CT's or CTF's assets, financial condition, results of
operations, business or prospects since the date of the last financial
statements made available to PaineWebber. PaineWebber relied upon the
Company with respect to the accounting treatment to be accorded in the
Acquisition. In addition, PaineWebber did not make an independent
evaluation, appraisal or physical inspection of the assets or individual
properties of the Company, CT or CTF. In rendering its opinion,
PaineWebber has not been engaged to act as an agent or fiduciary of, and
the Company has expressly waived any duties or liabilities PaineWebber may
otherwise be deemed to have had to, the Company's equity holders or any
other third party.
The preparation of a fairness opinion involves various determinations
as to the most appropriate and relevant quantitative and qualitative
37
methods of financial analyses and the application of those methods to the
particular circumstances and, therefore, such an opinion is not readily
susceptible to partial analysis or summary description. Furthermore, in
arriving at its fairness opinion, PaineWebber did not attribute any
particular weight to any analysis or factor considered by it, but rather
made qualitative judgments as to the significance and relevance of each
analysis or factor. Accordingly, PaineWebber believes that its analysis
must be considered as a whole and that considering any portion of such
analysis and of the factors considered, without considering all analyses
and factors, could create a misleading or incomplete view of the process
underlying its opinion. In its analyses, PaineWebber made numerous
assumptions with respect to industry performance, general business and
economic conditions and other matters, many of which are beyond the
control of the Company, CT and CTF. Any estimates contained in these
analyses are not necessarily indicative of actual values or predictive of
future results or values, which may be significantly more or less
favorable than as set forth therein, and none of PaineWebber, the Company,
CT or CTF assumes responsibility for the accuracy of such estimates. In
addition, analyses relating to the value of such businesses do not purport
to be appraisals or to reflect the prices at which business may actually
be sold.
The following paragraphs summarize the significant analyses performed
by PaineWebber in its presentations to the Special Transaction Committee
of the Company and in delivering its written opinion dated January 18,
1994.
The Acquisition
Selected Comparable Public Company Analysis. Using publicly
available information, PaineWebber compared selected historical and
financial operating data of the Company and the CT Group and the stock
market performance data of the Company to the corresponding data of
certain publicly traded companies. These comparable companies consisted of
Butler International, Inc., CRSS Services, Inc., Dycom Industries, Inc.,
L.E. Myers Co. Group and UTILX Corporation.
38
Because of the inherent differences between the operations of the
Company, CT Group and the selected comparable companies, PaineWebber
believed that a purely quantitative comparable company analysis would not
be particularly meaningful in the context of the Acquisition. As
PaineWebber informed the Special Transaction Committee of the Board of
Directors of the Company, an appropriate use of comparable public company
analysis in this instance would involve qualitative judgments concerning
differences between the financial and operating characteristics which
would affect the public trading values of the selected companies, the
Company and CT Group.
To determine a valuation range for the CT Group based upon comparable
public company analysis but subject to the foregoing limitations,
PaineWebber determined ranges of multiples of total value to revenues,
total value to earnings before interest, taxes, depreciation and
amortization ("EBITDA"), total value to earnings before interest and taxes
("EBIT"), and equity value to net income. The comparable public company
analysis resulted in a total value range for the CT Group of $50.0 million
to $65.0 million, from which PaineWebber deducted the CT Group's pro forma
total outstanding debt and added back its cash balance (after giving
effect to the transactions contemplated by the Acquisition Agreement),
resulting in an equity value range of $54.9 million to $69.9 million.
PaineWebber noted that the negotiated equity value for the CT Group as
disclosed in the Acquisition Agreement was $58.8 million.
Implied Stock Price Analysis. PaineWebber noted that because the
stockholders of the CT Group will hold approximately 65% of the
outstanding Common Stock of the Company on a pro forma basis after giving
effect to the Acquisition and the Redemption, the historical market prices
of the Company's Common Stock are not necessarily indicative of the fair
value of the Company's Common Stock being issued in the Acquisition.
Using the range of equity values that resulted from the comparable public
company analysis and dividing by the 10.25 million shares of Common Stock
to be issued in the Acquisition, PaineWebber determined an implied stock
price range of $5.36 to $6.82 per share at which the shares of Common
Stock were being issued in the Acquisition. PaineWebber then compared the
implied stock price to the price of the Company's Common Stock on
39
September 23, 1993 (the announcement date of the Transaction), and for an
average of the Company's stock price for one month prior to the
announcement to determine the premiums of the implied stock price over the
price of the Company's Common Stock. This analysis indicated that the
range of implied premiums to the September 23, 1993 stock market price is
64.8% to 109.9% and that the range to average stock market price is 96.2%
to 149.8%.
Multiples Paid Analysis. PaineWebber performed an analysis of the
implied multiples of the Acquisition for various historical operating
results for the CT Group's nine months ended September 30, 1993, and the
estimated operating results for the fiscal year ended December 31, 1993.
PaineWebber utilized the same range of values derived from the comparable
public company analysis to analyze the resulting multiples. Using the CT
Group's historical operating results for the twelve months ended September
30, 1993 resulted in the following ranges: 0.9x to 1.2x sales; 3.6x to
4.7x EBITDA; 3.8x to 5.0x EBIT; and 6.8x to 8.6x net income. Using the CT
Group's estimated operating results for the fiscal year ended December 31,
1993 resulted in the following ranges: 1.1x to 1.5x sales; 4.3x to 5.7x
EBITDA; 4.6x to 6.0x EBIT; and 8.2x to 10.4x net income.
Discounted Cash Flow Analysis. PaineWebber analyzed the CT Group
based on an unlevered discounted cash flow analysis of the projected
financial performance of the CT Group. Because the management of CT Group
did not provide projections other than an estimate of the financial
results for the fiscal year ended December 31, 1993, PaineWebber performed
several different discounted cash flow analyses utilizing a range of
revenue growth rates and EBIT margins selected by PaineWebber based on
discussions with the management of the Company and the CT Group.
The discounted cash flow analysis determined the present value of the
CT Group's unlevered after-tax cash flows generated over a five year
period and then added to such discounted value the present value of the
estimated residual valuation at the end of the five years for each
scenario to provide a total value. "Unlevered after-tax cash flows" were
calculated as tax-effected EBIT plus depreciation and amortization, plus
(or minus) net changes in non-cash working capital, minus capital
40
expenditures. The analysis utilized two methodologies for determining the
terminal value. The first methodology calculated a terminal value based
upon a range of multiples of EBIT from 6.0x to 7.5x. The second
methodology calculated a terminal value based on a range of perpetual
growth rates from 2.0% to 5.0% of the unlevered after-tax cash flows. The
unlevered after-tax cash flows and the terminal values were discounted
using a range of discount rates from 12.0% to 18.0% which were selected by
PaineWebber based on PaineWebber's investment banking experience. This
range also reflects the risk assumptions applied by PaineWebber to the
financial forecasts. PaineWebber noted that because of the inherent
uncertainties of the projections used in this analysis, the results of
this analysis may not be considered particularly reliable.
The Redemption
PaineWebber noted that, as set forth in the Acquisition Agreement,
the satisfaction of all of the conditions to the Redemption (other than
consummation of the Acquisition), was a condition to consummation of the
Acquisition and its analysis of the Redemption was performed in that
context.
PaineWebber reviewed the terms of the Subordinated Debenture in the
principal amount of $17,500,000 and the Promissory Note in the then
principal amount of $1,374,000 issued by NBC to the Company. PaineWebber
noted that the terms of the Subordinated Debenture included a provision
which rendered the Subordinated Debenture callable at any time.
PaineWebber also noted that the Company carried the Subordinated Debenture
at a discount on its books, but in arriving at the terms of the Redemption,
the Company valued the Subordinated Debenture at its face amount.
Break-up Analysis. PaineWebber analyzed the net book value per share
of the Company assuming the termination of the Company's operating
activities and the liquidation of the Company's assets and liabilities.
This analysis was based upon: (i) the Company's October 31, 1993 balance
sheet; (ii) discussions with the Company's management, including their
estimates of the realizable value of certain assets and liabilities; (iii)
real estate appraisals prepared by an outside appraisal firm and provided
41
by the Company to PaineWebber; and (iv) assumptions made by PaineWebber as
to the liquidation value of certain assets and liabilities. To determine
the net book value per share of the Company in a break-up scenario,
PaineWebber determined the realizable value (net of taxes) of the
Company's assets, deducted the book value of the Company's liabilities and
an estimate of liquidation expenses, and then divided the result by
approximately 8.8 million shares, the number of outstanding shares of the
Company's Common Stock as of December 1, 1993. In performing this
analysis, PaineWebber applied a range of discounts from 0.0% to 15.0% to
the appraised/estimated value of the Company's plant, property and
equipment. This analysis resulted in a range of net book value per share
from $4.61 to $5.34. The negotiated stock price of $5.74 reflected in the
Acquisition Agreement was used by PaineWebber to determine the implied
premium to the range of net book values per share. This analysis
indicated a range of premiums of 7.5% to 24.5% to the negotiated stock
price of $5.74 per share as reflected in the Acquisition Agreement. In
addition, PaineWebber applied a 27.1% premium, the average premium for the
four week period prior to the announcement of selected transactions of
between $30 to $400 million from January 1, 1992 to November 9, 1993, to
the range of net book value per share determined by the break-up analysis.
This analysis resulted in a range of stock prices for the Company from
$5.86 to $6.79 per share.
Post-Acquisition; Pre-Redemption Analysis. PaineWebber analyzed the
equity value per share of the Company assuming consummation of the
Acquisition but prior to the consummation of the Redemption. In this
analysis, the range of equity values ($54.9 million to $69.9 million) for
the CT Group derived from the comparable public company analysis was added
to the range of equity values ($40.4 million to $46.8) for the Company
derived from the break-up analysis resulting in a combined equity value
from $95.3 million to $116.7 million. Dividing this result by the number
of shares outstanding after the Acquisition and prior to the Redemption
(19.02 million shares) resulted in an equity value per share range of
$5.01 to $6.14. PaineWebber used the resulting net book values per share
to analyze the implied premiums to the negotiated stock price of the
Company.
42
On the basis of, and subject to the foregoing, PaineWebber delivered
a written opinion to the Special Transaction Committee that each of the
Acquisition, the Redemption, and the Transaction is fair, from a financial
point of view, to the Company and holders of Common Stock, other than NBC
and its affiliates.
PaineWebber was selected by the Special Transaction Committee as its
financial advisor in connection with the Acquisition because of its
background, reputation and expertise as investment bankers and financial
advisors. PaineWebber regularly provides a range of financial advisory
and investment banking services, including providing financial advisory
services to and valuations of companies involved in merger and acquisition
transactions. PaineWebber has provided investment banking services to the
Special Transaction Committee from time to time. During the past two
years, PaineWebber was paid approximately $275,000 in connection with
investment banking services provided.
For financial advisory services in connection with the Acquisition,
including the rendering of its opinion, the Company has agreed to pay
PaineWebber a fee of $10,000 per month for twelve months and $125,000 upon
delivery of their written opinion. The Company has also agreed to
reimburse PaineWebber for its reasonable fees and expenses of legal
counsel, and to indemnify it against certain expenses and liabilities in
connection with its services, including those arising under federal
securities laws.
Terms of the Acquisition Agreement
Sale and Purchase of Shares. The Acquisition Agreement provides that
the Company shall acquire all of the issued and outstanding capital stock
of CT and CTF for $58.8 million in exchange for 10,250,000 shares of the
Common Stock of the Company.
Representations and Warranties. The Acquisition Agreement contains
various representations and warranties made by each of the Company, CT and
CTF and relating to, among other things, organization and similar
43
corporate matters, financial statements, taxes, title to property and
certain other matters.
Conditions of the Acquisition. The respective obligations of the
Company, CT and CTF to effect the Acquisition are conditioned upon, among
other things, (i) approval of the Acquisition Agreement and the
transactions contemplated thereby by the Board of Directors of the Company
and the holders of Common Stock; (ii) no order shall have been instituted
to restrain or prohibit any of the transactions contemplated by the
Acquisition Agreement; (iii) expiration or termination of the waiting
period under the HSR Act and receipt of all material consents and
approvals required to permit the consummation of the transactions
contemplated by the Acquisition Agreement; (iv) the agreement effecting
the Redemption having been duly executed and delivered and not having been
terminated or amended, and all conditions to the consummation of the
agreement between NBC and the Company contemplated thereby having been
satisfied or waived to the satisfaction of CT and CTF, except the
condition requiring the consummation of the Acquisition; (v) the receipt
of a written fairness opinion from PaineWebber and (vi) the fulfillment or
waiver of certain other conditions, including the receipt of the written
consent of certain lenders to the Company and the CT Group. Under the
terms and conditions of the First Amendment, the parties waived their
rights under the Acquisition Agreement not to consummate the Acquisition
pursuant to Article VII of the Acquisition Agreement as a result of the
filing of the 1993 Complaint.
Certain Covenants. Each of the Company, CT and CTF have agreed,
among other things, that, during the period from the date of the
Acquisition Agreement to the Closing Date, except as permitted by the
Acquisition Agreement or as consented to in writing by the other party,
each will conduct its operations in the ordinary course of business, use
its best efforts to do all things necessary in order to consummate the
Acquisition and refrain from entering into certain transactions in excess
of certain specified amounts.
Directors and Management of The Company Following the Acquisition.
The Acquisition Agreement provides that upon consummation of the
44
Acquisition, the Board of Directors will hold a meeting at which (i) Jorge
Mas will be elected as President and Chief Executive Officer of the
Company and the Board will determine his compensation and (ii) the size of
the Board will be expanded from five to seven members. The directors
intend to appoint Jorge L. Mas Canosa as a Class II Director and Jorge Mas
as a Class I Director. Prior to the conducting of any other business at
such meeting, Nick A. Caporella (a Class I Director) and Leo J. Hussey (a
Class III Director) will resign from the Board of Directors. The
remaining directors will appoint Eliot C. Abbott as a Class II Director
and Arthur B. Laffer as a Class III Director, to fill the resulting
vacancies. Messrs. Canosa and Mas are controlling stockholders of CTF and
CT, respectively.
Registration Rights. The Acquisition Agreement provides that within
six months of the Closing Date, the Company would effect a shelf
registration of 2,000,000 Burnup Shares on behalf of the CT and CTF
stockholders pursuant to Rule 415 of the Securities Act of 1933. The
Company is required to maintain such registration effective until such
shares are sold, during which period the CT and CTF stockholders would be
able to, but not obligated to, sell Burnup Shares in the market.
The Acquisition Agreement also provides that commencing six months
following the Closing Date, if the Company shall conduct an offering of
its securities, the Company will allow the CT and CTF stockholders,
subject to certain conditions, to include a minimum of 50,000 shares in
any such registration at the Company's expense.
Indemnification. The Acquisition Agreement provides that (i) the
Company shall indemnify and hold harmless CT, CTF and their respective
stockholders and (ii) the CT and CTF stockholders shall indemnify and hold
harmless the Company, its subsidiaries and their respective officers and
directors from all damages arising out of a misrepresentation or breach
of a warranty or covenant, agreement or obligation contained in the
Acquisition Agreement. The CT and CTF stockholders shall be deemed to
have made a misrepresentation or breached a warranty only if the damages
suffered by the Company exceed $1,000,000 and the aggregate liability of
the CT and CTF stockholders is limited to the sum of $1,000,000 plus the
45
aggregate fair market value of 350,000 Burnup Shares on the date of
payment. The Company shall be deemed to have made a misrepresentation or
have breached a warranty only if the damages suffered by the CT and CTF
stockholders exceed $2,750,000 and the Company's aggregate liability is
limited to the sum of $2,500,000. The Acquisition Agreement provides that
at Closing, the Company will enter into an Indemnification Agreement with
certain current and former directors and officers of the Company pursuant
to which the Company is obligated to indemnify and hold harmless such
directors and officers to the fullest extent permitted under Delaware law,
subject to certain limitations, for a period of six years after Closing
for all damages and costs which arise by reason of the fact that they were
or are a director or officer of the Company.
Termination; Expenses. The Acquisition Agreement will terminate if
the Closing does not occur prior to March 31, 1994 unless extended by
mutual agreement of the Company and the CT Group. The Acquisition
Agreement also provides that in the event the Closing does not occur due
to the failure of the Company or CT and CTF to fulfill certain conditions
(other than approval of the Acquisition Agreement by the Company's
stockholders) or due to a party's failure to close, the breaching/non-
fulfilling party will pay the sum of $500,000 in damages (the "Expense
Reimbursement"). The Company and the CT and CTF stockholders have agreed
to execute a Third Amendment to the Acquisition Agreement which provides
for, among other things, (i) changing the termination date from February
28, 1994 to March 31, 1994 and (ii) eliminating the Expense Reimbursement
provision.
Government Approvals. The Acquisition is subject to the requirements
of the HSR Act and the rules and regulations thereunder. On January 21,
1994, the Company and the CT Group made the necessary filings under the
HSR Act with the Federal Trade Commission and Justice Department and on
February 2, 1994, the Company was notified that early termination of the
waiting period had been granted.
Certain Effects of the Acquisition
46
General Effect. Upon consummation of the Acquisition, all the issued
and outstanding capital stock of CT and CTF will be acquired by the
Company and each of CT and CTF will be wholly-owned subsidiaries of the
Company.
Change of Control. Upon consummation of the Acquisition and the
Redemption, the former stockholders of CT and CTF will own approximately
65% of the outstanding Common Stock, and to the extent they act in
concert, will be controlling stockholders of the Company. Accordingly,
the former stockholders of CT and CTF will have the ability to control the
affairs of the Company and control the election of the Company's directors
regardless of how the other stockholders may vote. Furthermore, such
persons will have the ability to control other actions requiring
stockholder approval, including certain fundamental corporate transactions
such as a merger or sale of substantially all of the assets of the
Company, regardless of how the other stockholders may vote. This ability
may be enhanced by the adoption of the proposed amendments to the
Certificate, including those which would (i) increase the number of
authorized shares of the Company's Common Stock from twenty-five million
(25,000,000) to fifty million (50,000,000) and (ii) eliminate all
designations, powers, preferences, rights, qualifications, limitations and
restrictions in the Certificate relating to the Company's preferred stock.
See "PROPOSAL TO APPROVE AMENDMENTS TO THE COMPANY'S CERTIFICATE OF
INCORPORATION."
These proposed amendments to the Certificate may be deemed to have
the effect of making more difficult the acquisition of control of the
Company after the consummation of the Acquisition by means of a hostile
tender offer, open market purchases, a proxy contest or otherwise. On the
one hand, these amendments may be seen as encouraging persons seeking to
acquire control of the Company to initiate such an acquisition through
arms-length negotiations with the Company; on the other hand, the amend-
ments may have the effect of discouraging a third party form making a
tender offer or otherwise attempting to obtain control of the Company,
even though such an attempt may be economically beneficial to the Company
and its stockholders. Furthermore, the proposed amendments to the
Certificate and the fact that the CT and CTF stockholders will own
47
approximately 65% of the Common Stock of the Company after the
consummation of the Acquisition may have a negative effect on the market
price and liquidity of the Common Stock of the Company.
Dilution. The issuance, pursuant to the Acquisition Agreement of the
Burnup Shares to the stockholders of CT and CTF, will dilute
proportionately the aggregate voting power of present holders of Common
Stock. The stockholders of CT and CTF will have the ability to elect the
entire Board of Directors and to approve certain transactions at meetings
of the Company's stockholders regardless of how the other stockholders may
vote.
Outstanding Stock Options. Pursuant to the terms of the Acquisition
Agreement, the Company is required to take such action as is necessary so
that its 1976 Stock Option Plan and 1978 Stock Option Plan (the "Current
Plans") provides that each option to purchase Common Stock (an "Option")
and each right to elect an alternate settlement method ("SAR") held by
(i) any employee of the Company who is terminated other than for just
cause by the Company at any time during the twelve (12) month period
subsequent to October 15, 1993 shall become immediately exercisable and
vested, whether or not previously exercisable or vested, on the date of
receipt by such employee of notice of termination of employment by the
Company or receipt by the Company of notice of voluntary termination, as
the case may be, and such employee shall, for a period of three months
thereafter, have the right to exercise such Option or SAR, and (ii) any
employee who is terminated for just cause, or who voluntarily terminates
his employment subsequent to the Closing Date shall not become exercisable
or vested except as currently provided under such plans. The Acquisition
Agreement states that "termination for just cause" includes termination by
reason of a material breach by the employee of his duties (after 10-day
notice thereof and opportunity to cure), gross negligence, fraud or
willful misconduct by the employee in the performance of his duties,
excessive absences by the employee not related to illness,
misappropriation by the employee of any assets of the Company or any of
its subsidiaries, commission by the employee of any crime involving moral
turpitude and conviction of a felony. On November 16, 1993, the
Compensation and Stock Option Committee and the Board of Directors
48
authorized amendments to the Current Plans to comply with the terms of the
Acquisition Agreement.
Federal Income Tax Considerations. The Company, CT and CTF do not
intend to request a ruling from the Internal Revenue Service (the "IRS")
regarding the federal income tax consequences of the Acquisition. CT and
CTF have received an opinion from Price Waterhouse to the effect that the
Acquisition constitutes a "reorganization" within the meaning of Section
368(a) of the Code as defined herein. This opinion (referred to herein as
the "Tax Opinion") will neither bind the IRS nor preclude the IRS from
successfully asserting a contrary position. In addition, the Tax Opinion
is subject to certain assumptions and qualifications and is based on the
truth and accuracy of representations made by CT and CTF and the CT and
CTF stockholders.
A successful IRS challenge to the reorganization status of the
Acquisition would result in each of the CT and CTF stockholders
recognizing gain or loss with respect to each share of common stock of CT
and CTF equal to the difference between such stockholder's basis in such
share and the aggregate amount of consideration received in exchange
therefor. Such stockholder's aggregate basis in the Common Stock so
received would then equal its fair market value and his holding period for
such stock would begin the day after the Acquisition.
Accounting Treatment. The Acquisition will be accounted for as a
"purchase", as such term is used under generally accepted accounting
principles, for accounting and financial reporting purposes. Because of
certain factors, including the fact that the former stockholders of the CT
Group will hold a majority of the Common Stock subsequent to the closing
of the Acquisition and that they or their designees will constitute a
majority of the Board of Directors, it is anticipated that the Acquisition
will be treated as a "reverse acquisition," with the CT Group considered
to be the acquiring entity. As a result, the Company will establish a new
accounting basis for its assets and liabilities based upon the fair values
thereof and the CT Group's purchase price (based on the market value of
Common Stock immediately prior to Closing), including the costs of
acquisition incurred by CT and CTF. A final determination of required
49
purchase accounting adjustments and of the fair value of the assets and
liabilities of the Company has not been made as of the date of this Proxy
Statement. Accordingly, the purchase accounting adjustments made in
connection with the development of the unaudited pro forma financial
information appearing elsewhere in this Proxy Statement are preliminary
and have been made solely for purposes of developing such pro forma
financial information to comply with disclosure requirements of the
Securities and Exchange Commission ("SEC"). The Company will undertake a
study to determine the fair value of its assets and liabilities and will
make appropriate purchase accounting adjustments upon completion of that
study. For financial purposes, the Company will consolidate the results
of operations of CT and CTF with those of the Company's operations
beginning with the consummation of the Acquisition, and the Company's
financial statements for prior periods will reflect the historical results
of CT and CTF. See "THE COMPANY, CT AND CTF UNAUDITED COMBINED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS."
Bonus Service Pool. At or prior to Closing, the Company may pay
compensation in recognition of loyalty and past service in the aggregate
amount of up to $1,000,000, to such executive officers and employees of
the Company and in such amounts, as Nick A. Caporella shall determine in
his sole discretion (after consultation with Jorge Mas). No bonuses will
be awarded to Mr. Caporella.
Interest of Certain Persons in Matters to be Acted Upon
The Acquisition Agreement provides as a condition to the consummation
of the Acquisition by the stockholders of CT and CTF and the Company that
(i) the Company shall have entered into an agreement with NBC pursuant to
which the Company shall have agreed to redeem and purchase 3,153,847
shares of Common Stock owned by NBC, (ii) all of the conditions to the
consummation of the Redemption shall have been satisfied or waived, except
the condition requiring consummation of the Acquisition, and (iii) the
stockholders of CT and CTF shall have received a written certificate from
the Chief Executive Officer and Chief Financial Officer of the Company
that all of the conditions to the consummation of the Redemption shall
have been satisfied or waived, except the condition to the Redemption that
50
the Acquisition shall have occurred, which certificate shall be supported
by a certificate from the Chief Executive Officer of NBC, to the same
effect. Accordingly, the Acquisition will be consummated prior to the
Redemption and approval by stockholders of the Acquisition Agreement shall
result in consummation of the Redemption. A vote in favor of the
Acquisition Agreement may preclude a stockholder of the Company from
challenging the Acquisition, the Redemption and the other transactions
described in this Proxy Statement and from participating in, and receiving
damages, if any, as a result of any action which has been or may be filed
on behalf of any or all of the stockholders with respect to such
transactions. See "CERTAIN TRANSACTIONS AND LITIGATION" for a description
of a class action and derivative complaint relating to, among other
things, the Acquisition, the Redemption and certain other transactions
described in this Proxy Statement.
The Redemption was negotiated and approved by the Special Transaction
Committee on behalf of the stockholders of the Company (other than NBC and
its affiliates). The Redemption will not be consummated unless the
Acquisition shall have occurred. Accordingly, assuming satisfaction of
all other conditions to the consummation of the Acquisition, approval by
stockholders of the Acquisition Agreement shall result in consummation of
the Redemption. NBC, which currently holds approximately 36% of the
Common Stock, will vote in connection with the proposal to approve the
Acquisition Agreement. The consideration for the Redemption will be the
cancellation of $18,092,313 of indebtedness owed by NBC to the Company,
consisting of (x) the outstanding principal of $17,500,000 under the
Subordinated Debenture owed to the Company by NBC and (y) a credit of the
next succeeding principal payments in the amount of $592,313 of Other
Indebtedness with an outstanding principal amount of $1,371,430 owed to
the Company by NBC. Nick A. Caporella, the Chairman of the Board of
Directors, President and Chief Executive Officer of the Company is also
the Chairman of the Board of Directors, President, Chief Executive Officer
and controlling stockholder of NBC. On November 16, 1993, the Board of
Directors of the Company approved the Redemption. The Board of Directors
of NBC has not yet approved the terms of the Redemption. See "PROPOSAL TO
APPROVE ACQUISITION AGREEMENT WITH CHURCH & TOWER, INC. AND CHURCH & TOWER
OF FLORIDA, INC. - Interest of Certain Persons in Matters to be Acted
51
Upon." For a discussion of the negotiations relating to the Acquisition
and the Redemption and a description of the terms of the Acquisition
Agreement, see "PROPOSAL TO APPROVE ACQUISITION AGREEMENT WITH CHURCH &
TOWER, INC. AND CHURCH & TOWER OF FLORIDA, INC. - Background of
Transaction; Terms of the Acquisition Agreement."
Operations Following the Acquisition
Following consummation of the Acquisition, each of CT and CTF will be
a wholly-owned subsidiary of the Company. Other than as described below,
it is the present intention of the Company to operate CT and CTF under
their present names and related trade names in substantially the same
manner following consummation of the Acquisition as currently being
operated.
Following consummation of the Acquisition, it is anticipated that the
Board of Directors will attempt to integrate the businesses of the
Company, CT and CTF as promptly and cost efficiently as is practicable, to
assess the strengths and weaknesses of the combined enterprise and, in
light of the foregoing, to attempt to capitalize on emerging opportunities
both in the United States and abroad. In the process, changes may be
effected in the Company's capitalization, dividend policy, corporate
structure, business or management as the Board of Directors may from time
to time determine to be necessary or desirable. However, except as noted
in this Proxy Statement, the proposed Board of Directors (after the
Acquisition) has no present plans or proposals which would result in an
extraordinary corporate transaction, such as a merger, reorganization,
liquidation, relocation of operations, or sale or transfer of assets
involving the Company, or any material changes in the Company's corporate
structure, or business.
Appraisal Rights
Holders of Common Stock are not entitled to dissenters' rights of
appraisal or other dissenters' rights under Delaware law with respect to
the Acquisition or any transactions contemplated by the Acquisition
Agreement.
52
Restrictions on Resales of Burnup Shares to be Issued in the Acquisition
The Burnup Shares to be issued in the Acquisition shall be restricted
from transfer, subject to the resale limitations of Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act") or pursuant to
an exemption from the registration requirements of the Securities Act.
In general, under Rule 144 as currently in effect, a person who has
beneficially owned restricted shares for at least two years, including an
"affiliate" as that term is defined under the Securities Act, is entitled
to sell, within any three-month period, a number of such shares that does
not exceed the greater of 1% of the then outstanding shares of Common
Stock or the average weekly trading volume of the Common Stock during the
four calendar weeks preceding such sale. Rule 144 also generally permits
a person (other than an affiliate of the Company) who has owned restricted
shares for at least three years to sell such shares without any volume
limitation. For purposes of Rule 144, some or all of the stockholders of
CT and CTF prior to Closing will be deemed to be affiliates of the Company
following the consummation of the Acquisition. See "PROPOSAL TO APPROVE
ACQUISITION AGREEMENT WITH CHURCH & TOWER, INC. AND CHURCH & TOWER OF
FLORIDA, INC. - Terms of the Acquisition Agreement - Registration Rights."
Certain Expenses of the Acquisition
It is estimated that the expenses to be incurred in connection with
the Acquisition and Redemption will be approximately $900,000. Included
in this amount are legal, accounting, printing, solicitation and other
costs in connection with the preparation and dissemination of this Proxy
Statement, and the fees for financial advisory services and fairness
opinions.
Memorandum of Understanding
The Company's Certificate requires the affirmative vote or consent of
the holders of four-fifths of all classes of the Company's stock entitled
to vote in elections of directors of the Company (the "Voting Shares") in
connection with certain transactions with any person, corporation or other
53
entity ("Affiliated Entity") beneficially owning 10% or more of the
outstanding Voting Shares. The Certificate provides, however, that the
foregoing provision is not applicable to such transactions if the Board of
Directors has approved by resolution a memorandum of understanding (a
"Memorandum of Understanding") with such Affiliated Entity with respect to
such transactions prior to the time such Affiliated Entity became an
Affiliated Entity. In order to induce the stockholders of CT and CTF to
enter into the Acquisition Agreement and by eliminating the effects of the
foregoing provisions of the Certificate, the Company entered into a
Memorandum of Understanding with each of Neff Machinery, Inc., Neff
Rental, Inc. and Atlantic Real Estate Holding Corp. ("Neff Machinery,"
"Neff Rental" and "Atlantic," respectively) prior to the execution of the
Acquisition Agreement. Each of Neff Machinery, Neff Rental and Atlantic
is controlled by one or more stockholders of CT and CTF and accordingly,
following consummation of the Acquisition and by virtue of the ownership
of the Burnup Shares by the CT Group, would be deemed affiliates of the
Company. Although the stockholders of CT and CTF have no present
intention of selling these companies to the Company, following
consummation of the Acquisition, the Company will purchase and lease
equipment and parts from, and obtain services from, these companies upon
such terms and conditions as the Board of Directors shall approve, which
terms and conditions will be no less favorable to the Company than those
that would be obtained in transactions of a similar type with unaffiliated
third parties.
THE BOARD OF DIRECTORS OF THE COMPANY, BY THE UNANIMOUS VOTE OF ALL
DIRECTORS (OTHER THAN WITH RESPECT TO THE REDEMPTION, MR. CAPORELLA, WHO
ABSTAINED) HAVE CONCLUDED THAT THE TRANSACTIONS CONTEMPLATED BY THE
ACQUISITION AGREEMENT ARE FAIR AND IN THE BEST INTEREST OF THE COMPANY'S
STOCKHOLDERS AND RECOMMENDS THAT THE STOCKHOLDERS APPROVE AND ADOPT THE
ACQUISITION AGREEMENT. THE COMPANY'S DIRECTORS AND NAMED EXECUTIVE
OFFICERS ARE THE RECORD OWNERS OF 296,877 SHARES OF COMMON STOCK
(APPROXIMATELY 3.3% OF THE OUTSTANDING SHARES) AND HAVE INDICATED THAT
THEY INTEND TO VOTE THEIR SHARES FOR THE APPROVAL OF THE ACQUISITION
AGREEMENT.
54
PROPOSAL TO APPROVE AMENDMENTS TO THE
COMPANY'S CERTIFICATE OF INCORPORATION
As a condition to the consummation of the Acquisition, the Company is
required to have approved each of the amendments to its Certificate
proposed by the CT and CTF stockholders. The Board of Directors has
approved a resolution proposing to amend and restate the Certificate, as
described below, subject to approval of the Acquisition by the Company's
stockholders. The proposed amendments to the Certificate will not be
effected unless a majority of the shares of outstanding Common Stock vote
in favor of each amendment. The Board of Directors believes that it is
advisable and in the best interest of the Company to approve each of the
amendments to the Certificate in order to assure that, assuming the
requisite stockholder vote is obtained and all other conditions to the
Acquisition Agreement are fulfilled, the Acquisition can be consummated.
The adoption of the amendments is contingent upon the consummation of the
Acquisition and, as such, will not be approved unless the Acquisition
Agreement is approved by a vote of a majority of the shares of Common
Stock represented in person or by proxy at the Meeting.
Upon consummation of the Acquisition, the former stockholders of CT
and CTF will own approximately 65% of the issued and outstanding shares of
voting common stock of the Company. Accordingly, the former stockholders
of CT and CTF will have the ability to control the affairs of the Company
and control the election of the Company's directors regardless of how the
other stockholders may vote. Furthermore, such persons will have the
ability to control other actions requiring stockholder approval, including
certain fundamental corporate transactions such as a merger or sale of
substantially all of the assets of the Company, regardless of how the
other stockholders may vote. This ability may be enhanced by the adoption
of the proposed amendments to the Certificate, including those which would
(i) increase the number of authorized shares of the Company's common stock
from twenty-five million (25,000,000) to fifty million (50,000,000), and
(ii) eliminate all designations, powers, preferences, rights,
qualifications, limitations and restrictions in the Certificate relating
to the Company's preferred stock.
55
These proposed amendments to the Certificate may be deemed to have
the effect of making more difficult the acquisition of control of the
Company after the consummation of the acquisition by means of a hostile
tender offer, open market purchases, a proxy contest or otherwise. On the
one hand, these amendments may be seen as encouraging persons seeking to
acquire control of the Company to initiate such an acquisition through
arms-length negotiations with the Company; on the other hand, the
amendments may have the effect of discouraging a third party form making a
tender offer or otherwise attempting to obtain control of the Company,
even though such an attempt may be economically beneficial to the Company
and its stockholders. Furthermore, the proposed amendments to the
Certificate and the fact that the CT and CTF stockholders will own
approximately 65% of the Common Stock of the Company after the
consummation of the Acquisition may have a negative effect on the market
price and liquidity of the Common Stock of the Company.
The principal features of the proposed amendments are described below
but this discussion is qualified in its entirety by reference to the text
of the proposed Amended and Restated Certificate set forth in Appendix D
hereto.
Generally. The proposed amendment to the Certificate would:
1. Change the name of the Company to MasTec Inc.;
2. Increase the total number of shares of Common Stock which the
Company is authorized to issue from 25,000,000 to 50,000,000;
3. Eliminate all designations, powers, preferences, rights,
qualifications, limitations and restrictions prescribed in the Certificate
relating to the 5,000,000 shares of preferred stock authorized by the
Certificate and which may in the future be issued by the Company; and
4. Approve the provisions of Section 102(b)(7) of the DGCL relating
to the liability of directors.
56
In addition to the foregoing amendments, the Board of Directors has
approved resolutions proposing to restate the Certificate in order to (i)
clarify and/or shorten certain provisions of the Certificate, (ii) update
the language of certain provisions of the Certificate to conform with
applicable sections of the DGCL, (iii) incorporate into a single document
various amendments made to the original Certificate since July 26, 1968,
and (iv) renumber the various articles and paragraphs of the Certificate
for ease of reference.
A copy of the proposed Amended and Restated Certificate is set forth
in Appendix D hereto.
Change of Corporate Name. The first of the proposed amendments to
the Certificate would change the name of the Company to MasTec Inc.
The CT and CTF stockholders have required this amendment to the
Certificate because they believe that (i) the proposed name will make it
easier for the financial community and others with whom the Company does
business to associate the Company with its principal business, (ii) the
proposed name, by indicating the Company's principal business, also
indicates the technological and other resources of the Company, thus
making it easier to attribute such resources to the Company's subsidiaries
and affiliates and (iii) the founders of the Company, whose surnames form
the current name of the Company, are no longer involved in its management.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE FOREGOING
AMENDMENT TO THE CERTIFICATE OF INCORPORATION AND RECOMMENDS THAT
STOCKHOLDERS VOTE IN FAVOR OF THE AMENDMENT. THE COMPANY'S DIRECTORS AND
NAMED EXECUTIVE OFFICERS ARE THE RECORD OWNERS OF 296,877 SHARES OF COMMON
STOCK (APPROXIMATELY 3.3% OF THE OUTSTANDING SHARES) AND HAVE INDICATED
THAT THEY INTEND TO VOTE THEIR SHARES FOR THE APPROVAL OF THE FOREGOING
AMENDMENT.
Increase In Authorized Capital Stock. The second of the proposed
amendments to the Certificate would amend existing Article FIRST of the
Certificate to increase the number of shares of Common Stock authorized to
be issued by the Company from 25,000,000 to 50,000,000 shares. Such
57
additional shares of Common Stock will be a part of the existing class of
Common Stock of the Company and, if and when issued, will have the same
rights and privileges as the shares of Common Stock of the Company
presently outstanding.
As of the Record Date, the Company had 8,768,339 shares of Common
Stock outstanding, 1,459,000 shares of Common Stock reserved for issuance
upon conversion of the Company's 12% Convertible Subordinated Debentures
due November 15, 2000, and 547,000 shares of Common Stock reserved for
issuance under the Company's 1976 and 1978 Non-Qualified Stock Option
Plans. See "PROPOSAL TO APPROVE ACQUISITION AGREEMENT WITH CHURCH &
TOWER, INC. AND CHURCH & TOWER OF FLORIDA, INC. - "Certain Effects of the
Acquisition - Outstanding Stock Options."
Set forth below are the number of shares of capital stock authorized,
issued and outstanding, and unissued, as of the Record Date, and assuming
the Certificate is amended as proposed and the Acquisition and the
Redemption are consummated:
[Enlarge/Download Table]
At January 31, 1994 If Acquisition is Consummated
Authorized Authorized
Issued and & Not Issued and & Not
Class Authorized Outstanding Outstanding Authorized Outstanding Outstanding
Common Stock 25,000,000 8,768,339 16,231,661 50,000,000 15,864,492 34,135,508
Preferred Stock 5,000,000 0 0 5,000,000 0 0
58
Once authorized, the additional shares of Common Stock will be
issuable without further authorization of the stockholders and on such
terms and for such consideration as may be determined by the Board of
Directors provided that such consideration is at least equal to the par
value thereof. No stockholder has preemptive rights.
The proposed increase in the number of authorized but unissued shares
of Common Stock of the Company could have the effect of frustrating or
discouraging an attempt to take over control of or merge with the Company
because such shares could be issued to dilute the stock ownership of any
person seeking to obtain control of or merge with the Company.
CT and CTF have required, as a condition of the Acquisition, that the
Company increase the number of authorized and unissued shares of Common
Stock of the Company. Such shares would be available for possible use in
the future in connection with the raising of additional capital, the
acquisition of other companies or assets, the payment of stock dividends,
the subdivision of outstanding shares through stock splits, the adoption
and implementation of additional share incentive plans and other corporate
purposes approved by the Board of Directors. Except as discussed
elsewhere in this Proxy Statement, the CT and CTF stockholders have no
present plan to utilize any of the additional shares of Common Stock for
which authorization is sought.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE FOREGOING AMENDMENT TO
THE CERTIFICATE OF INCORPORATION AND RECOMMENDS THAT STOCKHOLDERS VOTE IN
FAVOR OF THE AMENDMENT. THE COMPANY'S DIRECTORS AND NAMED EXECUTIVE
OFFICERS ARE THE RECORD OWNERS OF 296,877 SHARES OF COMMON STOCK
(APPROXIMATELY 3.3% OF THE OUTSTANDING SHARES) AND HAVE INDICATED THAT
THEY INTEND TO VOTE THEIR SHARES FOR THE APPROVAL OF THE FOREGOING
AMENDMENT.
Designations, Powers, Preferences, Rights, Qualifications,
Limitations and Restrictions Relating to Preferred Stock. The third of
the proposed amendments to the Certificate would delete paragraphs 3
through 14 from Section B of existing Article FOURTH of the Certificate.
Paragraphs 3 through 14 prescribe certain powers, preferences, rights,
59
qualifications, limitations and restrictions for all series of preferred
stock issued by the Company, including, among other things, (i) the
declaration and payment of dividends on preferred stock, (ii) the
distribution of the assets of the Company with respect to the preferred
stock upon any liquidation, dissolution or winding up of the Company,
(iii) the status of shares of preferred stock upon redemption or purchase
thereof by the Company, (iv) restrictions on the declaration and payment
of dividends on, and the redemption or purchase of, any shares of common
stock or other class of stock of the Company ranking junior to the
preferred stock, (v) restrictions concerning the creation of other classes
of preferred stock, (vi) restrictions concerning the ability of the
Company to increase the authorized number of shares of preferred stock and
(vii) the automatic right of holders of preferred stock to elect, as a
separate class, two additional directors to the Board of Directors under
certain circumstances. No shares of preferred stock are currently issued
and outstanding.
By deleting paragraphs 3 through 14 of Section B of existing Article
FOURTH of the Certificate, the Board of Directors would have the authority
to determine, among other things, with respect to each series of preferred
stock which may be issued (i) the distinctive designation and number of
shares constituting such series, (ii) the dividend rates, if any, on the
shares of that series and whether dividends would be payable in cash,
property, rights or securities, (iii) whether dividends would be non-
cumulative, cumulative to the extent earned, partially cumulative or
cumulative and, if cumulative, the date from which dividends on the series
would accumulate, (iv) whether, and upon what terms and conditions, the
shares of that series would be convertible into or exchangeable for other
securities or cash or other property or rights, (v) whether, and upon what
terms and conditions, the shares of that series would be redeemable, (vi)
the rights and the preferences, if any, to which the shares of that series
would be entitled in the event of voluntary or involuntary dissolution or
liquidation of the corporation, (vii) whether a sinking fund would be
provided for the redemption of the series and, if so, the terms of and
amounts payable into such sinking fund, (viii) whether the holders of such
securities would have voting rights and the extent of those voting rights,
(ix) whether the issuance of any additional shares of such series, or any
60
other series, would be subject to restrictions as to issuance or as to the
powers, preferences or rights of any such other series and (x) any other
preferences, privileges and relative rights of such series as the Board of
Directors may deem advisable.
It is not possible to state the precise effect of the deletion of
paragraphs 3 through 14 of Section B of existing Article FOURTH upon the
rights of holders of Common Stock until the Board of Directors determines
the respective preferences, limitations and relative rights of the holders
of one or more series of the preferred stock. Such effect might include,
however, (i) reduction of the amount otherwise available for payment of
dividends on Common Stock, (ii) restrictions on dividends on Common Stock
if dividends on the preferred stock are in arrears, (iii) dilution of the
voting power of the Common Stock to the extent that the preferred stock
has voting rights and (iv) reduction in the interests of the holders of
Common Stock in the Company's assets upon liquidation to the extent of any
liquidation preference granted to the preferred stock.
Deletion of paragraphs 3 through 14 of Section B of existing Article
FOURTH may be viewed as having the effect of discouraging an unsolicited
attempt by another person or entity to acquire control of the Company.
Issuances of authorized preferred shares can be implemented with voting or
conversion privileges which make acquisition of control of the Company
more difficult or more costly. Such an issuance could discourage or limit
the stockholders' participation in certain types of transactions that
might be proposed (such as a tender offer), whether or not such
transactions were favored by a majority of the stockholders, and could
enhance the ability of officers and directors to retain their positions
with the Company.
The CT and CTF stockholders believe that paragraphs 3 through 14 of
Section B of existing Article FOURTH of the Certificate overly restrict
the ability of the Board of Directors to issue shares of preferred stock
with such powers, preferences and rights as may be suitable for achieving
a valid corporate purpose. The CT and CTF stockholders believe that the
complexity of modern business financing and acquisition transactions
requires greater flexibility in the Company's capital structure than now
61
exists. By deleting paragraphs 3 through 14 of Section B of Article
FOURTH, the Board of Directors would have the authority to issue shares of
preferred stock from time to time with such powers, preferences and rights
as the Board of Directors may determine appropriate to achieve a valid
corporate purpose, including, the raising of additional capital and the
acquisition of other companies or assets. The CT and CTF stockholders do
not presently have any plan to issue any shares of preferred stock.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE FOREGOING AMENDMENT TO
THE CERTIFICATE OF INCORPORATION AND RECOMMENDS THAT STOCKHOLDERS VOTE IN
FAVOR OF THE AMENDMENT. THE COMPANY'S DIRECTORS AND NAMED EXECUTIVE
OFFICERS ARE THE RECORD OWNERS OF 296,877 SHARES OF COMMON STOCK
(APPROXIMATELY 3.3% OF THE OUTSTANDING SHARES) AND HAVE INDICATED THAT
THEY INTEND TO VOTE THEIR SHARES FOR THE APPROVAL OF THE FOREGOING
AMENDMENT.
Liability of Directors for Monetary Damages for Certain Breaches of
Fiduciary Duty. Pursuant to Section 102(b)(7) of the DGCL, the Company is
permitted to include in its Certificate a provision limiting the liability
of its directors for monetary damages for breaches of their fiduciary duty
of care.
In accordance with such statute, it is proposed that the Certificate
be amended by adding thereto the following:
No director of the Company shall have personal liability to the
Company or its stockholders for monetary damages for breach of
fiduciary duty as a director except (i) for any breach of such
director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii)
under Section 174 of Delaware Law relating to unlawful
distributions and (iv) for any transaction from which such
director derives an improper personal benefit.
The proposed limitations on a director's liability to the Company and
its stockholders (i) will have no effect on the availability of equitable
62
remedies such as injunction or rescission in the event of a breach of a
director's fiduciary duty of care and (ii) relates only to future conduct
and will not eliminate liability, even monetary, for conduct which pre-
dates the effectiveness of the proposed amendment. The Company is not
aware of any pending or threatened claims which would be affected or
covered by the proposed amendment.
The proposed limitations will reduce the availability of remedies to
the Company and its stockholders for negligent misconduct by directors in
certain circumstances. However, the CT and CTF stockholders believe that
it is in the best interests of the Company to approve such limitations for
two reasons. First, although the CT and CTF stockholders have received no
indications that qualified persons would be unwilling to serve as
independent directors in the absence of such limitations, the CT and CTF
stockholders believe, based on discussions with some of the proposed
nominees, that the presence of such provisions makes it easier to attract
qualified independent directors to serve on the Company's Board of
Directors. Second, the CT and CTF stockholders believe that such
limitations may reduce the Company's cost to maintain directors' and
officers' liability insurance coverage.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE FOREGOING AMENDMENT TO
THE CERTIFICATE OF INCORPORATION AND RECOMMENDS THAT STOCKHOLDERS VOTE IN
FAVOR OF THE AMENDMENT. THE COMPANY'S DIRECTORS AND NAMED EXECUTIVE
OFFICERS ARE THE RECORD OWNERS OF 296,877 SHARES OF COMMON STOCK
(APPROXIMATELY 3.3% OF THE OUTSTANDING SHARES) AND HAVE INDICATED THAT
THEY INTEND TO VOTE THEIR SHARES FOR THE APPROVAL OF THE FOREGOING
AMENDMENT.
Restatement of Certificate. The Company, directly or through one or
more of its subsidiaries, conducts a variety of businesses. The conduct
of some of those businesses is specifically authorized under Paragraphs 1
through 9 of existing Article THIRD of the Certificate while others are
conducted under Paragraph 10 of existing Article THIRD which authorizes
the Company "to conduct any lawful business, to exercise any lawful
purpose and power, and to engage in any lawful act or activity for which
corporations may be organized."
63
The authority granted under Paragraph 10 of existing Article THIRD of
the Certificate is sufficiently broad to authorize the Company to conduct
all businesses in which it is currently engaged or may in the future
engage. Accordingly, the CT and CTF stockholders believe that Paragraphs
1 through 9 of existing Article THIRD are unnecessary and have proposed
that they be deleted from the Certificate and that the text of Article
THIRD of the Certificate be restated to read in its entirety as follows:
The purpose of the Company is to engage in any lawful act or
activity for which corporations may be organized under Delaware
Law.
The CT and CTF stockholders have proposed that the text of paragraph
3 of Section A of existing Article FOURTH of the Certificate be restated
as follows in order to clarify its meaning and conform it with Sections
243 and 244 of DGCL:
The Board of Directors may retire any and all shares of Common
Stock that are issued but are not outstanding, including shares
of Common Stock purchased or otherwise reacquired by the
Company, and may reduce the capital of the Company in connection
with the retirement of such shares in the manner provided for
under Delaware Law.
The CT and CTF stockholders have proposed that the text of paragraph
4 of Section A of existing Article FOURTH of the Certificate be restated
in order to clarify that upon liquidation of the Company each holder of
Common Stock will be entitled, after payment or provision for payment of
the debts and other liabilities of the Company and the amounts to which
the holders of the preferred stock are entitled, to share in the remaining
net assets of the Company on a pro-rata basis based on the number of
shares of Common Stock held by such holder and the total number of shares
of Common Stock then outstanding.
Section 245 of DGCL permits the Company to omit from a restated
certificate of incorporation any provision of the original certificate of
incorporation which named the incorporator. Accordingly, the CT and CTF
64
stockholders have proposed that Article FIFTH of the existing Certificate
be deleted from the proposed Amended and Restated Certificate of the
Company.
In addition to the amendments and restatements described above, the
CT and CTF stockholders have proposed that (i) certain other provisions of
the Certificate be restated for the purpose of clarifying such provisions
or making them consistent with the proposed amendments described above,
without changing the substance of such provisions, (ii) the various amend-
ments made to the original Certificate since July 26, 1968 to the extent
not amended in the foregoing amendments be incorporated into a single
document, and (iii) the various articles and paragraphs of the Certificate
be renumbered for ease of reference.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE FOREGOING AMENDMENTS
TO THE CERTIFICATE OF INCORPORATION AND RECOMMENDS THAT STOCKHOLDERS VOTE
IN FAVOR OF THE AMENDMENTS. THE COMPANY'S DIRECTORS AND NAMED EXECUTIVE
OFFICERS ARE THE RECORD OWNERS OF 296,877 SHARES OF COMMON STOCK
(APPROXIMATELY 3.3% OF THE OUTSTANDING SHARES) AND HAVE INDICATED THAT
THEY INTEND TO VOTE THEIR SHARES FOR THE APPROVAL OF THE FOREGOING
AMENDMENTS.
65
PROPOSAL TO APPROVE 1994 STOCK OPTION
PLAN FOR NON-EMPLOYEE DIRECTORS
The CT and CTF Stockholders have proposed, subject to approval by the
holders of Common Stock, the Burnup & Sims Inc. 1994 Stock Option Plan for
Non-Employee Directors (the "Directors' Plan"). The Directors' Plan is
designed to maintain the Company's ability to attract and retain the
services of experienced and highly qualified non-employee or outside
directors and to increase the proprietary interest of such directors in
the Company's continued success. The Directors' Plan will have been
approved if a majority of the shares present, or represented, and entitled
to vote at the Meeting are voted in favor of it. The adoption of the
Directors' Plan is contingent upon consummation of the Acquisition and, as
such, will not be approved unless the Acquisition Agreement is approved by
a vote of a majority of the shares of Common Stock represented in person
or by proxy at the Meeting.
The principal features of the Directors' Plan are summarized below,
but this summary is qualified in its entirety by reference to the terms of
the Directors' Plan, which is attached hereto as Appendix E.
Summary of Directors' Plan
If authorized at the Meeting, grants of stock options will
automatically be made to each individual who is elected to the Board of
Directors at a meeting of stockholders held at any time after the day on
which the Directors' Plan is approved by the stockholders, provided the
individual (i) is not and has not been an employee of the Company or any
of its subsidiaries and (ii) is not otherwise eligible to participate in
any plan of the Company or any of its subsidiaries which would entitle
such director to acquire securities or derivative securities of the
Company. Grants of stock options will also be automatically made to each
director who is at any time after the Directors' Plan is approved by the
stockholders appointed by the Board of Directors to fill a vacancy on the
Board, subject to the same eligibility requirements stated above.
66
An aggregate of 400,000 shares of Common Stock (subject to adjustment
as described below and provided in the Directors' Plan) will be subject to
the Plan. Shares subject to options which terminate or expire unexercised
will become available for future option grants. Subject to the maximum
number of shares which are subject to the Plan, options will be granted to
each then eligible director on the day after the day on which the
Directors' Plan is approved by the stockholders and on the day after each
annual meeting of stockholders held thereafter, until that held in the
year 2004.
Subject to certain restrictions and limitations set forth below, each
option will permit the non-employee director, for a period of up to ten
years from the date of grant (unless the period is shortened as indicated
below), to purchase from the Company 15,000 shares of the Company's Common
Stock (subject to adjustment as provided in the Directors' Plan) at the
fair market value of such shares on the date the option is granted as
reported on NASDAQ.
Except as noted below, an option shall not be exercisable prior to
the expiration of one year from the date of grant. One third of the total
number of shares covered by the option shall become exercisable on the
first anniversary date of the grant and an additional one-third of the
total number of shares covered by the option shall become exercisable on
each of the two succeeding anniversary dates of the grant date. Except as
noted below, an option may be exercised, only if the optionee at the time
of exercise is, and at all times since the grant of the option, has been a
director of the Company. Each option is nonassignable and non-
transferable other than by will or the laws of descent and distribution.
In the event a non-employee director terminates service on the Board
of Directors by reason of retirement, each unexpired option held by the
optionee will, to the extent otherwise exercisable on such date, remain
exercisable until the earlier of ten years from the date of grant or three
years following such retirement. The term "retirement" means termination
after at least six years of service as a director.
67
In the event a non-employee director terminates service on the Board
of Directors by reason of death or disability, any then unexpired option
that has been outstanding for at least one year (six months in the case of
death) will become exercisable in its entirety and those and all other
exercisable options will continue to be exercisable until the earlier of
ten years from the date of grant or three years after such termination.
In the event a non-employee director terminates service on the Board of
Directors other than by reason of retirement, death or disability, all
unexercised options shall terminate upon such termination of service.
In the event of a "change in control" of the Company at any time on
or after March 15, 1994, then all of the optionee's outstanding options
become immediately exercisable. However, the provisions regarding
termination of service as a director continue to apply and in no event may
an option be exercised prior to the expiration of six months from the date
of grant or after ten years from the date of grant. Change in control is
generally defined to include (i) a merger or consolidation in which the
Company is not the surviving corporation or pursuant to which any shares
of the Company are to be converted into cash, securities or other
property, or any sale, lease, exchange or other transfer of all, or
substantially all, of the assets of the Company, (ii) the approval by the
stockholders of any plan for the liquidation or dissolution of the
Company, (iii) the acquisition by a "person" or "group," as defined in the
Directors' Plan, of 33% or more of the Company's Common Stock or (iv) if
individuals constituting the "Incumbent Board," as defined in the
Directors' Plan, cease to constitute a majority of the whole Board of
Directors of the Company.
Payment of the option price upon exercise may be made in cash, by the
delivery of Common Stock already owned by the non-employee director, a
combination of cash and shares, or in accordance with a cashless exercise
program under which shares of Common Stock may be issued directly to the
optionee's broker or dealer upon receipt of the purchase price in cash
from the broker or dealer. No optionee shall have any rights to dividends
or other rights of a stockholder with respect to his or her shares subject
to the option until the optionee has given written notice of exercise and
has paid in full for such shares. The optionee shall be required to pay
68
to the Company, such amount as the Company may demand to satisfy any tax
withholding obligation. Tax withholding obligations may be met by a
withholding of stock otherwise deliverable to the optionee under
procedures approved by the Board of Directors.
The Directors' Plan will be administered by the Board of Directors
who will be authorized to interpret the Directors' Plan. However, the
Board will have no authority in respect of the selection of directors to
receive options, the number of shares subject to the Directors' Plan, the
number of options to be granted, the number of shares in each grant, the
option price for shares subject to options, the period during which
options may be granted or exercised, or the class of persons eligible to
receive options. The Board also may not materially increase the benefits
under the Directors' Plan or, without further approval of the
stockholders, amend the Plan in any of the foregoing respects provided,
however, that the Directors' Plan provisions affecting the amount of
Common Stock to be awarded to eligible directors, the timing of those
awards or the determination of those eligible to receive such awards may
not be amended more than once every six months, other than to comport with
changes in the Code, the Employee Retirement Income Security Act of 1974,
as amended, or the rules thereunder. No stockholder approval will be
required, however, if the Board of Directors obtains a legal opinion
stating that such approval is not required under the Securities Exchange
Act of 1934, as amended, in order for the options granted under the Plan
to continue to be exempt from the operation of Section 16(b) of such Act.
Adjustments shall be made in the number and class of shares available
under the Directors' Plan and the number, class and price of shares
subject to outstanding option grants, in each such case to reflect changes
in the Company's Common Stock through changes in the Company's corporate
structure or capitalization, such as through a merger or stock split.
Federal Income Tax Consequences
The following is a brief description of the federal income tax
consequences, under existing law, of the Directors' Plan:
69
The options under the Directors' Plan are nonstatutory options not
intended to qualify as incentive stock options under Section 422 of the
Code. The grant of options will not result in taxable income to the non-
employee director or a tax deduction to the Company. The exercise of an
option by a non-employee director will result in taxable ordinary income
to the non-employee director and, if applicable withholding requirements
are satisfied, a corresponding deduction for the Company, in each case
equal to the difference between the fair market value of the acquired
shares on the date the option was exercised and the fair market value of
such shares on the date the option was granted (the option price).
An optionee's tax basis for shares acquired upon exercise of an
option will be equal to the fair market value of such shares on the date
the option is exercised. The holding period for such shares will commence
on such date and, accordingly, will not include the period during which
the option was held. The payment of the option exercise price by delivery
of Common Stock of the Company will constitute a non-taxable exchange by
the optionee. Use of Common Stock in payment of the option price will
result in the same tax consequences to the Company as if the exercise were
effected by a cash payment.
In the event of a sale of shares received upon exercise of an option,
any gain or loss will generally be a capital gain or loss. The capital
gain or loss will be a long-term capital gain or loss if the shares were
held for more than one year after the date on which the option was
exercised.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE HOLDERS OF COMMON STOCK
VOTE FOR APPROVAL OF THE COMPANY'S 1994 STOCK OPTION PLAN FOR NON-EMPLOYEE
DIRECTORS. THE COMPANY'S DIRECTORS AND NAMED EXECUTIVE OFFICERS ARE THE
RECORD OWNERS OF 296,877 SHARES OF COMMON STOCK (APPROXIMATELY 3.3% OF THE
OUTSTANDING SHARES) AND HAVE INDICATED THAT THEY INTEND TO VOTE THEIR
SHARES FOR THE APPROVAL OF THE 1994 STOCK OPTION PLAN FOR NON-EMPLOYEE
DIRECTORS.
70
PROPOSAL TO APPROVE
1994 STOCK INCENTIVE PLAN
The CT and CTF stockholders have proposed, subject to approval by the
holders of Common Stock, the Burnup & Sims Inc. 1994 Stock Incentive Plan
(the "Incentive Plan") for key employees, including officers, of the
Company and its subsidiaries to replace the Current Plans. The Incentive
Plan is more flexible than the Current Plans, containing provisions which
the Company believes are similar to those presently approved by other
large corporations. The Incentive Plan is designed to provide for the
grant of options that qualify as "incentive stock options" under the
Internal Revenue Code of 1986, as amended (the "Code"), or options other
than "incentive stock options," as well as provide for the award of
restricted stock and bonuses payable in stock. In addition to the
replacement of the Current Plans, the purpose of approving the Incentive
Plan, consistent with the purposes of the Current Plans is to continue to
have available a stock compensation plan that will encourage and enable
participating employees of the Company to acquire a proprietary interest
in the Company through stock ownership and will assist the Company in
attracting and retaining key employees. The Incentive Plan will have been
approved if a majority of the shares present or represented, and entitled
to vote at the Meeting are voted in favor of it. The adoption of the
Incentive Plan is contingent upon consummation of the Acquisition and, as
such, will not be approved unless the Acquisition Agreement is approved by
a vote of a majority of the shares of Common Stock represented in person
or by proxy at the Meeting.
The principal features of the Incentive Plan are summarized below,
but this summary is qualified in its entirety by reference to the terms of
the Incentive Plan, which is attached hereto as Appendix F.
Summary of Incentive Plan
Subject to adjustment as noted below, the total number of shares that
may be optioned or awarded under the Incentive Plan is 800,000 shares of
the Company's Common Stock of which 200,000 shares may be awarded as
restricted stock. If the Incentive Plan is approved by stockholders, no
71
further awards will be made under the Current Plans. However,
approximately 252,000 shares will continue to be reserved with respect to
the shares outstanding under Current Plans. No employee may receive, over
the term of the Incentive Plan, awards in the form of options, whether
incentive stock options or options other than incentive stock options, to
purchase more than 200,000 shares of the Company's Common Stock. Any
shares subject to an option under the Incentive Plan which for any reason
expires, is relinquished or is terminated unexercised and any restricted
stock which is forfeited may again be optioned or awarded under the
Incentive Plan, provided, however, that forfeited shares shall not be
available for further awards if the employee has realized any benefits of
ownership from such shares.
Key salaried employees, including officers, of the Company and its
subsidiaries, shall be eligible to participate in the Incentive Plan. The
Compensation Committee of the Board of Directors (the "Compensation
Committee") will administer the Incentive Plan and determine the
recipients of options and awards, their terms and conditions within the
parameters of the Incentive Plan and the number of shares covered by each
option or award. The Compensation Committee may approve rules and
regulations to carry out the Incentive Plan and its decision with regard
to any question arising under the Incentive Plan shall be final and
conclusive on all employees of the Company or its subsidiaries
participating or eligible to participate in the Incentive Plan. The
Compensation Committee shall consist of not less than three outside non-
employee directors of the Company. Such directors are not eligible to
participate in the Incentive Plan. No award or option may be granted
under the Incentive Plan after January, 2004, but awards or options
theretofore granted may extend beyond that date.
The Board of Directors of the Company may amend, alter or discontinue
the Incentive Plan, but no amendment, alteration or discontinuation may be
made which would (i) impair the rights of any recipient of restricted
stock or option or stock bonus already granted, without his or her written
consent, or (ii) without the approval of the stockholders (A) increase the
total number of shares reserved for the Incentive Plan, (B) decrease the
option price of an incentive stock option to less than 100% of the fair
72
market value of the stock on the date the option was granted, (C) change
the class of persons eligible to receive an award of restricted stock or
options under the Incentive Plan, or (D) extend the duration of the
Incentive Plan. The Compensation Committee may, retroactively or
prospectively, amend the terms of any award of restricted stock or option
already granted, provided no such amendment will impair the rights of any
holder without his or her written consent.
The option price per share shall be determined by the Compensation
Committee, but shall not be less than 100% of the fair market value of a
share of Common Stock at the time the option is granted as reported on
NASDAQ. Options granted under the Incentive Plan will expire on a date
fixed by the Compensation Committee, but not more than ten years from the
date of grant in the case of incentive stock options or such later date as
may be permitted under the Code. Each option will state whether it is
immediately exercisable in full or when and to what extent it shall be
exercisable. All options become exercisable over a five year period in
equal increments of 20% per year beginning twelve months after the date of
grant.
Payment of the option price upon exercise of an option may be made in
cash, by the delivery of Common Stock already owned by the optionee, a
combination of cash and shares, or in accordance with a cashless exercise
program under which shares of Common Stock may be issued directly to the
optionee's broker or dealer upon receipt of the purchase price in cash
from the broker or dealer. No optionee shall have any rights to dividends
or other rights of a stockholder with respect to his or her shares subject
to the option until the optionee has given written notice of exercise and
has paid in full for such shares. Tax withholding obligations may be met
by a withholding of stock otherwise deliverable to the optionee under
procedures approved by the Compensation Committee.
Each option granted under the Incentive Plan may provide for stock
appreciation rights, that is, the right to exercise such option in whole
or in part without payment of the option price. If an option is exercised
without payment, the optionee shall be entitled to receive the excess of
the fair market value of the stock covered by the option on the date of
73
exercise over the option exercise price. Such amount is payable in stock
or in cash or in a combination of stock and cash at the discretion of the
Compensation Committee.
If an optionee's employment terminates by reason of his or her
retirement under a retirement plan of the Company or a subsidiary or
death, the optionee's option may thereafter be exercised by the optionee
or by his or her estate or beneficiary within the period specified in the
option (not to exceed 3 years from the date of termination) but not beyond
the termination date of the option. Unless otherwise determined by the
Compensation Committee, if an optionee's employment terminates for any
reason other than death or retirement, the optionee's option shall
thereupon terminate. During the optionee's lifetime, the option is
exercisable only by the optionee and shall not be transferable except by
will or the laws of descent and distribution.
No incentive stock option will be granted to an employee who owns or
would own immediately before the grant of such option, directly or
indirectly, stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company. This restriction will not
apply if, at the time such incentive stock option is granted, the option
price is at least 110% of the fair market value of one share of Common
Stock on the date of grant and the incentive stock option by its terms is
not exercisable after the expiration of five years from the date of grant.
Awards of restricted stock may be in addition to or in lieu of option
grants. During the restriction period (as set by the Compensation
Committee) the recipient of restricted stock is not permitted to sell,
transfer, pledge, or assign the shares. Shares of restricted stock shall
become free of all restrictions if the recipient dies or his or her
employment is terminated by reason of permanent disability during the
restriction period, and to the extent set by the Compensation Committee,
if the recipient retires under a retirement plan of the Company or any
subsidiary. In the event of a termination of employment during the
restriction period for any reason other than death, disability or, to the
extent determined by the Compensation Committee, retirement under a
retirement plan of the Company or a subsidiary, shares of restricted stock
74
will be forfeited and revert to the Company, except to the extent that the
Compensation Committee determines that such forfeiture is not in the best
interests of the Company and waives the forfeiture provision with respect
to all or some of the restricted stock held by the employee.
The recipient of restricted stock shall be entitled to vote the
shares and receive all dividends paid thereon, except that dividends paid
in Company Common Stock or other property shall also be subject to the
same restrictions. Tax withholding obligations shall be paid in cash by
the recipient or may be met by the withholding of Common Stock otherwise
deliverable to the recipient pursuant to procedures approved by the
Compensation Committee.
In lieu of cash bonuses otherwise payable to eligible employees under
the Company's compensation practices, the Compensation Committee may
determine that such bonuses shall be payable in Common Stock or partly in
Common Stock and partly in cash. Any such shares of Common Stock shall be
free of any restrictions imposed by the Plan. The Company shall withhold
from any such cash bonuses an amount of cash sufficient to meet its tax
withholding obligations. If the cash portion of the bonus is not
sufficient, the tax withholding obligations shall be paid in cash by the
recipient or may be met by the withholding of Common Stock otherwise
deliverable to the recipient pursuant to procedures approved by the
Committee.
In the event of a "change in control" of the Company, in addition to
any action required or authorized by the option or award, the Compensation
Committee may in its discretion recommend that the Board of Directors take
certain actions as a result of, or in anticipation of, the change in
control, to assure fair and equitable treatment of the employees who hold
options or restricted stock, including an offer to purchase any
outstanding option or restricted stock granted or issued pursuant to the
Incentive Plan for its cash value as determined by the Compensation
Committee. However, in no event may an option be made exercisable prior
to the expiration of six months from the date of grant or, in the case of
an incentive stock option, after ten years from the date it was granted.
75
Change in control is generally defined to include (i) a merger or
consolidation in which the Company is not the surviving corporation or
pursuant to which any shares of the Company are to be converted into cash,
securities or other property, or any sale, lease, exchange or other
transfer of all, or substantially all, of the assets of the Company,
(ii) the approval by the stockholders of any plan for the liquidation or
dissolution of the Company, (iii) the acquisition by a "person" or
"group," as defined in the Incentive Plan, of 33% or more of the Company's
Common Stock or (iv) if individuals constituting the "Incumbent Board," as
defined in the Incentive Plan, cease to constitute a majority of the whole
Board of Directors of the Company.
Adjustments shall be made in the number and class of shares available
under the Incentive Plan and the number, class and price of shares subject
to outstanding option grants, in each such case to reflect changes in the
Company's Common Stock through changes in the Company's corporate
structure or capitalization such as through a merger or stock split.
Federal Income Tax Consequences
The following is a brief description of the federal income tax
consequences, under existing law, of the Incentive Plan:
Incentive Stock Options
(a) Neither the grant nor the exercise (while the employee is
employed or within three months after termination of employment,
or twelve months in the case of termination on account of
disability) of an incentive stock option will be treated as the
receipt of taxable income by the employee or a deductible item
by the Company. The amount by which the fair market value of
the shares issued upon exercise exceeds the option price will
constitute an item of "tax preference" to the employee for
purposes of the alternative minimum tax. For alternative
minimum tax purposes only the tax basis of the Common Stock
76
acquired upon the exercise of such option, is increased by the
amount of such excess.
(b) If the employee holds shares acquired by him or her upon the
exercise of an option for the two-year period from the date of
grant of the option and the one-year period beginning on the day
after such exercise, and if he or she has been an employee of
the Company or its subsidiaries at all times from the date of
grant to the day three months before exercise, or twelve months
in the case of termination on account of disability, then any
gain realized by the employee on a later sale or exchange of
such shares will be a long-term capital gain and any loss
sustained will be a long-term capital loss. The Company will
realize no tax deduction with respect to any such sale or
exchange of option shares.
(c) If the employee disposes of any shares acquired upon the
exercise of an option during the two-year period from the date
of grant of the option or the one-year period beginning on the
day after such exercise, the employee will generally be
obligated to report as ordinary income for the year in which the
disposition occurred the amount by which the fair market value
of such shares on the date of the exercise of the option (or, as
noted in clause (d) below, in the case of certain sales or
exchanges of such shares for less than such fair market value,
the amount realized upon such sale or exchange) exceeds the
option price, and the Company will be entitled to a deduction
equal to the amount of such ordinary income. Any such ordinary
income will increase the employee's tax basis for the purpose of
determining gain or loss.
(d) If an option holder who has acquired stock upon the exercise of
an incentive stock option makes a disposition within the two-
year period described above, and the disposition is a sale or
exchange with respect to which a loss (if sustained) would be
recognized to the option holder, then the amount includible in
the option holder's gross income, and the amount deductible by
77
the Company, will not exceed the excess (if any) of the amount
realized on the sale or exchange over the tax basis of the
stock.
Non-Qualified Stock Options
In the case of an option granted under the Incentive Plan
that is not an incentive stock option, the grant of the option
will not result in taxable income to the option holder or a tax
deduction to the Company. The option holder recognizes ordinary
income at the time the option is exercised in the amount by
which the fair market value of the shares acquired exceeds the
option price. The Company is entitled to a corresponding
ordinary income tax deduction at that time, if applicable
withholding requirements are satisfied. The option holder's tax
basis for purposes of determining gain or loss on a subsequent
sale of the shares is the fair market value of the shares at the
date of exercise of the option. The holding period for such
shares will commence on such date and, accordingly, will not
include the period during which the option was held. In the
event of a sale of shares received upon exercise of the option,
any gain or loss will generally be a capital gain or loss. The
capital gain or loss will be a long-term capital gain or loss if
the shares were held for more than one year after the date on
which the option was exercised.
Use of Stock to Exercise Options
The payment of the option exercise price by delivery of
Common Stock of the Company will constitute a non-taxable
exchange by the optionee and will not affect the incentive stock
option status of the Common Stock acquired in the case of an
incentive stock option. However, if the Common Stock delivered
in payment was previously acquired pursuant to the exercise of
an incentive stock option and has not been held for the
requisite one-year period, the exchange would constitute a
premature disposition of such Common Stock for purposes of the
78
incentive stock option holding requirements. Use of Common
Stock in payment of the option price will result in the same tax
consequences to the Company as if the exercise were effected by
a cash payment.
Stock Appreciation Rights
The amount received by an optionee who exercises a stock
appreciation right with respect to his or her option is taxable
as ordinary income at the time of exercise and the Company is
entitled to a corresponding ordinary income tax deduction.
Bonus Stock
The grantee will realize ordinary income during his or her
taxable year in which the shares of Common Stock are issued
pursuant to the award of bonus stock in an amount equal to the
fair market value of the shares of Common Stock at the date of
issue. The Company is entitled to a corresponding ordinary
income tax deduction. If the grantee thereafter disposes of
such shares of Common Stock, any amount received in excess of
the market value of the shares on the date of issue will be
treated as long- or short-term capital gain depending upon the
holding period of the shares.
Restricted Stock
A grantee will not realize any taxable income upon the
award of Restricted Stock unless a grantee elects under Section
83(b) of the Code to have the fair market value of the Common
Stock (determined without regard to the possibility of
forfeiture) included in his or her gross income in the year the
Restricted Stock is issued. In the absence of such an election,
the grantee will realize ordinary income during his or her
taxable year in which the possibility of forfeiture lapses. If
the grantee thereafter disposes of the Common Stock, any amount
received in excess of the fair market value of the shares on the
79
date the possibility of forfeiture lapsed will be treated as
long- or short-term gain depending upon the holding period
(measured from the date the possibility of forfeiture lapsed) of
the shares. The Company will be entitled to an ordinary tax
deduction in the same amount and at the same time the grantee is
considered to have realized ordinary income.
Change in Control
Under certain circumstances, accelerated vesting or
exercise of options or stock appreciation rights, or the
accelerated lapse of restrictions on restricted stock, in
connection with a "change in control" of the Company might be
deemed an "excess parachute payment" for purposes of the golden
parachute tax provisions of Section 280G of the Code. To the
extent it is so considered, the optionee or grantee may be
subject to a 20% excise tax and the Company may be denied a tax
deduction.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE HOLDERS OF COMMON STOCK
VOTE FOR APPROVAL OF THE COMPANY'S 1994 STOCK INCENTIVE PLAN. THE
COMPANY'S DIRECTORS AND NAMED EXECUTIVE OFFICERS ARE THE RECORD OWNERS OF
296,877 SHARES OF COMMON STOCK (APPROXIMATELY 3.3% OF THE OUTSTANDING
SHARES) AND HAVE INDICATED THAT THEY INTEND TO VOTE THEIR SHARES FOR THE
APPROVAL OF THE 1994 STOCK INCENTIVE PLAN .
80
ELECTION OF DIRECTOR
The Board of Directors is currently comprised of five directors
elected in three classes (the "Classes"), with two Class I, one Class II
and two Class III directors. Directors in each Class hold office for
three-year terms. The terms of the Classes are staggered so that the term
of one Class terminates each year. The term of the current Class II
Director expires at the Meeting and when his respective successor has been
duly elected and qualified.
Samuel C. Hathorn, Jr., the current Class II Director, has been
nominated by the Board of Directors to be reelected as the Class II
Director at the Meeting. The Company has no reason to believe that Mr.
Hathorn will refuse or be unable to accept election; however, in the event
he is unable to accept election or if any other unforeseen contingencies
should arise, each proxy that does not direct otherwise will be voted for
such other person as may be designated by the Board of Directors.
MANAGEMENT
Information as to Nominees and Other Directorships
The following information concerning principal occupation or
employment during the past five years, other directorships and age, has
been furnished to the Company by the nominee for director in Class II, by
the directors in Classes III and I whose terms expire at the Company's
Annual Meetings of Stockholders in 1994 and 1995, respectively, and when
their respective successors have been duly elected and qualified, all
executive officers of the Company, and the individuals who will become
additional executive officers and directors of the Company if the
Acquisition is consummated.
81
Nominee for Director
Class II (Term, if elected, expires at the Annual Meeting of
Stockholders in 1996)
Principal Occupation
or Employment Director
Name Age During the Past Five Years Since
Samuel C. Hathorn, 50 President of Trendmaker Homes, 1981
Jr. and since December 1, 1990,
President of Centennial Homes,
Inc., subsidiaries of
Weyerhaeuser Co., Houston and
Dallas, Texas, homebuilders
and real estate developers
82
Directors Whose Terms of Office will Continue After the Annual Meeting
Class III (Terms expire at the Annual Meeting of Stockholders in
1994)
Principal Occupation
or Employment Director
Name Age During the Past Five Years Since
Cecil D. Conlee 57 Chairman, CGR Advisors, 1973
Atlanta, Georgia, real estate
investment advisors
Leo J. Hussey 54 Executive Vice President of 1976
the Company and President of
Southeastern Printing Company,
Inc., and The Deviney Company,
wholly-owned subsidiaries of
the Company
83
Class I (Terms expire at the Annual Meeting of Stockholders in 1995)
Principal Occupation
or Employment Director
Name Age During the Past Five Years Since
Nick A. Caporella 57 Chairman of the Board of 1974
Directors, Chief Executive
Officer and President of the
Company and Chairman of the
Board of Directors, Chief
Executive Officer and
President of NBC
William A. Morse 66 Attorney-at-Law, Danville, 1977
California President, Behring-
Hofmann Educational Institute,
Danville, California
Mr. Caporella is a director of NBC. Mr. Conlee is a director of
Cousins Properties, Inc. and Oxford Industries, Inc. Mr. Morse is a
director of Behring-Hofmann Educational Institute, Inc.
84
Executive Officers
Principal Occupation
or Employment
Name Age During the Past Five Years
George R. Bracken 48 Vice President & Treasurer of the
Company, since March 1992; Vice
President Financial Planning of the
Company since May 1985
Michael Brenner 45 General Counsel of the Company since
June 1988
Gerald W. Hartman 53 Senior Vice President of the Company
since September 1988
Margaret M. Madden 41 Vice President of the Company since
September 1987; Corporate Secretary
since August 1984
Linda L. Rine 46 Vice President - Insruance of the
Company since September 1987
85
Proposed Directors and Executive Officers
The following individuals will be appointed as officers and directors
of the Company, in the capacities indicated below, assuming consummation
of the Acquisition. See "ELECTION OF DIRECTOR" and "PROPOSAL TO APPROVE
ACQUISITION AGREEMENT WITH CHURCH & TOWER, INC. AND CHURCH & TOWER OF
FLORIDA, INC. - Terms of the Acquisition Agreement -- Directors and
Management of the Company Following the Acquisition."
[Enlarge/Download Table]
Percentage Percentage
Ownership Ownership of
Principal Occupation of Common Common
or Employment Proposed Stock Before Stock After
Name Age During the Past Five Years Class Acquisition Acquisition
Jorge L. Mas 54 Proposed Director; during the II -0- 33.6%
Canosa past five years has served as
President and Chief Executive
Officer of CTF
Jorge Mas 30 Proposed Director, President I -0- 24.8%
and Chief Executive Officer;
during the past five years
has served for part or all of
such period as President and
Chief Executive Officer of CT
(and its predecessor company
Communication Contractors,
Inc.), Neff Rental, Inc.,
Neff Machinery, Inc.,
Atlantic Real Estate Holding
Corp. and U.S. Development
Corp., each a company
controlled by the CT and CTF
stockholders
86
Percentage Percentage
Ownership Ownership of
Principal Occupation of Common Common
or Employment Proposed Stock Before Stock After
Name Age During the Past Five Years Class Acquisition Acquisition
Eliot C. Abbott 44 Proposed Director; during the II -0- -0-
past five years has been a
stockholder in the law firm
of Carlos & Abbott, P.A.,
Miami, Florida
Arthur B. 53 Proposed Director; President, III -0- -0-
Laffer Canto Advisors Incorporated,
an investment advisor, since
May 1993; Chief Executive
Officer, Calport Asset
Management, a money
management firm, since June
1992; Chairman, A.B. Laffer,
V.A. Canto & Associates, an
economic research and
financial consulting firm
(formerly known as A.B.
Laffer Associates), since
1979; Chief Executive
Officer, Laffer Advisors
Incorporated, an investment
advisor and broker-dealer,
since 1975
Mr. Laffer is a director of U.S. Filter Corporation, Nicholas
Applegate Growth Equity Fund and Nicholas Applegate Mutual Fund. Mr. Mas
Canosa is a director of The Wackenhut Corporation and Landair Transport,
Inc.
87
Jorge L. Mas Canosa is the father of Jorge Mas.
Directors Following Consummation of the Acquisition
In the event Mr. Hathorn is elected and the Acquisition is
consummated, the Company's Board of Directors will be comprised of the
following individuals:
Name Class Term Expires
Cecil D. Conlee III 1994
Arthur B. Laffer III 1994
Jorge Mas I 1995
William A. Morse I 1995
Eliot C. Abbott II 1996
Jorge L. Mas Canosa II 1996
Samuel C. Hathorn, Jr. II 1996
Meetings and Committees of the Board of Directors
During Fiscal 1993 (i) the Board of Directors held four meetings and
all of the members of the Board of Directors attended each of such
meetings and (ii) each member of the Board of Directors also attended all
meetings of those committees of which he was a member. The Board of
Directors has standing Audit, Compensation and Stock Option, Finance,
Stock Purchase Plan, Nominating, Special Transaction and Executive
Strategic Planning Committees.
The members of the Company's Audit Committee are Messrs. Conlee,
Hathorn and Morse. During Fiscal 1993, the Audit Committee met four times.
The principal functions of the Audit Committee are to review with
management and the Company's independent accountants the scope of proposed
audits, the Company's annual financial statements, the results of audits
and the Company's system of internal accounting controls and to be
available to meet with the independent accountants to resolve matters, if
any, that may arise in connection with audits or otherwise.
88
The members of the Company's Compensation and Stock Option Committee
are Messrs. Hathorn and Morse. During Fiscal 1993, the Compensation and
Stock Option Committee met twice. The principal functions of the
Compensation and Stock Option Committee are to recommend to and review
with the Board of Directors the compensation arrangements for the
executive officers of the Company, and to review with management grants
under the Company's non-qualified stock option plans, and overall
compensation arrangements and employee benefits for the Company's
employees.
The members of the Company's Finance Committee are Messrs. Morse,
Conlee, Hathorn and Hussey. The principal function of the Finance
Committee, which met twice during Fiscal 1993, is to review the Company's
long and short-term financial strategies with management and the Board of
Directors.
The members of the Company's Stock Purchase Plan Committee are
Messrs. Morse, Hussey and Hathorn. During Fiscal 1993, the Stock Purchase
Plan Committee, whose principal function is to monitor the administration
of the Company's Employee Stock Purchase Plan, met once.
The members of the Company's Nominating Committee are Messrs.
Hathorn, Caporella and Hussey. The Nominating Committee, which met once
during Fiscal 1993, recommends to the Board of Directors candidates for
election to the Board of Directors. The Committee considers candidates
recommended by the stockholders pursuant to written applications submitted
to the Corporate Secretary.
The members of the Company's Special Transaction Committee are
Messrs. Conlee, Morse and Hathorn. The primary function of the Special
Transaction Committee, which met twice during Fiscal 1993, is to review
related party transactions between the Company and any officer, director
or affiliate of the Company. The Committee was responsible for reviewing
and approving the terms of the Acquisition and negotiating and approving
the Redemption on behalf of stockholders of the Company (other than NBC
and its affiliates).
89
The members of the Executive Strategic Planning Committee are Messrs.
Conlee, Morse, Hathorn, and Caporella. During Fiscal 1993, the Executive
Strategic Planning Committee met twice. The principal function of the
Executive Strategic Planning Committee is to review future strategic
courses available to the Company.
If the Acquisition is consummated, the composition of some or all of
the foregoing committees may change.
Director Compensation
The directors, except directors who are employees of the Company or
of any subsidiary, are paid attendance fees at the rate of $600 for each
meeting of the Board of Directors and $400 for each committee meeting
attended ($1,000 for Executive Strategic Planning Committee meetings),
regardless of the number of committees on which they serve. In addition,
directors who are not employees of the Company or any of its subsidiaries
are paid retainer fees at the rate of $15,000 per annum and Chairmen of
committees are paid an additional $200 for each meeting of their
respective committees attended by them.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information for the last three
fiscal years concerning the compensation earned by or awarded to the Chief
Executive Officer of the Company and each of the other three most highly
compensated executive officers of the Company whose combined salary and
bonus exceeded $100,000 in such fiscal year. The table does not set forth
certain of the tabular formats set forth in the SEC's recently expanded
rules on executive compensation disclosure in proxy statements dealing
with other annual compensation and long-term compensation awards and pay-
outs, since none of these executive officers received any such
compensation during such three-year period.
90
Annual Compensation
Name and _______________________________
Principal Position Year Salary ($) Bonus ($)
Nick A. Caporella, Chairman of the 1993 0 0
Board, President and Chief 1992 0 0
Executive Officer 1991 600,000 375,000
Gerald W. Hartman, Senior Vice
President of the Company and
President of Burnup & Sims ComTec, 1993 211,870 60,000
Inc. and Burnup & Sims of California, 1992 200,922 40,000
Inc., wholly-owned subsidiaries 1991 200,288 70,000
of the Company
Leo J. Hussey, Executive Vice President,
and Director of the Company, and 1993 193,694 30,000
President of Southeastern Printing 1992 155,000 25,000
Company, Inc. and The Deviney 1991 155,000 25,000
Company, wholly-owned subsidiaries
of the Company
George R. Bracken, Vice President & 1993 105,945 28,000
Treasurer 1992 101,345 25,000
1991 101,474 20,000
91
Options Granted in Last Fiscal Year
No stock options were granted during Fiscal 1993.
Aggregate Fiscal Year-End Stock Option Value Table
The following table summarizes the options held at April 30, 1993 by
individuals named in the Summary Compensation Table; no stock options were
exercised by such persons during Fiscal 1993.
[Download Table]
Number of Unexercised Value of Unexercised
Options at In-the-Money Options
April 30, 1993(#) at April 30, 1993 ($)
Name Exercisable Unexercisable Exercisable Unexercisable
Nick A. Caporella 200,000 0 0 0
Leo J. Hussey 2,000 0 0 0
Gerald W. Hartman 2,800 0 0 0
George R. Bracken 500 0 0 0
Long-Term Incentive and Pension Plans
The Company does not have any long-term incentive or pension plans.
Notwithstanding anything to the contrary set forth in any of the
Company's previous filings under the Securities Act of 1933, as amended,
or the Securities Exchange Act of 1934, as amended, that might incorporate
future filings, including this Proxy Statement, in whole or in part, the
following Compensation and Stock Option Committee Report and Performance
Graph on page 55 shall not be incorporated by reference into any such
filings.
92
Report of the Compensation and Stock Option Committee
The Compensation and Stock Option Committee of the Board of Directors
is responsible for approving the compensation levels of the executive
officers of the Company, including the Chief Executive Officer. The
Compensation Committee also reviews with the Chief Executive Officer
guidelines for salary adjustments and aggregate bonus awards applicable to
management and employees other than executive officers. The Compensation
Committee, which is composed of two non-employee directors of the Company,
reviews its recommendations with the members of the Board. The following
report is submitted by the Compensation Committee regarding compensation
paid during fiscal year 1993:
The compensation program of the Company is designed to enable the
Company to attract, motivate, reasonably reward, and retain professional
personnel who will effectively manage the assets of the Company and
maximize corporate performance and stockholder value over time.
Compensation packages include a mix of salary, incentive bonus awards, and
stock options.
Salaries of executive officers are established based on an
individual's performance and general market conditions. Salary levels are
determined based upon the challenge and responsibility of an individual's
position with the Company and are dependent on subjective considerations.
In addition to paying a base salary, the Company provides incentive bonus
awards as a component of overall compensation. Bonus awards are measured
based upon overall performance of the executive officer's area of
responsibility or operating performance of the operation under control of
the executive, if any. Due to the fact that the Company's financial
results for the last three years reflect volume declines and net losses,
salaries of executive officers during fiscal 1994 (with certain exceptions
for outstanding merit) are frozen at previous levels. In addition, in
light of these factors, the Company's President and Chief Executive
Officer and Chairman of the Board, Nick A. Caporella, declined to accept
any salary or bonus compensation for either fiscal year 1992 and 1993.
93
Long-term incentive compensation for executives consists of stock-
based awards made under the Company's two non-qualified stock option plans
(the "Option Plans"). The Option Plans provide for the granting of
options to purchase Common Stock to key employees at prices equal to the
fair market value on the date of grant. The Compensation Committee
believes that the maximization of stockholder wealth through appreciation
in the value of Common Stock is created through the use of stock options.
At April 30, 1993, there were 205,300 stock options granted under the
Option Plans held by executive officers.
Compensation and Stock Option Committee
Samuel C. Hathorn, Jr.
William A. Morse
94
Executive Compensation Subsequent to the Acquisition
The proposed Board of Directors has no plans to materially change the
Company's overall compensation structure after the Acquisition. The Board
of Directors, however, will meet after the Acquisition to determine the
compensation of Jorge Mas who will serve as the President and Chief
Executive Officer of the Company. It is anticipated that Mr. Mas will be
paid annual base compensation of $300,000 and bonus compensation as
determined by the Compensation and Stock Option Committee of the Board of
Directors. If the 1994 Stock Incentive Plan is approved, both Mr. Mas and
other key salaried employees of the Company will be eligible to receive
options and awards as determined from time to time by the Compensation and
Stock Option Committee of the Board of Directors, which shall consist of
not less than three non-employee directors. If the Stock Option Plan for
Non-Employee Directors is approved, directors who have never been
employees of the Company or any of its subsidiaries, and who are not
otherwise eligible to participate in any plan of the Company or any of
its subsidiaries which would entitle such directors to receive securities
of the Company, would automatically receive stock options upon their
election as directors.
95
PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return
on Common Stock from April 30, 1988 through April 30, 1993 with the
cumulative total return of the S & P 500 Stock Index and a Company
constructed index of two peer companies consisting of Dycom Industries,
Inc. and the L.E. Myers Company. The graph assumes that the value of the
investment in Common Stock was $100 on April 30, 1988 and that all
dividends were reinvested.
96
Comparison of Five Year Cumulative Total Return Among
Burnup & Sims Inc., S & P 500 Stock Index, and Peer Group Companies
210
DOLLARS 190
170
150
130 (PAPER COPY OF GRAPH PREVIOUSLY FILED IN THE
DEFINITIVE PROXY MATERIALS FILED ON FEBRUARY 14,
110 1994 PURSUANT TO A RULE 201 TEMPORARY HARDSHIP
EXEMPTION, AND IS HEREBY INCORPORATED BY REFERENCE.)
90
70
50
30
10
1988 1989 1990 1991 1992 1993
* Burnup & Sims + S & P 500 = (A) Peer Group
CERTAIN TRANSACTIONS AND LITIGATION
The Company has billed NBC approximately $662,000 for certain
services rendered and expenses for the year ended April 30, 1993. NBC
97
owns approximately 36% of the outstanding Common Stock. Nick A.
Caporella, the President, Chief Executive Officer and Chairman of the
Board of the Company is also the Chairman of the Board, Chief Executive
Officer, President and the controlling stockholder of NBC.
As described elsewhere in this Proxy Statement, it is a condition to
the consummation of the Acquisition by the stockholders of CT and CTF and
the Company that (i) the Company shall have entered into a written
agreement with NBC, pursuant to which the Company will redeem and purchase
3,153,847 shares of Common Stock owned by NBC (which constitutes all of
the Common Stock owned by NBC), (ii) all of the conditions to the
consummation of the Redemption shall have been satisfied or waived, and
(iii) the stockholders of CT and CTF shall have received a written
certificate from the Chief Executive Officer and Chief Financial Officer
of the Company that all of the conditions to the consummation of the
Redemption shall have been satisfied or waived, except the condition to
the Redemption that the Acquisition shall have occurred, which certificate
shall be supported by a certificate from the Chief Executive Officer of
NBC, to the same effect. Accordingly, the Acquisition will be consummated
prior to the Redemption. The Redemption was negotiated and approved by
the Special Transaction Committee on behalf of the stockholders of the
Company (other than NBC and its affiliates). The Redemption will not be
consummated unless the Acquisition shall have occurred. Accordingly,
assuming satisfaction of all other conditions to the consummation of the
Acquisition, approval by stockholders of the Company of the Acquisition
Agreement shall result in consummation of the Redemption. A vote in
favor of the Acquisition Agreement may preclude a stockholder of the
Company from challenging the Acquisition, the Redemption and the other
transactions described in this Proxy Statement and from participating in,
and receiving damages, if any, as a result of any action which has been or
may be filed on behalf of any or all of the stockholders with respect to
such transactions. See below for a description of a class action and
derivative complaint relating to, among other things, the Acquisition
Agreement and certain other transactions described in this Proxy
Statement. The consideration for the redemption of the 3,153,847 shares
will be the cancellation of $18,092,313 of indebtedness owed by NBC to the
Company, consisting of (x) the outstanding principal of $17,500,000 under
98
the Subordinated Debenture owed to the Company by NBC and (y) a credit of
the next succeeding principal payments in the amount of $592,313 of Other
Indebtedness with an outstanding principal amount of $1,371,430 owed to
the Company by NBC. On November 16, 1993, the Board of Directors of the
Company approved the Redemption. The Board of Directors of NBC has not yet
approved the terms of the Redemption. See "PROPOSAL TO APPROVE ACQUISITION
AGREEMENT WITH CHURCH & TOWER, INC. AND CHURCH & TOWER OF FLORIDA, INC. -
Interest of Certain Persons in Matters to be Acted Upon."
Albert H. Kahn v. Nick A. Caporella, et al., Civil Action No. 11890
was filed in December 1990 by a stockholder of the Company in the Court of
Chancery of the State of Delaware in and for New Castle County against the
Company, the members of the Board of Directors, and against NBC, as a pur-
ported class action and derivative lawsuit. In May 1993, plaintiff filed
a motion to amend its class action and stockholder derivative complaint
(the "Amended Complaint"). The class action claims allege, among other
things, that the Board of Directors, and NBC as its largest stockholder,
breached their respective fiduciary duties in approving (i) the
distribution to the Company's stockholders of all of the common stock of
NBC owned by it (the "Distribution") and (ii) the exchange by NBC of
3,846,153 shares of Common Stock for certain indebtedness of NBC held by
the Company (the "Exchange") (the Distribution and the Exchange are
hereinafter referred to as the "1991 Transaction"), in allegedly placing
the interests of NBC ahead of the interests of the other stockholders of
the Company. The derivative action claims allege, among other things,
that the Board of Directors has breached its fiduciary duties by approving
executive officer compensation arrangements, by financing NBC's operations
on a current basis, and by permitting the interests of the Company to be
subordinated to those of NBC. In the lawsuit, plaintiff seeks to rescind
the 1991 Transaction and to recover damages in an unspecified amount.
The Amended Complaint alleges that the Special Transaction Committee
that approved the 1991 Transaction was not independent and that, there-
fore, the 1991 Transaction was not protected by the business judgment rule
or in accordance with a settlement agreement (the "1990 Settlement")
entered into in 1990 pertaining to certain prior litigation. The Amended
Complaint also makes other allegations which involve (i) further
99
violations of the 1990 Settlement by the Company's engaging in certain
transactions not approved by the Special Transaction Committee; (ii) the
sale of a subsidiary of the Company to a former officer of the Company;
(iii) the timing of the 1991 Transaction and (iv) the treatment of
executive stock options in the 1991 Transaction.
In November 1993, plaintiff filed a class action and derivative
complaint, Civil Action No. 13248 (the "1993 Complaint") against the
Company, the members of the Board of Directors, CT, CTF, Jorge Mas Canosa,
Jorge Mas and Juan Carlos Mas (CT, CTF, Jorge Mas Canosa, Jorge Mas and
Juan Carlos Mas are referred to as the "CT Defendants"). In December
1993, plaintiff amended the 1993 Complaint ("1993 Amended Complaint").
The 1993 Amended Complaint alleges, among other things, that (i) the Board
of Directors and NBC, as the Company's largest stockholder, breached their
respective fiduciary duties by approving the Acquisition Agreement and the
Redemption which, according to the allegations of the 1993 Complaint,
benefits Mr. Caporella at the expense of the Company's stockholders, (ii)
the CT Defendants had knowledge of the fiduciary duties owed by NBC and
the Board of Directors and knowingly and substantially participated in
their breach thereof; (iii) the Special Transaction Committee of the Board
of Directors which approved the Acquisition Agreement and the Redemption
was not independent and, as such, was not in accordance with the 1990
Settlement; (iv) the Board of Directors breached its fiduciary duties by
failing to take an active and direct role in the sale of the Company and
failing to ensure the maximization of stockholder value in the sale of
control of the Company; and (v) the Board of Directors and NBC, as the
Company's largest stockholder, breached their respective fiduciary duties
by failing to disclose completely all material information regarding the
Acquisition Agreement and the Redemption. The 1993 Complaint also claims
derivatively that each member of the Board of Directors engaged in
mismanagement, waste and breach of their fiduciary duties in managing the
Company's affairs. The 1993 Amended Complaint seeks, among other things,
to enjoin the Acquisition and Redemption or in the alternative, rescission
and damages in an unspecified amount.
100
The Company believes that the allegations in the complaint, the
Amended Complaint, the 1993 Complaint and the 1993 Amended Complaint are
without merit, and intends to vigorously defend these actions.
CERTAIN CT AND CTF TRANSACTIONS
CT currently leases equipment storage facilities from Jorge L. Mas
Canosa and his spouse, Irma Mas. The term of the lease expires on October
31, 1998, and the annual rent under the lease is $48,000.
The Company's Certificate requires the affirmative vote or consent of
the holders of four-fifths of all classes of the Company's stock entitled
to vote in elections of directors of the Company (the "Voting Shares") in
connection with certain transactions with any person, corporation or other
entity ("Affiliated Entity") beneficially owning 10% or more of the
outstanding Voting Shares. The Certificate provides, however, that the
foregoing provision is not applicable to such transactions if the Board of
Directors has approved by resolution a memorandum of understanding (a
"Memorandum of Understanding") with such Affiliated Entity with respect to
such transactions prior to the time such Affiliated Entity became an
Affiliated Entity. In order to induce the stockholders of CT and CTF to
enter into the Acquisition Agreement and by eliminating the effects of
the foregoing provisions of the Certificate, the Company entered into a
Memorandum of Understanding with each of Neff Machinery, Neff Rental and
Atlantic prior to execution of the Acquisition Agreement. Each of Neff
Machinery, Neff Rental and Atlantic is a Florida corporation controlled by
the stockholders of CT and CTF and accordingly, following consummation of
the Acquisition and by virtue of the ownership of the Burnup Shares by the
CT Group, would be deemed affiliates of the Company. CT and CTF currently
rent and purchase construction equipment from Neff Machinery and Neff
Rental. The Company anticipates that, following the Acquisition, the
Company and its subsidiaries, including CT and CTF, will from time to time
purchase and lease equipment and parts, and obtain services from, these
companies upon such terms and conditions as the Board of Directors shall
approve, which terms and conditions will be no less favorable to the
stockholders of the Company than those that would be obtained in
101
transactions of a similar type with unaffiliated third parties. The
stockholders of CT and CTF have no present intentions of selling Neff
Machinery, Neff Rental or Atlantic to the Company following consummation
of the Acquisition. See "PROPOSAL TO APPROVE ACQUISITION AGREEMENT WITH
CHURCH & TOWER, INC. AND CHURCH & TOWER OF FLORIDA, INC. - Memorandum of
Understanding."
Carlos & Abbott, P.A. a law firm of which Eliot C. Abbott is a
stockholder, has provided legal services to CT and CTF and their
stockholders since 1983, and such representation will continue following
the Acquisition. For the fiscal year ended March 31, 1993, such legal
fees were approximately $52,000. It is anticipated that Carlos & Abbott,
P.A. will also provide legal services to the Company if the Acquisition is
consummated.
102
SELECTED FINANCIAL DATA
The following information sets forth selected consolidated historical
data of the Company, the selected combined historical data of CT and CTF
and the pro forma consolidated selected financial data giving effect to
the Acquisition and the Redemption. This information should be read in
conjunction with the unaudited pro forma condensed consolidated financial
statements and the separate historical consolidated financial statements
of the Company incorporated by reference herein and combined financial
statements of CT and CTF and the notes thereto appearing elsewhere herein.
The financial information relating to the CT Group contained in this Proxy
Statement was provided to the Company by the CT Group in connection with
the Acquisition for the preparation of this Proxy Statement and the
Company has relied upon such financial information in the preparation of
this Proxy Statement.
103
The Company
Selected Historical Financial Data
[Enlarge/Download Table]
(Dollars in Thousands Except Per Share Amounts)
Six Months
Ended Oct. 31, Fiscal Years Ended April 30
1993 1992 1993 1992 1991 1990 1989
Statement of Operations
Data:
Revenues $ 72,004 $ 73,834 $140,987 $153,521 $175,236 $192,712 $178,380
Costs and Expenses 74,023 73,439 151,917 157,114 174,155 192,007 174,695
Interest Expense 2,043 2,402 4,583 4,847 6,161 8,362 6,616
Interest and Other Income(1)(5,256) (2,781) (2,255) (6,833) (2,388) (10,411) (15,503)
Income (Loss) Before Income
Taxes and Equity in Net 1,194 774 (13,258) (1,607) (2,692) 2,754 12,572
Income of NBC
Provisions (Credit) for 284 286 (3,950) (560) (1,082) 2,120 4,858
Income Taxes
Income (Loss) Before
Equity in Net Income of NBC 910 488 (9,308) (1,047) (1,610) 634 7,714
Equity in Net Income of NBC 0 0 0 0 828 151 1,525
104
Net Income (Loss) $910 $488 $(9,308) $(1,047) $ (782) $ 785 $ 9,239
Average Shares 8,815 8,768 8,768 8,768 9,460 9,662 10,304
Outstanding (000)
Earnings (Loss) Per Share $ 0.10 $ 0.06 $(1.06) $ (.12) $ (.08) $ .08 $ .90
Balance Sheet Data
(at end of period):
Capital Expenditures $1,133 $ 4,338 $ 4,493 $ 4,395 $ 7,449 $ 9,533
Working Capital 14,220 16,199 21,798 21,103 50,907 48,934
Property - Net 17,904 18,036 19,211 23,933 28,544 30,202
Total Assets 103,393 108,917 118,460 122,673 158,922 150,697
Non-Current Debt 32,085 36,756 40,030 37,087 43,784 50,079
Deferred Income Taxes- 4,390 3,612 3,218 4,272 4,424 4,766
Non-Current
Stockholders' Equity 34,574 33,664 41,788 42,835 60,135 58,955
Number of Employees 2,225 2,255 2,250 2,565 3,151 3,174
Book Value Per Share $3.94 $3.84 $4.77 $4.89 $4.77 $4.69
See the Notes to Consolidated Financial Statements for information
relating to accounting policies and other disclosures.
105
(1) Includes gains on real estate transactions of $2.4 million for
the six months ended October 31, 1993 and $5.6 million for the fiscal year
ended April 30, 1989. Also includes gains (losses) related to
subsidiaries sold of $1.1 million and ($7.4) million for the fiscal years
ended April 30, 1992 and 1991 respectively.
106
CT Group
Selected Historical Financial Data
[Enlarge/Download Table]
(Dollars In Thousands, Except Earnings Per Common Share)
Nine Months Ended
September 30 Years Ended December 31
1993 1992 1992 1991 1990 1989 1988
Statement of Income Data:
Contract Revenue $37,034 $17,325 $34,136 $31,588 $18,640 $15,670 $14,807
Costs and Expenses 28,358 12,856 25,474 26,124 14,196 12,896 12,180
Income from Operations 8,676 4,469 8,662 5,464 4,444 2,774 2,627
Other Income (Expense) - (1,240) (154) (340) 462 350 319 766
Net
Income before Minority 7,436 4,315 8,322 5,926 4,794 3,093 3,393
Interest
Minority Interest (4) (43) (42) (625) (37) 0 0
Net Income $7,432 $4,272 $8,280 $5,301 $4,757 $3,093 $3,393
Common Shares Outstanding 1,100 1,100 1,100 1,100 1,100 1,100 1,100
Earnings per Common $6,756 $3,884 $7,527 $4,819 $4,325 $2,812 $3,085
Share (1)
107
Balance Sheet Data
(at end of period):
Working Capital $15,354 $13,752 $ 7,154 $5,209 $4,254 $3,762
Property - Net 4,867 3,656 2,406 2,100 2,039 1,752
Total Assets 27,499 24,432 11,733 8,849 7,613 6,849
Non-Current Debt 1,076 1,840 371 333 323 276
Stockholders' Equity 19,203 15,690 9,436 7,296 6,127 5,292
Book Value Per Share $17,457 $14,264 $ 8,578 $6,633 $5,570 $4,811
See the Notes to the Combined Financial Statements of the Church &
Tower Group.
(1) Reflects the exchange of shares pursuant to a business combination
effected June 1, 1992.
108
The Company and CT Group
Pro Forma Consolidated Selected Financial Data
The following pro forma consolidated statement of operations
information reflects the effects of the Acquisition and the Redemption as
if they had occurred on January 1, 1992. The amounts are provided for
comparative purposes only and do not purport to be indicative of results
which may be obtained in the future. The following pro forma consolidated
balance sheet information which is presented reflects amounts as if the
Acquisition and the Redemption occurred on September 30, 1993. See
"Unaudited Pro Forma Condensed Consolidated Financial Statements" and the
notes thereto for a description of assumptions and adjustments.
(Dollars in thousands except per share data)
Nine Months Twelve Months
Ended 9/30/93 Ended 12/31/92
Revenues $143,415 $178,126
Earnings (Loss) from Continuing
Operations (3,427) 525
Earnings (Loss) per Share
from Continuing Operations ($.22) $.03
9/30/93
Working Capital $ 22,483
Total Assets 137,984
Non-Current Debt 35,160
Stockholders' Equity 43,231
Book Value per Share $ 2.73
109
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data for the
Company and the CT Group and combined unaudited pro forma per share data
giving effect to the Transaction. This data should be read in conjunction
with the Selected Financial Data, Unaudited Pro forma Condensed
Consolidated Financial Statements, and the historical Financial Statements
of the Company and the CT Group and the notes thereto included elsewhere
herein. The amounts are provided for comparative purposes only and do not
purport to be indicative of results which may be obtained in the future.
110
CT Group The Company
Year Nine Months Year Nine Months
Ended Ended Ended Ended
12/31/92 9/30/93 1/31/93 10/31/93
Earnings (Loss) per Share
from Continuing Operations
Historical (1) $4,592 $4,122 ($.34) ($0.77)
Pro Forma 0.03 (0.22)
Equivalent Pro Forma(2) 308 (2,013)
As of As of
9/30/93 10/31/93
Book Value per Share
Historical $17,457 $3.94
Pro Forma 2.73
Equivalent Pro Forma (2) 25,392
(1) Includes pro forma provision for income taxes for the CT Group
as if it were taxed as a C corporation.
(2) Equivalent pro forma per share amounts are calculated by
multiplying the pro forma amounts by the exchange ratio of 9,318
shares of Company Common Stock to be issued for each share of CT
Group common stock.
111
THE COMPANY AND THE CT GROUP
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
The following pro forma condensed consolidated statements of
operations of the Company and the CT Group for the year ended December 31,
1992 and the nine months ended September 30, 1993 are presented as if the
Acquisition and the Redemption had occurred on January 1, 1992. The pro
forma condensed consolidated balance sheet is presented as if the
Acquisition and Redemption had occurred on September 30, 1993.
It is anticipated that the Acquisition will be treated as a "reverse
acquisition" for financial reporting purposes, with the CT Group
considered to be the acquiring entity. As a result, the pro forma
adjustments include adjustments to reflect the estimated fair values of
certain assets of the Company and the capital structure of the CT Group
has been adjusted to reflect the outstanding capital structure of the
surviving legal entity. A final determination of required purchase
accounting adjustments and of the fair value of the assets and liabilities
of the Company has not been made as of the date of this Proxy Statement.
In addition, certain purchase accounting adjustments have been made
assuming a fair value of $5.74 per share for the Company's Common Stock.
Actual adjustments will be made based on the market price of the Common
Stock immediately prior to Closing. Accordingly, the purchase accounting
adjustments made in connection with the development of the pro forma
financial information are preliminary and have been made solely for
purposes of developing such pro forma financial information to comply with
disclosure requirements of the SEC. The Company will undertake a study to
determine the fair value of its assets and liabilities and will make
appropriate purchase accounting adjustments upon completion of that study.
The pro forma condensed consolidated financial statements are derived
from the historical financial statements of the Company and the CT Group
which are included elsewhere in this Proxy Statement. The pro forma
condensed consolidated balance sheet combines the Company's October 31,
112
1993 balance sheet with the CT Group's September 30, 1993 balance sheet.
The pro forma condensed consolidated statements of operations combine the
Company's historical statements of operations for the twelve months ended
January 31, 1993 and the nine months ended October 31, 1993 with the CT
Group's historical statements of operations for the fiscal year ended
December 31, 1992 and the nine months ended September 30, 1993,
respectively.
The financial information relating to the CT Group contained in this
Proxy Statement was provided to the Company by the CT Group in connection
with the Acquisition for the preparation of this Proxy Statement and the
Company has relied upon such financial information in the preparation of
this Proxy Statement.
The pro forma data is presented for informational purposes only and
may not be indicative of the future results of operations or financial
position of the Company or the CT Group, or what the results of operations
or financial position of the Company would have been if the Acquisition
and Redemption had occurred on the dates set forth.
These pro forma condensed consolidated financial statements should be
read in conjunction with the historical financial statements and notes
thereto of the Company and the CT Group included elsewhere herein. See
"Index to Financial Statements."
113
[Enlarge/Download Table]
Burnup & Sims/CT Group
Pro Forma Financial Statements
Unaudited Condensed Consolidated Balance Sheet
(In thousands)
CT Burnup Pro Forma Combined
Group & Sims Adjust's Pro Forma
ASSETS
Current Assets
Cash $14,163 $ 6,853 ($4,580) (1) $ 16,436
Receivables 7,811 19,300 0 27,111
Other Current Assets 582 11,179 0 11,761
Total Current Assets 22,556 37,332 (4,580) 55,308
Investment in NBC 31,134 (18,918) (2) 12,216
Property - Net 4,867 17,904 21,499 (3) 44,270
Real Estate Investments 12,514 12,402 (3) 24,916
Goodwill 3,209 (3,209) (3) 0
Other Assets 76 1,300 (102) (3) 1,274
$27,499 $103,393 $ 7,092 $137,984
LIABILITIES AND EQUITY
Current Liabilities
Current Portion of Debt $597 $4,006 $1,000 (1) $ 5,603
Accounts Payable and Accrued 5,286 12,749 1,900 (4) 19,935
Expenses
Other Current Liabilities 1,320 6,357 (390) (5) 7,287
114
Total Current Liabilities 7,203 23,112 2,510 32,825
Other Liabilities 18 13,622 13,128 (6) 26,768
Long-Term Debt 1,075 32,085 2,000 (1) 35,160
Stockholders' Equity
Common Stock 6 1,602 (1,047) (7) 1,586
1,025 (8)
Capital Surplus 42 72,860 (73,429) (9) 41,645
30,933 (8)
11,239 (10)
Retained Earnings 19,169 34,252 (34,252) (11) 0
(7,930) (12)
(11,239) (10)
Treasury Stock (14) (74,140) 74,154 (13) 0
Total Stockholders' Equity 19,203 34,574 (10,546) 43,231
$27,499 $103,393 $ 7,092 $137,984
See Notes to Pro Forma Financial Statements.
115
Burnup & Sims/CT Group
Pro Forma Financial Statements
Unaudited Condensed Consolidated Statement of Operations
Twelve Months
(In thousands except per share data)
CT Burnup Pro Forma Combined
Group & Sims Adjust's Pro Forma
Revenues $34,136 $143,990 $ 0 $178,126
Costs and Expenses
Cost of Sales 22,163 126,233 0 148,396
General and 2,937 17,075 0 20,012
Administrative
Depreciation and 371 6,600 (207) (14) 6,764
Amortization
Interest Expense 35 4,718 240 (15) 4,993
Other - Net 350 (5,906) 2,681 (16) (2,875)
Total Costs and 25,856 148,720 2,714 177,290
Expenses
Income (Loss) Before 8,280 (4,730) (2,714) 836
Income Taxes
Provision (Credit) for 3,229 (17) (1,738) (1,180) (18) 311
Income Taxes
Earnings (Loss)
from Continuing $ 5,051 ($2,992) ($1,534) $ 525
Operations
Earnings (Loss) per
Share from $4,592 ($0.34) $ 0.03
Continuing Operations
Average Shares 1 8,768 7,095 (19) 15,864
Outstanding (000's)
See Notes to Pro Forma Financial Statements.
116
Burnup & Sims/CT Group
Pro Forma Financial Statements
Unaudited Condensed Consolidated Statement of Operations
Nine Months
(In thousands except per share data)
[Download Table]
CT Burnup Pro Forma Combined
Group & Sims Adjust's Pro Forma
Revenues $37,034 $106,381 $ 0 $143,415
Costs and Expenses
Cost of Sales 23,730 97,991 0 121,721
General and Administrative 4,075 14,695 0 18,770
Depreciation and 553 4,013 (53) (14) 4,513
Amortization
Interest Expense 115 3,108 180 (15) 3,403
Other - Net 1,129 (4,045) 2,011 (16) (905)
Total Costs and Expenses 29,602 115,762 2,138 147,502
Income (Loss) Before Income 7,432 (9,381) (2,138) (4,087)
Taxes
Provision (Credit) for 2,898 (17) (2,673) (885) (18) (660)
Income Taxes
Earnings (Loss)
from Continuing Operations $4,534 ($6,708) $ (1,253) ($3,427)
Earnings (Loss) per Share
from Continuing Operations $4,122 ($0.77) ($ 0.22)
Average Shares Outstanding 1 8,768 7,095 (19) 15,864
(000's)
See Notes to Pro Forma Financial Statements.
117
Burnup & Sims/CT Group
Notes to Pro Forma Financial Statements
Balance Sheet:
(1) CT Group dividend to be paid prior to Closing, including notes
payable of $3 million, payable in semi-annual installments of
$500,000.
(2) Exchange of Subordinated Debenture in the face amount of
$17,500,000 (book value of $17,291,000) and $592,000 reduction
of Other Indebtedness for 3,153,847 shares of Common Stock
($17,883,000), net of the allocation of the excess of estimated
fair value over the purchase price ($1,035,000). (See (3)
below).
(3) Adjust Company's net assets to estimated fair value, net of the
excess of fair value over the purchase price as follows (in
thousands):
Company's equity at October 31, 1993 $34,574
Bonus service pool and other costs,
net of tax (685)
Adjustment of net assets to fair value
Property, net $24,838
Real estate investments 14,513
Goodwill (3,209)
Deferred taxes related to property and
real estate adjustments (15,347)
Net asset step up in basis 20,795
Redemption of 3,153,847 shares of Common
Stock (17,958)
Estimated fair value of Company's net assets 36,726
Purchase Price
Value of Common Stock
118
(See (8) below) $32,208
Estimated CT Group transaction
costs 500
Total purchase price 32,708
Excess of estimated fair value over
purchase price $ 4,018
Allocation of excess of estimated fair value over
purchase price:
Investment in NBC $ 1,035
Property, net 3,339
Real estate investments 2,111
Other assets 102
Deferred taxes related to above
adjustments (2,569)
Total $ 4,018
(4) Estimated transaction costs of $900,000 including CT Group costs
of $500,000 included in the purchase price, and establishment of
Company's bonus service pool of $1,000,000.
(5) Current tax benefit of deductible transaction costs incurred by
the Company.
(6) Deferred taxes relating to step up in basis ($12,778,000) and
estimated deferred tax liability of CT Group upon termination of
Subchapter S status ($350,000).
(7) Eliminate par values of CT Group common stock ($6,000) the
Company's retired treasury stock ($726,000) and the shares
redeemed from NBC ($315,000).
119
(8) Record issuance of 10,250,000 shares of Common Stock, based on
the value of 5,614,492 shares of Common Stock to be outstanding
after the Redemption, assuming a market price of $5.74 per share
at Closing as follows (in thousands):
Value of equity of the Company
(5,614,492 x $5.74) $32,208
Par value of shares issued
(10,250,000 x $.10) (1,025)
Estimated transaction costs related to
Common Stock issued (250)
Credit to capital surplus $30,933
(9) Adjust capital surplus for retirement of Company's treasury
stock ($73,414,000), retirement of shares redeemed from NBC
($17,643,000, including estimated transaction costs of $75,000)
and elimination of the resulting negative capital surplus
($18,197,000); elimination of CT Group treasury stock ($14,000);
and adjustment to reflect par value of Common Stock outstanding
subsequent to Closing ($555,000).
(10) Reclassify undistributed earnings of CT Group upon termination
of Subchapter S status at date of Closing.
(11) Record Company's bonus service pool, net of tax ($610,000) and
estimated transaction costs ($325,000), and eliminate resulting
retained earnings ($33,317,000).
(12) Record CT Group dividend to be paid prior to Closing
($7,580,000) and estimated deferred tax liability of CT Group
upon termination of Subchapter S status ($350,000).
(13) Record retirement of Company's and CT Group's treasury stock.
Statement of Operations:
120
(14) Elimination of Company's historical goodwill amortization, net
of adjustment for additional depreciation assuming an average
life of 20 years for depreciable tangible assets (primarily
buildings).
(15) Increase in interest expense for notes payable issued in
connection with CT Group dividend.
(16) Decrease in interest income for reduction of Subordinated
Debenture and Other Indebtedness, and decrease in cash.
(17) Pro forma CT Group tax provision, assuming 39% overall rate.
(18) Tax benefit of pro forma adjustments.
(19) Shares of Common Stock issued (10,250,000) net of shares
redeemed from NBC (3,153,847) and CT Group shares eliminated
(1,100).
121
CT AND CTF'S MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Management's discussion and analysis of financial condition and
results of operations should be read in conjunction with the selected
financial data and financial statements and notes to financial statements
included elsewhere herein.
Results of Operations
Nine months ended September 30, 1993 compared to September 30, 1992.
Results of operations for the nine months ended September 30, 1993,
reflect the continued growth of the companies' revenue base. Revenues for
the nine months ended September 30, 1993, were $37,034,193 compared to
$17,324,936 for the nine months ended September 30, 1992. This increase
resulted primarily from an increase in the companies' customer base and in
the volume of work from Southern Bell arising in connection with the
rebuilding necessitated by Hurricane Andrew, the expansion of outside
plant systems approved under Southern Bell's increased Master Budget Plan
and the growth in private sector telecommunication projects. The revenues
generated by the Southern Bell work constitutes substantially all of the
increase in total combined revenues of CT and CTF. Accordingly, the loss
of all or a significant portion of work from Southern Bell could have a
material adverse impact on the Company's results of operations.
Cost of revenues increased from $11,822,810 in the prior year's
period to $24,213,091 for the nine months ended September 30, 1993, and
was 34% as a percentage of revenues as of September 30, 1993, and 31% as a
percentage of revenues as of September 30, 1992. Consequently, the
increase in gross profit from $5,502,126 in the prior year's period to
$12,821,102 for the nine months ended September 30, 1993 was due primarily
to an increase in revenues without a commensurate increase in fixed costs.
General and administrative expenses for the period increased by
$3,112,193 from $1,033,105 in the prior year's period to $4,145,298 due
122
primarily to increases in certain personnel costs related to the companies
performance.
Depreciation (included in Cost of Contract Revenue) increased by
$276,628 from $276,867 in the prior year's period to $553,495 primarily as
a result of the acquisition of construction equipment and vehicles
required to support the volume increase.
Net income for the period in the amount of $7,431,869 includes a loss
of approximately $1,392,852 from the OCT Joint Venture (described below).
Fiscal Year Ended December 31, 1992, Compared to Fiscal Year Ended
December 31, 1991.
Revenues for the fiscal year ended December 31, 1992 were $34,135,788
compared to $31,588,228 for the preceding fiscal year. The increase
resulted primarily from an increase in the volume of business from
existing customers. Cost of revenues decreased from $23,328,758 for the
prior fiscal year to $22,460,792, primarily as a result of overall
improvements in operational efficiency.
Gross profit increased from $8,259,470 in the prior fiscal year to
$11,674,996 and, as a percentage of revenues increased from 26% to 34%
primarily due to the successful completion of certain construction and
telecommunications projects.
General and administrative expenses increased from $2,795,528 in the
prior fiscal year to $3,012,651 primarily as a result of an increase in
the variable costs associated with increased revenues, but remained
constant as a percentage of revenues (9%).
Other income in fiscal year 1992 increased from $283,238 in the prior
fiscal year to $382,800 due primarily to a gain on sale of assets of
approximately $85,000 and interest income of approximately $200,000.
In fiscal year 1992, as a result of non-payment of certain change
orders disputed by Dade County in the aggregate amount of approximately
$9,500,000 with respect to the Metro-Mover and landfill project, the OCT
123
Joint Venture incurred a loss. CT's portion of such loss was $372,972
representing its twenty percent (20%) interest in the OCT Joint Venture.
The OCT Joint Venture is contesting Dade County's position with respect to
the change orders. In October 1993, the claims relating to the landfill
project were settled. The claims relating to the Metro-Mover project
currently remain unresolved.
Net income for the period increased from $5,300,689 to $8,279,555
primarily as a result of improved gross profit.
Also in fiscal year 1992, CTF negotiated a settlement of certain
outstanding litigation. In accordance with the terms of the settlement
CTF paid $350,000, which amount is reflected as an expense.
Fiscal Year Ended December 31, 1991, Compared to Fiscal Year Ended
December 31, 1990.
Revenues for the year ended December 31, 1991 were $31,588,228
compared to $18,639,593 for the fiscal year ended December 31, 1990. The
increase reflects revenues recognized in consolidation by the 9001 Joint
Venture in connection with construction of the detention facility. Cost
of revenues increased from $11,820,932 in the prior fiscal year to
$23,328,758 and, as a percentage of revenues, increased from 63% to 74%
primarily as a result of the increased variable costs associated with the
detention facility project.
Gross profit for the period increased from $6,818,661 in the prior
fiscal year to $8,259,470. The increase is the result primarily of the
increase in revenues recognized by the 9001 Joint Venture.
General and administrative expenses for the period increased from
$2,375,315 in the prior fiscal year to $2,795,528 primarily as a result of
increased variable costs associated with higher revenues.
In fiscal year 1991, other income decreased from $349,915 in the
prior fiscal year to $283,238 due primarily to a decrease in interest
income.
124
Net income for the period in the amount of $5,300,689 includes income
of $179,051 from the OCT Joint Venture and a loss of $625,542 incurred in
connection with the 9001 Joint Venture.
Liquidity and Capital Resources
Liquidity and capital resources increased in the nine months ended
September 30, 1993 relative to the fiscal year ended December 31, 1992.
Total assets increased from $24,431,977 at December 31, 1992 to
$27,499,394 at September 30, 1993 or 20%. This growth in total assets
resulted primarily from an increase in cash and cash equivalents from
$10,190,412 at December 31, 1992 to $14,163,536 at September 30, 1993.
The increase in cash and cash equivalents is attributable primarily to the
retention of earnings generated from operations.
Prior to the Closing of the Acquisition, the CT Group shall declare
and pay dividends in the aggregate amount of $11,500,000. Such dividends
will be paid as follows: (i) $8,500,000 shall be paid in cash to the
stockholders of CT and CTF (of which approximately $3,920,000 had been
paid as of September 30, 1993), and (ii) $3,000,000 will be paid by
issuance of a promissory note by the CT Group. The note will be payable
in semi-annual equal principal payments of $500,000 bearing interest at
the prime rate plus two percent but in no event less than 8% per annum.
See Note 8 to the Unaudited Financial Statements for the CT Group.
Working capital increased from $13,751,962 at December 31, 1992 to
$15,353,567 at September 30, 1993. This increase resulted primarily from
an increase in current assets. The current ratio of assets to liabilities
approximated 3 to 1 for both periods presented.
CT and CTF each are privately-held companies and, consequently, there
is no public market for their capital stock.
The companies' principal sources of liquidity were internally
generated cash, and, to a lesser extent, trade financing.
125
In April 1993, CTF obtained an unsecured line of credit for its
general working capital needs which currently provides for borrowings of
up to $2,000,000. Interest on borrowings under the line of credit is at
the prime interest rate. No borrowings are currently outstanding under
the line. Following consummation of the Acquisition, the Company intends
to explore various financing alternatives available to it. Management of
the CT Group has held preliminary discussions with various lenders and
other third party financing sources with respect to the working capital
needs of the Company following consummation of Acquisition. There can be
no assurances that following consummation of the Acquisition that the
Company will be able to obtain a line of credit on terms acceptable to it.
CTF believes that there are no known material trend variances with
respect to its capital resources. Management expects to meet its future
working capital needs as it has in the past, primarily through cash flow
from operations.
To the extent that additional sources of capital are required,
funding is anticipated to be available via bank lines of credit or term
financing.
126
OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS
The Board of Directors has set the close of business on January 31,
1994 as the record date (the "Record Date") for determining stockholders
of the Company entitled to notice of and to vote at the Meeting. As of
the Record Date, there were 8,768,339 shares of Common Stock issued and
outstanding, all of which are entitled to be voted at the Meeting. Each
share of Common Stock is entitled to one vote on each matter submitted to
stockholders for approval at the Meeting. Stockholders do not have the
right to cumulate their votes for directors.
The attendance, in person or by proxy, of the holders of a majority
of the outstanding shares of Common Stock entitled to vote at the Meeting
is necessary to constitute a quorum. The Class II director will be
elected by a plurality of the votes cast by the shares of Common Stock
represented in person or by proxy at the Meeting. The affirmative votes
of the holders of a majority of the shares of Common Stock represented in
person or by proxy at the Meeting will be required for approval of the
Acquisition Agreement and the affirmative votes of the holders of a
majority of the outstanding Common Stock will be required for approval of
each of the amendments to the Certificate. The affirmative votes of the
holders of a majority of the shares of Common Stock represented in person
or by proxy at the Meeting will be required for approval of the Company's
1994 Stock Option Plan for Non-Employee Directors and the Company's 1994
Stock Incentive Plan. The proposed amendments to the Certificate and the
adoption of the 1994 Stock Option Plan for Non-Employee Directors and the
1994 Stock Incentive Plan are contingent upon the consummation of the
Acquisition and, as such, will not be effected unless the terms of the
Acquisition Agreement are approved at the Meeting. Any other matter that
may be submitted to a vote of the stockholders will be approved if a
majority of the shares of Common Stock represented in person or by proxy
at the Meeting vote in favor of the matter. The Board of Directors does
not know of any matter, except those enumerated in this Proxy Statement,
that will be submitted to a vote of the stockholders at the Meeting. If
less than a majority of outstanding shares entitled to vote are
represented at the Meeting, a majority of the shares so represented may
adjourn the Meeting to another date, time or place, and notice need not be
127
given of the new date, time or place if the new date, time or place is
announced at the meeting before the adjournment is taken.
The Company's directors and named executive officers are the record
owners of 296,877 shares, representing approximately 3.3% of the
outstanding Common Stock and have indicated that they intend to vote their
shares in favor of the reelection of Samuel C. Hathorn, Jr. to the Board
of Directors, the approval of the terms of the Acquisition Agreement, the
approval of each of the proposed amendments to the Certificate, the 1994
Stock Option Plan for Non-Employee Directors and the 1994 Incentive Stock
Plan. See "VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF."
Prior to the Meeting, the Company will select one or more inspectors
of election for the meeting. Such inspector(s) shall determine the number
of shares of Common Stock represented at the Meeting, the existence of a
quorum and the validity and effect of proxies, and shall receive, count
and tabulate ballots and votes to determine the results thereof.
Abstentions will be considered as shares present and entitled to vote at
the Meeting and will be counted as votes cast at the Meeting, but will not
be counted as votes cast for or against any given matter.
A broker or nominee holding shares registered in its name, or in the
name of its nominee, which are beneficially owned by another person and
for which it has not received instructions as to voting from the
beneficial owner, may have discretion to vote the beneficial owner's
shares with respect to all matters addressed at the Meeting. Any such
shares which are not represented at the Meeting either in person or by
proxy will not be considered as shares present at the Meeting, and will
not be considered to have cast votes on any matters addressed at the
Meeting.
128
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following tables set forth, as of the Record Date, information
with respect to the beneficial ownership of the Common Stock by (i) each
person known by the Company to be the beneficial owner of more than five
percent of the outstanding Common Stock, (ii) the Company's Chief
Executive Officer and each of the Company's other four most highly
compensated executive officers whose total annual salary and bonus for
Fiscal 1993 was $100,000 or more, (iii) each director of the Company, and
(iv) all directors and executive officers of the Company as a group. The
Company is not aware of any beneficial owner of more than five percent of
the outstanding Common Stock other than as set forth in the following
table.
Security Ownership of Certain Beneficial Owners
[Enlarge/Download Table]
Percentage of Percentage of
Amount and Nature Class Prior to Class After
Name of Title of Beneficial Acquisition Acquisition
Beneficial Owner of Class Ownership(1) and Redemption and Redemption
Nick A. Caporella Common 3,540,565(2) 40.4% 2.4%
One North University Drive
Fort Lauderdale, FL 33324
National Beverage Corp. Common 3,153,847 36.0% -0-
One North University Drive
Fort Lauderdale, FL 33324
Estate of Riley V. Sims(3) Common 673,743 7.7% 4.2%
2000 Presidential Way
West Palm Beach, FL 33401
129
Security Ownership of Management
[Enlarge/Download Table]
Percentage of
Percentage of Class Class After
Name and Address Title Amount and Nature of Prior to Acquisition Acquisition
of Beneficial Owner of Class Beneficial Ownership(1) and Redemption and Redemption
Samuel C. Hathorn, Jr. Common 5,200(4) * *
Cecil D. Conlee Common 2,000 * *
Leo J. Hussey(5) Common 2,049 * *
William A. Morse Common * *
George R. Bracken(5) Common 605 * *
Gerald W. Hartman(5) Common -0- -0- -0-
All executive officers
and directors as a group
(nine persons) Common 3,450,824 39.4% 1.9%
________________________________
* Less than 1%.
(1) Unless otherwise indicated, each person has sole voting and
investment power with respect to such shares.
(2) Includes (i) 3,153,847 shares owned by NBC (Mr. Caporella is the
general partner of IBS Partners, Ltd., an entity which beneficially
130
owns 74.7% of the outstanding capital stock of NBC), (ii) options to
purchase 100,000 shares (which were issued in cancellation of options
to purchase 200,000 shares previously held by Mr. Caporella) at an
exercise price at the time of grant equal to $2.00 per share (which
exercise price decreases to the extent of a corresponding increase in
the market price of the Common Stock in excess of $2.00 as reported
on NASDAQ) and (iii) 12,500 shares held by the wife of Mr. Caporella,
as to which Mr. Caporella disclaims beneficial ownership.
(3) Mr. Sims passed away on the 13th day of January 1993.
(4) Includes 200 shares held by the children of Mr. Hathorn, as to which
Mr. Hathorn disclaims beneficial ownership.
(5) In July 1993, Messrs. Hussey, Bracken and Hartman were issued options
to purchase 40,000, 4,500 and 25,000 shares of Common Stock,
respectively under the Company's then existing stock option plan and
all options previously held by them were canceled. See "EXECUTIVE
COMPENSATION - Aggregate Fiscal Year-End Stock Option Value Table."
The exercise price of such options at the time of grant was $2.00 per
share (which exercise price decreases to the extent of a
corresponding increase in the market price of the Common Stock in
excess of $2.00 as reported on NASDAQ) and the options are scheduled
to vest at various times. The Acquisition Agreement provides that
all of these options will become immediately exercisable if such
employee's employment with the Company is terminated under certain
circumstances during the twelve month period after October 15, 1993.
The foregoing table does not reflect ownership of these options. See
"PROPOSAL TO APPROVE ACQUISITION AGREEMENT WITH CHURCH & TOWER, INC.
AND CHURCH & TOWER OF FLORIDA, INC. - Certain Effects of the
Acquisition -- Outstanding Stock Options."
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than
131
ten percent of the outstanding Common Stock, to file with the SEC initial
reports of ownership and reports of changes in ownership of Common Stock.
Such persons are required by SEC regulation to furnish the Company with
copies of all such reports they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no
other reports were required, all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten percent
beneficial owners have been complied with.
132
INDEX TO FINANCIAL STATEMENTS
CHURCH & TOWER GROUP
PAGE
Independent Auditors' Reports F-2
Combined Financial Statements:
Combined Balance Sheets as of December 31, 1992 and 1991 F-4
Combined Statements of Income and Retained Earnings
for the Years Ended December 31, 1992, 1991 and 1990 F-5
Combined Statements of Cash Flows
for the Years Ended December 31, 1992, 1991 and 1990 F-6
Notes to Combined Financial Statements F-7
Combined Balance Sheets as of September 30, 1993 (Unaudited) F-13
Combined Statements of Income and Retained Earnings
for the Nine Months Ended September 30, 1993 and
1992 (Unaudited) F-14
Combined Statements of Cash Flows for the Nine
Months Ended September 30, 1993 and 1992 (Unaudited) F-15
Notes to Combined Financial Statements
September 30, 1993 (Unaudited) F-16
F-1
INDEPENDENT AUDITORS' REPORT
To the Stockholders
Church & Tower Group
Miami, Florida
We have audited the combined balance sheets of Church & Tower Group
(the "Group"), as of December 31, 1992 and 1991, and the related combined
statements of income and retained earnings, and of cash flows for each of
the three years ended December 31, 1992. These financial statements are
the responsibility of the Group's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We did not audit the financial statements of 9001 Joint Venture, a
partnership that is majority-owned by a company in the Group, which
statements reflect total assets of $3,064,573 and $2,737,787 as of
December 31, 1992 and 1991, respectively, and total revenues of $8,240,290
and $14,495,378 for the two years ended December 31, 1992. Those
statements were audited by other auditors whose report has been furnished
to us, and our opinion, insofar as it relates to the amounts included for
9001 Joint Venture, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the reports of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other
auditors, the combined financial statements referred to above present
F-2
fairly, in all material respects, the financial position of Church & Tower
Group as of December 31, 1992 and 1991, and the results of their
operations and their cash flows for each of the three years ended December
31, 1992 in conformity with generally accepted accounting principles.
VICIANA & SHAFER
CERTIFIED PUBLIC ACCOUNTANTS
Coral Gables, Florida
June 15, 1993 (except for Note 7, as to
which the date is January 10, 1994)
F-3
INDEPENDENT AUDITORS' REPORT
To the partners
9001 Joint Venture
We have audited the balance sheets of 9001 Joint Venture as of
December 31, 1992 and 1991 and the related statements of earnings,
partners' capital, and cash flows for the years then ended. These
financial statements are the responsibility of the company's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatements. An audit includes examining, on a test
basis, evidence supporting the amount and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of 9001 Joint
Venture as of December 31, 1992 and 1991 and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
E.F. ALVAREZ & COMPANY
March 15, 1993
Miami, Florida
F-4
The financial information relating to the CT Group contained in this
Proxy Statement was provided to the Company by the CT Group in connection
with the Acquisition for the preparation of this Proxy Statement and the
Company has relied upon such financial information in the preparation of
this Proxy Statement.
Required Historical Financials for CT and CTF
CHURCH & TOWER GROUP
COMBINED BALANCE SHEETS
[Download Table]
December 31,
1992 1991
Assets
Current Assets
Cash and cash equivalents $10,190,412 $ 5,610,961
Accounts receivable 6,091,821 1,538,800
Contract receivable from Metro-Dade County 2,542,833 1,784,188
Balance due from commercial bank on a
promissory note 989,271 -
Other receivables and current assets 821,643 86,272
Total Current Assets 20,635,980 9,020,221
Investment in joint ventures 5,000 262,727
Property and equipment, net 3,655,855 2,406,117
Other non-current assets 135,142 44,105
Total Assets $24,431,977 $11,733,170
Liabilities and Stockholders' Equity
F-5
Current Liabilities
Accounts payable and accrued expenses $ 4,097,885 $ 1,447,476
Billings in excess of costs and estimated earnings
on uncompleted contracts with Metro-Dade County 1,527,012 242,917
Current maturities of long-term notes payable 696,387 8,804
Other current liabilities 346,962 167,338
Deficit in joint venture's capital account 215,772 -
Total Current Liabilities 6,884,018 1,866,535
Minority interest in consolidated joint venture 17,751 59,496
Notes payable 1,839,770 33,379
Due to The Mas Group, Inc., a related entity - 337,743
Total Liabilities 8,741,539 2,297,153
Stockholders' Equity
Common stock 6,000 5,400
Additional paid-in capital 42,000 42,000
Treasury stock (14,169) (14,169)
Retained earnings 15,656,607 9,402,786
Total Stockholders' Equity 15,690,438 9,436,017
Total Liabilities and Stockholders' Equity $24,431,977 $11,733,170
The accompanying notes are an integral part of these financial
statements.
F-6
CHURCH & TOWER GROUP
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
[Download Table]
Years Ended December 31,
1992 1991 1990
Contract Revenue $34,135,788 $31,588,228 $18,639,593
Cost of Contract Revenue 22,460,792 23,328,758 11,820,932
Gross Profit 11,674,996 8,259,470 6,818,661
General and Administrative expenses 3,012,651 2,795,528 2,375,315
Income from operations 8,662,345 5,463,942 4,443,346
Income (loss) from joint ventures (372,972) 179,051 -
Other income 382,800 283,238 349,915
Settlement of litigation (350,000) - -
Income before minority interest 8,322,173 5,926,231 4,793,261
Minority interest in net income of
consolidated joint venture (42,618) (625,542) (36,530)
Net income 8,279,555 5,300,689 4,756,731
Retained earnings at beginning of year 9,402,786 7,262,852 6,094,184
Less:
Distributions to stockholders 2,025,134 3,160,755 3,588,063
Additional stock issued upon merger of
CCI and CT 600 - -
Retained earnings at end of year $15,656,607 $ 9,402,786 $ 7,262,852
F-7
The accompanying notes are an integral part of these financial
statements.
F-8
[Enlarge/Download Table]
CHURCH & TOWER GROUP
COMBINED STATEMENTS OF CASH FLOWS
Years Ended December 31,
1992 1991 1990
Cash flows from operating activities:
Net Income $ 8,279,555 $ 5,300,689 $ 4,756,731
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 371,488 359,236 281,098
(Increase) decrease in accounts receivable (4,553,021) 994,082 (961,462)
(Increase) in contract receivable from Metro-Dade (758,645) (1,423,863) (360,352)
County
(Increase) decrease in other assets (550,032) 111,775 14,996
Decrease in net value of equipment 2,772 27,774 -
Increase (decrease) in accounts payable and 2,618,009 667,310 (100,759)
accrued expenses
Increase (decrease) in other current liabilities 111,747 (167,472) 23,313
Minority Interest in net Income 42,618 625,542 36,530
Acquisition of minority partner interest (84,363) - -
Increase (decrease) in joint venture capital 621,077 (155,000) 155,000
account
Increase in billings in excess of costs and
estimated earnings on uncompleted contracts 1,284,095 56,109 186,808
The net of various minor amounts (23,194) - -
Net cash provided by operating activities 7,362,106 6,396,182 4,031,903
F-9
Cash flows from Investing activities:
Paid in capital - - 300
Cash inflow from principal received on mortgage - - 24,000
Return of investment in unconsolidated venture 48,000 - -
Investment in unconsolidated venture (190,578) - -
Investment in joint venture (5,000) - -
Investment in note receivable (50,000) - -
Deposit on equipment (168,000) - -
Purchase of equipment (1,574,636) (355,062) (342,773)
Net cash used in investing activities (1,940,214) (355,062) (318,473)
Cash flows from financing activities:
Loan to related entity - - (229,525)
Proceeds received from notes payable 1,700,000 - -
Payments received from related company 47,246 - -
Principal payments on notes payable (201,751) (14,728) (227,818)
Insurance proceeds for repairs of hurricane damages 50,000 - -
Repairs of hurricane damages (17,038) - -
Expenses paid for related company (61,154) - -
Distributions to stockholders (2,025,134) (3,160,755) (3,588,063)
Distributions to partners of consolidated joint - (602,549) -
venture
Payment to The Mas Group, Inc. (334,610) - -
Net cash used in financing activities (842,441) (3,778,032) (4,045,406)
Net increase (decrease) in cash and cash equivalents 4,579,451 2,263,088 (331,976)
Cash and cash equivalents at beginning of year 5,610,961 3,347,873 3,679,849
Cash and cash equivalents at end of year $10,190,412 $ 5,610,961 $ 3,347,873
Supplemental Disclosure of Cash Flow Information:
Cash paid for Interest $ 33,525 $ 4,496 $ -
F-10
The accompanying notes are an integral part of these financial
statements.
F-11
CHURCH & TOWER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
Years Ended December 31, 1992 and 1991
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
Church & Tower Group (the "Group") represents the combination of two
Florida Corporations (three at December 31, 1991), Church & Tower of
Florida, Inc. ("CT Florida") and Church & Tower, Inc. (CT), which are
owned by members of the Mas family.
CT Florida is engaged in the construction and maintenance of outside plant
for utility companies servicing the geographical areas of Dade County and
Broward County's southeast area.
CT Florida holds three Master Contracts with the telephone company
(Southern Bell), its principal client, which will expire at various times
through 1995, and provide for CT Florida to receive price increases based
on the annual increment in the Consumer Price Index. CT Florida also
provides services under individual contracts with the telephone company in
Dade and Broward Counties which are not covered by the aforementioned
contracts, and is subcontracted by Miami-Dade Water & Sewer to do paving
and sidewalk repairs. Total revenues and accounts receivable recognized
from Southern Bell and Miami-Dade Water & Sewer were approximately as
follows:
[Download Table]
December 31 December 31 December 31
1992 1991 1990
Southern Bell:
Revenues for the year ended $22.3 million $15.7 million $15.7 million
Accounts receivable 5.7 million 1.4 million 2.1 million
F-12
CHURCH & TOWER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
Years Ended December 31, 1992 and 1991
Miami-Dade Water & Sewer:
Revenues for the year ended 1.9 million 1.1 million 1.8 million
Accounts receivable 108,000 19,000 209,000
CT was incorporated in August of 1990 under the laws of the State of
Florida to engage in construction contracts.
In July of 1990, CT, together with another construction contractor, formed
a partnership known as "9001 Joint Venture" for the purpose of
constructing a detention center for the Metro-Dade County government.
From its initial 60% interest in the partnership, CT increased its
participation to 89.8% for 1991 and to 99.7% for 1992. Total revenues
recognized with the Metro-Dade County government were approximately $9.6
million, $14.5 million and $0.5 million for the years ended December 31,
1992, 1991 and 1990, respectively.
CT is also in partnership, since September of 1990, with an international
construction contractor in a venture known as "OCT Joint Venture." In
this venture, CT has had a 20% interest in the two governmental projects
undertaken thus far: an extension to the Downtown Miami Metromover (98%
complete as of December 31, 1992), and a landfill in the southern section
of Dade County (39% complete as of the aforementioned date). The results
of operations of this venture are reported under the equity method of
accounting.
Effective June 1, 1992, CT merged its operations with those of
Communication Contractors, Inc. (CCI). CCI, which was wholly owned by a
member of the Mas family, provided construction subcontractor services
(manpower and equipment) to CT Florida during the year ended December 31,
F-13
CHURCH & TOWER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
Years Ended December 31, 1992 and 1991
1991 and for the period from January 1, 1992 through May 31, 1992. The
business combination between CT and CCI was accounted for under the
pooling-of-interests method. The 100 common shares owned by the sole
stockholder of CCI were exchanged for 700 common shares of the surviving
corporation (CT).
Principles of Combination
The combined financial statements include the accounts of CT Florida, CT
consolidated (which includes the accounts of CT and of its majority owned
subsidiary, "9001 Joint Venture", and wherein all significant intercompany
transactions and balances have been eliminated) and CCI (as applicable).
All significant intercompany transactions and balances have been
eliminated.
Revenue and Cost Recognition
CT Florida recognizes revenues and related costs whenever specific work
orders, as covered by the Master Contracts, are completed. Indirect costs
and administrative expenses are charged to operations as incurred.
Revenue from long-term construction contracts, as reported by CT's
consolidated venture ("9001 Joint Venture") is recognized under the
percentage-of-completion method. Under this method, the percentage of
contract revenue to be recognized currently is computed as that percentage
of estimated total revenue that incurred costs to date bear to estimated
total costs, after giving effect to estimates of costs to complete based
upon most recent information. General and administrative costs of the
venture are expensed as incurred.
F-14
CHURCH & TOWER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
Years Ended December 31, 1992 and 1991
Revenue Increase
As a result of Southern Bell's rehabilitation program in South Florida in
the aftermath of Hurricane Andrew, and CT Florida's ability to
successfully bid on many new projects, revenue in 1992 increased
approximately 32% over prior year's revenues.
Income Taxes
The companies in the Group (CT Florida, CT consolidated and CCI, until its
merger with CT) have elected to be taxed under the Subchapter S provisions
of the Internal Revenue Code, which provides that corporate earnings are
to be included in the Federal Income Tax Returns of the individual
stockholders. Accordingly, no provision for income taxes has been
recorded in the accompanying combined statements of income.
As further explained in Note 7, the stockholders of the Group have entered
into an agreement under which the Group will be acquired by Burnup & Sims
Inc., a publicly traded company. As a result of this acquisition, the
Group will be taxed as a C corporation.
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting
for Income Taxes," effective for years beginning after December 15, 1992.
The adoption of SFAS 109 by the Group is expected to result in a deferred
tax liability of approximately $350,000 due to the tax effect of temporary
differences between the carrying amounts of assets for financial reporting
purposes and the amounts used for income tax purposes.
Cash and Cash Equivalents
F-15
CHURCH & TOWER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
Years Ended December 31, 1992 and 1991
For the purpose of reporting cash flows, the Group has defined cash
equivalents as those highly liquid investments purchased with an original
maturity of three months or less.
NOTE 2 - RELATED PARTY TRANSACTIONS
The Group has rented and purchased construction equipment from other
entities related to it by common management and control. During the years
1992, 1991 and 1990, these related transactions amounted to $1,817,867,
$1,102,197 and $472,305, respectively.
NOTE 3 - BACKLOG
The backlog of uncompleted contracts in progress for the "9001 Joint
Venture" at December 31, 1992, 1991 and 1990 amounted to approximately $9
million, $18.5 million and $14.6 million, respectively.
F-16
CHURCH & TOWER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
Years Ended December 31, 1992 and 1991
NOTE 4 - NOTES PAYABLE
December 31,
1992 1991
CT is liable to a commercial bank on
a 7.7% interest rate note, requiring
monthly payments of principal of
$41,667 plus accrued interest,
beginning in February 1993 and
maturing in January 1997. The face
amount of the note is $2 million, of $2,000,000 -
which $989,271 was received
subsequent to December 31, 1992.
The note is collateralized with all
receivables and equipment of CT.
CT is also liable to a commercial
bank on a note with interest at 0.5%
over the prime rate (6.5% at
December 31, 1992). The note is
payable in monthly payments of
principal of $19,444 plus accrued 502,778 -
interest beginning in May 1992 and
maturing in April 1995. The note is
collateralized with all receivables
and equipment of CT.
F-17
CHURCH & TOWER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
Years Ended December 31, 1992 and 1991
CT Florida is indebted to a
financial institution on a 10%
interest rate note payable,
requiring monthly payments of $689,
including interest. The note is 33,379 42,183
collateralized with a mortgage on
the land, building and improvements
where the administrative offices are
located.
2,536,157 42,183
Less: current portion (696,387) (8,804)
$1,839,770 $ 33,379
Principal maturities for the
following years are as follows:
1993 $696,387
1994 738,548
1995 541,872
1996 506,365
1997 48,696
1998 4,289
$2,536,157
F-18
CHURCH & TOWER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
Years Ended December 31, 1992 and 1991
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, and consist of:
December 31,
1992 1991
Land, buildings and improvements $ 682,489 $ 714,956
Construction and excavation 1,702,430 1,604,870
equipment
Trucks, automobiles and radio 2,412,003 995,056
equipment
Tools and portable equipment 147,707 147,705
Office furniture and equipment 457,471 399,318
Leasehold improvements 60,847 60,847
5,462,947 3,922,752
Less accumulated depreciation (1,807,092) (1,516,635)
$3,655,855 $2,406,117
Depreciation estimates for property and equipment (excluding land) were
computed using the straight-line method, with useful lives of 10-31 years
for buildings and improvements, 5 years for leasehold improvements, 7
years for trucks and automobiles, and 10 years for all other assets.
NOTE 6 - CONTINGENCIES
F-19
CHURCH & TOWER GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
Years Ended December 31, 1992 and 1991
In connection with certain construction contracts entered into by
affiliates through common ownership, the company has signed jointly and
severally, together with other affiliates, certain agreements of indemnity
(Agreements) in the aggregate amount of approximately $75,000,000, of
which approximately $54,000,000 have been performed. The Agreements are
to secure the affiliates' fulfillment of obligations and performance of
the related contracts.
Management believes that no losses will be sustained from these
Agreements.
NOTE 7 - SUBSEQUENT EVENTS
On August 17, 1993 and December 27, 1993, the Group declared dividends of
$3,900,000 and $7,600,000. Of the dividends declared, $8,500,000 has been
paid in cash and $3,000,000 remains payable in the form of two promissory
notes, payable in semi-annual principal payments commencing August 1, 1994
of $500,000, bearing interest at the prime rate plus 2%, but in any event
not less than 8%.
On October 15, 1993 (with amendments on November 23, 1993), the
stockholders of the Group entered into an agreement, under which the Group
will be acquired by Burnup & Sims Inc., a publicly traded company with
business activities similar to the Group. As a result of the acquisition,
the shareholders of the Group will obtain approximately 65% of the
combined entity. The acquisition is subject to approval of, among others,
the shareholders of Burnup & Sims Inc.
As a result of this acquisition, the Group will be taxed as a C
corporation. Undistributed earnings at December 31, 1992, after giving
F-20
effect to the above-mentioned dividends, amount to approximately
$3,800,000.
F-21
Required Historical Financials for CT and CTF
CHURCH & TOWER GROUP
COMBINED BALANCE SHEETS
as of September 30, 1993
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $14,163,536
Accounts Receivable 5,300,855
Contract Receivable from Metro-Dade County 2,510,009
Other Receivables and Current Assets 582,040
Total Current Assets 22,556,440
Property and Equipment, net 4,866,810
Other Non-Current Assets 76,144
Total Assets $27,499,394
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 5,285,956
Current Maturities of Long-Term Notes Payable 596,699
Other Current Liabilities 311,594
Deficit in Joint Venture's Capital Account 1,008,624
Total Current Liabilities 7,202,873
Minority Interest in Consolidated Joint Venture 18,399
Notes Payable 1,075,593
Total Liabilities 8,296,865
F-22
STOCKHOLDERS' EQUITY
Common Stock 6,000
Additional Paid-in Capital 42,000
Treasury Stock (14,169)
Retained Earnings 19,168,698
Total Stockholders' Equity 19,202,529
Total Liabilities and Stockholders' Equity $27,499,394
The accompanying notes are an integral part of these financial statements
F-23
CHURCH & TOWER GROUP
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Unaudited)
Nine Months Ended September 30,
1993 1992
Contract Revenue $37,034,193 $17,324,936
Cost of Contract Revenue 24,213,091 11,822,810
Gross Profit 12,821,102 5,502,126
General and Administrative Expenses 4,145,198 1,033,105
Income from Operations 8,675,804 4,469,021
Income (Loss) from Joint Venture (1,392,852) (304,920)
Other Income 153,331 150,965
Income Before Minority Interest 7,436,283 4,315,066
Minority Interest in Net Income of
Consolidated Joint Venture (4,414) (42,880)
Net Income 7,431,869 4,272,186
Retained Earnings at Beginning of 15,656,607 9,402,786
Period
Less: 3,919,778 1,055,213
Distributions to Stockholders
Retained EArnings at End of Period $19,168,698 $12,619,759
The accompanying notes are an integral part of these financial statements.
F-24
CHURCH & TOWER GROUP
COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30
[Enlarge/Download Table]
1993 1992
Cash Flows from Operating Activities:
Net Income $7,431,869 $4,272,186
Adjustments to Reconcile Net Income to Net Cash
Provided (Used) in Operating Activities:
Depreciation 553,495 276,867
(Increase) Decrease in Accounts and Contracts Receivable 823,790 (1,650,163)
(Increase) Decrease in Other Receivables & Current Assets 239,603 (199,073)
(Increase) Decrease in Other Assets 58,998 38,719
Increase (Decrease) in Accounts Payable & Accrued Expenses 1,188,071 (4,829)
Increase (Decrease) in Billings in Excess of Costs (1,527,012) 678,770
Increase (Decrease) in Other Current Liabilities (35,368) (106,656)
Minority Interest in Net Income 648 42,882
Deficit in Unconsolidated Venture 1,392,852 0
Net Cash Provided by Operating Activities 10,126,946 3,348,703
Cash Flows from Investing Activities:
Investment in Joint Venture 5,000 209,712
Investment in Unconsolidated Venture (600,000) 0
Purchase of Equipment (1,764,450) 53,088
Net Cash Provided (Used) in Investing Activities (2,359,450) 262,800
F-25
Cash Flows from Financing Activities:
Debt Borrowings 989,271 257,238
Debt Repayments (863,865) 0
Distributions to Stockholders (3,919,778) (1,055,213)
Net Cash Provided (Used) in Financing Activities (3,794,372) (797,975)
Net Increase in Cash & Cash Equivalents 3,973,124 2,813,528
Cash & Equivalents - Beginning of period 10,190,412 5,610,961
Cash & Equivalents - End of period $14,163,536 $8,424,489
The accompanying notes are an integral part of these financial statements.
F-26
CHURCH & TOWER GROUP
NOTES TO COMBINED
FINANCIAL STATEMENTS
September 30, 1993 (Unaudited)
1. General
The accompanying combined financial statements for Church & Tower
Group (the "Group") have been prepared in accordance with generally
accepted accounting principles for interim financial information.
They do not include all information and notes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. The results of operations are not necessarily
indicative of results which might be expected for the entire fiscal
year. The condensed consolidated financial statements should be read
in conjunction with the combined financial statements and notes
thereto for the year ended December 31, 1992.
2. Principles of Combination
The combined financial statements include the accounts of Church &
Tower of Florida, Inc. ("CT Florida") and Church & Tower, Inc. ("CT
Consolidated") (which includes the accounts of CT and of its majority
owned subsidiary, "9001 Joint Venture," and wherein all significant
intercompany transactions and balances have been eliminated). All
significant intercompany transactions and balances have been
eliminated. The financial statements of 9001 Joint Venture, a
partnership that is majority-owned by a company in the Group reflect
total assets of $3,064,573 as of September 30, 1993, and total
F-27
revenues of $10,672,627 and $4,127,700 for the nine months ended
September 30, 1993 and 1992, respectively.
3. Income Taxes
The companies in the Group have elected to be taxed under the
Subchapter S provisions of the Internal Revenue Code, which provides
that corporate earnings are to be included in the Federal Income Tax
Returns of the individual stockholders. Accordingly, no provision
for income taxes has been recorded in the accompanying combined
statements of income.
4 Related Party Transactions
The Group has rented and purchased construction equipment from other
entities related to it by common management and control. During the
nine months ended September 30, 1993 and September 30, 1992 these
related transactions amounted to $1,352,399 and $1,375,292
respectively.
F-28
CHURCH & TOWER GROUP
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
September 30, 1993 (Unaudited)
(Continued...)
5. Notes Payable
September 30, 1993
Note Due to Bank 7.7% $1,672,292
Less: Current portion 596,699
Non-Current Notes Payable $1,075,593
6. Property and equipment
Property and equipment
are recorded at cost, and
consists of:
F-29
September 30, 1993
Land, buildings and improvements $ 682,489
Construction and excavation equipment 2,889,128
Truck, automobiles and radio equipment 2,816,437
Tools and portable equipment 297,046
Office furniture and equipment 481,450
Leasehold improvements 60,847
7,227,397
Less accumulated depreciation (2,360,587)
Property and equipment - Net $ 4,866,810
Depreciation expense amounted to $553,495 and $276,867 for the nine
months ended September 30, 1993 and 1992, respectively.
7. Contingencies
In connection with certain construction contracts entered into by
affiliates through common ownership, the company has signed jointly
and severally, together with other affiliates, certain agreements of
indemnity ("Agreements") in the aggregate amount of approximately
$75,000,000, of which approximately $13,000,000 remains incomplete.
The Agreements are to secure the affiliates' fulfillment of
obligations and performance of the related contracts.
Management believes that no losses will be sustained from these
Agreements.
CHURCH & TOWER GROUP
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
September 30, 1993 (Unaudited)
F-30
(Continued...)
8. Subsequent Events
On December 27, 1993, the Group declared dividends of $7,600,000. Of
the dividends declared, $4,600,000 has been paid in cash and
$3,000,000 remains payable in the form of a promissory note, payable
in semi-annual payments of $500,000, bearing interest a the prime
rate plus 2%, but in any event not less than 8%.
A pro forma balance sheet at September 30, 1993, after giving effect
to this dividend is as follows:
Current Assets $17,956,440
Total Assets 22,899,394
Current Liabilities 7,702,873
Total Liabilities 11,296,865
Stockholders' Equity 11,602,529
On October 15, 1993, the stockholders of the Group entered into an
agreement under which the Group will be acquired by Burnup & Sims
Inc., a publicly traded company with business activities similar to
the Group. As a result of this acquisition, the stockholders of the
Group will obtain approximately 65% of the combined entity. The
acquisition is subject to approval of, among other things, the
stockholders of Burnup & Sims.
As a result of this acquisition, the Group will be taxed as a C
corporation. Undistributed earnings at December 31, 1992, after
giving effect to the above mentioned dividends amount to
approximately $3,800,000.
F-31
STOCKHOLDER PROPOSALS FOR ANNUAL MEETING
Proposals of stockholders intended to be presented at the 1994 Annual
Meeting of Burnup Stockholders must be received by Burnup at its principal
executive offices within a reasonable time before the 1994 Annual Meeting
of Stockholders for inclusion in the proxy materials. Such proposals
should meet the applicable requirements of the Securities Exchange Act of
1934, as amended, and the Rules and Regulations thereunder.
INDEPENDENT AUDITORS
The firm of Deloitte & Touche currently serves as independent
auditors of the Company. Representatives of Deloitte & Touche are
expected to attend the Meeting. They will have an opportunity to make a
statement if they desire to do so and will be available to respond to
appropriate questions. No accountant has been selected or recommended for
the Company's 1994 fiscal year.
The consolidated financial statements of the Company as of April 30,
1993 and 1992 and for each of the three years in the period ended April
30, 1993 incorporated by reference in this Proxy Statement have been
audited by Deloitte & Touche, independent auditors.
The combined financial statements of the CT Group as of December 31,
1992 and 1991 and for each of the three years in the period ended
December 31, 1992 included in this Proxy Statement have been audited by
Viciana & Shafer, P.A., independent auditors.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, and, in accordance therewith, files
reports, proxy statements and other financial information with the SEC.
133
Such reports, proxy statements and other information may be inspected and
copies at the public reference facilities maintained by the SEC at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
Such reports, proxy statements and other information should also be
available for inspection and copying at the regional offices of the SEC
located at 1375 Peachtree Street, N.E., Suite 788, Atlanta, Georgia 30367
and 7 World Trade Center, New York, New York 10048. Copies of such
material can also be obtained from the Public Reference Section of the SEC
at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
134
INCORPORATION BY REFERENCE
The following documents are hereby incorporated by reference into and
made a part of this Proxy Statement:
1. The Company's Annual Report on Form 10-K for the year ended April
30, 1993, as amended.
2. The Company's Quarterly Report on Form 10-Q for the quarter ended
October 31, 1993, as amended.
By Order of the Board of Directors,
/s/ Nick A. Caporella
_____________________
Nick A. Caporella
Chairman of the Board of Directors
President and Chief Executive Officer
Fort Lauderdale, Florida
February 10, 1994
135
APPENDICES
Appendix A - Agreement dated as of October 15, 1993, among Burnup &
Sims Inc., and the stockholders of Church & Tower, Inc.
and Church & Tower of Florida, Inc. and First and Second
Amendment each dated as of November 23, 1993 and the form
of a Third Amendment . . . . . . . . . . . . . . . . . A-1
Appendix B - Opinion of PaineWebber Incorporated . . . . . . . . . B-1
Appendix C - Form of Agreement between
Burnup & Sims Inc. and National Beverage Corp. . . . . C-1
Appendix D - Proposed Amended and Restated Certificate
of Incorporation . . . . . . . . . . . . . . . . . . . D-1
Appendix E - 1994 Stock Option Plan
for Non-Employee Directors . . . . . . . . . . . . . . E-1
Appendix F - 1994 Stock Incentive Plan . . . . . . . . . . . . . . F-1
136
EXHIBIT INDEX
LOCATION OF
EXHIBIT IN
SEQUENTIAL
NUMBERING
EXHIBIT SYSTEM
Exhibit 2 Agreement dated as of October 15,
1993, among Burnup & Sims Inc., and
the stockholders of Church & Tower,
Inc. and Church & Tower of Florida,
Inc. and First and Second Amendment
each dated as of November 23, 1993
and the form of a Third Amendment. CE
Exhibit 99 Opinion of PaineWebber Incorporated CE
Exhibit 10(a) Form of Agreement between Burnup &
Sims Inc. and National Beverage
Corp. CE
Exhibit 3(a) Proposed Amended and Restated
Certificate of Incorporation CE
Exhibit 10(b) 1994 Stock Option Plan For Non-
Employee Directors CE
Exhibit 10(c) 1994 Stock Incentive CE
137
Dates Referenced Herein and Documents Incorporated by Reference
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