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UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARY (a development-stage company) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Consolidated Financial Statements: Report of Independent Public Accountants.............................. Consolidated Balance Sheets........................................... Consolidated Statements of Operations................................. Consolidated Statements of Shareholders' Equity (Deficit)............. Consolidated Statements of Cash Flows................................. Notes to Consolidated Financial Statements............................ REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Universal Display Corporation: We have audited the accompanying consolidated balance sheets of Universal Display Corporation (a Pennsylvania corporation in the development-stage) and subsidiary as of December 31, 2001 and 2000, and the related consolidated statements of operations, shareholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 2001 and for the period from inception (June 17, 1994) to December 31, 2001. |
Contemporaneous with the merger, the Company and ABC entered into a Technology Transfer Agreement dated June 22, 1995 (the "Transfer Agreement") pursuant to which, among other things, ABC assigned the 1994 License Agreement to the Company, and granted to the Company an exclusive worldwide sublicense to patents and other intellectual property rights to display technology developed under a Sponsored Research Agreement dated October 22, 1993 between ABC and Princeton University (the "1993 Sponsored Research Agreement") in exchange for (i) reimbursement of ABC's scheduled payments and expenses previously made to Princeton University under the 1994 Sponsored Research Agreement in the amount of $674,000 and a payment of $500,000 for the sublicense under the 1993 Sponsored Research Agreement which were charged to research and development expense; (ii) the Company's assumption of ABC's obligation to pay all future scheduled payments under the 1994 Sponsored Research Agreement, which were approximately $1,610,000, plus expenses related thereto estimated to be $500,000 for a total of $2,110,000; and (iii) 200,000 shares of the Company's Series A Nonconvertible Preferred Stock (Note 9) with a fair value of $350,000. |
Contemporaneous with the merger, the Company and ABC entered into a Technology Transfer Agreement dated June 22, 1995 (the "Transfer Agreement") pursuant to which, among other things, ABC assigned the 1994 License Agreement to the Company, and granted to the Company an exclusive worldwide sublicense to patents and other intellectual property rights to display technology developed under a Sponsored Research Agreement dated October 22, 1993 between ABC and Princeton University (the "1993 Sponsored Research Agreement") in exchange of (i) reimbursement of ABC's scheduled payments and expenses previously made to Princeton University under the 1994 Sponsored Research Agreement in the amount of $674,000 and a payment of $500,000 for the sublicense under the 1993 Sponsored Research Agreement which were charged to research and development expense (see Notes 4 and 5); (ii) the Company's assumption of ABC's obligation to pay all future scheduled payments under the 1994 Sponsored Research Agreement, which were approximately $1,610,000, plus expenses related thereto estimated to be $500,000 for a total of $2,110,000; and (iii) 200,000 shares of the Company's Series A Nonconvertible Preferred Stock (see Notes 4 and 7) with a fair value of $350,000. |
Its services including plant maintenance, specialty welding, equipment rigging, and mechanical construction to customers in the power, industrial, petrochemical, water treatment, and refining markets at a national level; •Specialty construction solutions for processing markets: Customers in the pulp and paper, metals, mining and minerals, and petrochemical markets are able to receive specialized solutions including plant maintenance, process piping, equipment, and tank and vessel fabrication and erection that are catered to the needs and specifications of the customer’s industry through the Inco Services brand; •Turnarounds, tank construction, and piping services: GrayWolf offers services including plant maintenance, specialty welding, piping systems, and tanks and vessels construction to the power, refining, petrochemical, and water treatment markets in the Midwest, Mid-Atlantic, and West Coast; •Custom steel fabrication and erection: GrayWolf offers engineering, design, fabrication, modularization, erection and additional services to the heavy commercial and industrial markets in the Southwest, Midwest, Gulf Coast and Southeast; and •Structural steel management: provides turn-key steel fabrication and erection services with expertise in project management. |
Risks Related to Our Businesses •The ability of our subsidiaries to make distributions, our principal source of revenue •Our levels of indebtedness, financing arrangements and other obligations •Restrictive covenants in our debt and preferred stock instruments •Ability to meet working capital requirements •Dependence on key personnel and ability to attract and retain skilled personnel •Any identified material weaknesses in our internal controls •Foreign exchange rate volatility •Changes in United States trade policy •Impact of competition on our business •Impact of any potential future acquisitions and ability to manage future growth and the incurrence of substantial costs in connection with acquisitions •Cyber-attacks and other privacy or data security incidents •Stability and security of our information technology systems •Ability to fully utilize net operating loss and other tax carryforwards •Presentation of corporate opportunities by certain current and former directors and officers and the impact of related party transactions •Our status as a non-investment company •Impact of potential litigation •Deterioration of global economic conditions and the impact of operating globally •Impact of Brexit •Compliance costs related to our acquired businesses •Ability of our development stage companies to produce revenues or income •Adverse tax impact of our acquisitions or dispositions •Lack of sole control in joint venture investments •Ability to protect our intellectual property •Potential dilution of our current stockholders •Status as a “smaller reporting company” •Impact of our recently reconstituted board and change in management Risks Related to the Infrastructure segment •Unpredictability in timing of DBMG’s construction contracts and payments thereunder •Impact of construction contract pricing terms, including fixed-price and cost-plus pricing •Termination or cancellation of construction projects •Increased concentration of construction projects in backlog •Ability to realize revenue value reported in backlog •Ability to meet contractual schedule or performance requirements •Modification or termination of government contracts •Reliability of subcontractors and third-party vendors •Volatility in the supply and demand for steel and steel components •Dependability of steel component suppliers •Intense competition in construction markets •Ability of customers to receive applicable regulatory and environmental approvals •Impact of failure to obtain or maintain required licenses •Impact of bonding and letter of credit capacity •Variability in liquidity over time •Exposure to professional liability, product liability, warranty and other claims •Impact of environmental compliance costs •Labor disruptions that would interfere with operations. |
This significant amount of indebtedness poses risks such as risk of inability to repay such indebtedness, as well as: •increased vulnerability to general adverse economic and industry conditions; •higher interest expense if interest rates increase on our floating rate borrowings are not effective to mitigate the effects of these increases; •our Secured Notes are secured by substantially all of HC2’s assets and those of certain of HC2’s subsidiaries that have guaranteed the Secured Notes, including certain equity interests in our other subsidiaries and other investments, as well as certain intellectual property and trademarks, and those assets cannot be pledged to secure other financings; •certain assets of our subsidiaries are pledged to secure their indebtedness, and those assets cannot be pledged to secure other financings; •our having to divert a significant portion of our cash flow from operations to payments on our indebtedness and other arrangements, thereby reducing the availability of cash to fund working capital, capital expenditures, acquisitions, investments and other general corporate purposes; •limiting our ability to obtain additional financing, on terms we find acceptable, if needed, for working capital, capital expenditures, expansion plans and other investments, which may limit our ability to implement our business strategy; •limiting our flexibility in planning for, or reacting to, changes in our businesses and the markets in which we operate or to take advantage of market opportunities; and •placing us at a competitive disadvantage compared to our competitors that have less debt and fewer other outstanding obligations. |
Our international operations are subject to a number of risks, including: •political conditions and events, including embargo; •changing regulatory environments, including as a result of Brexit; •outbreaks of pandemic diseases or fear of such outbreaks; •restrictive actions by U.S. and foreign governments; •the imposition of withholding or other taxes on foreign income, tariffs or restrictions on foreign trade and investment; •adverse tax consequences; •limitations on repatriation of earnings and cash; •currency exchange controls and import/export quotas; •nationalization, expropriation, asset seizure, blockades and blacklisting; •limitations in the availability, amount or terms of insurance coverage; •loss of contract rights and inability to adequately enforce contracts; •political instability, war and civil disturbances or other risks that may limit or disrupt markets, such as terrorist attacks, piracy and kidnapping; •fluctuations in currency exchange rates, hard currency shortages and controls on currency exchange that affect demand for our services and our profitability; •potential noncompliance with a wide variety of anti-corruption laws and regulations, such as the U.S. Foreign Corrupt Practices Act of 1977 (the "FCPA"), and similar non-U.S. laws and regulations, including the U.K. |
The issuance of additional shares of common stock or preferred stock may, among other things: •significantly dilute the equity interest and voting power of all other stockholders; •subordinate the rights of holders of our outstanding common stock and/or preferred stock if preferred stock is issued with rights senior to those afforded to holders of our common stock and/or preferred stock; •trigger an adjustment to the price at which all or a portion of our outstanding preferred stock converts into our common stock, if such stock is issued at a price lower than the then-applicable conversion price; •entitle our existing holders of preferred stock to purchase a portion of such issuance to maintain their ownership percentage, subject to certain exceptions; •call for us to make dividend or other payments not available to the holders of our common stock; and •cause a change in control of our company if a substantial number of shares of our common stock are issued and/or if additional shares of preferred stock having substantial voting rights are issued. |
The revenue, cost and gross profit realized on such contracts can vary, sometimes substantially, from the original projections due to a variety of factors, including, but not limited to: •failure to properly estimate costs of materials, including steel and steel components, engineering services, equipment, labor or subcontractors; •costs incurred in connection with modifications to a contract that may be unapproved by the customer as to scope, schedule, and/or price; •unanticipated technical problems with the structures, equipment or systems we supply; •unanticipated costs or claims, including costs for project modifications, customer-caused delays, errors or changes in specifications or designs, or contract termination; •changes in the costs of materials, engineering services, equipment, labor or subcontractors; •changes in labor conditions, including the availability and productivity of labor; •productivity and other delays caused by weather conditions; •failure to engage necessary suppliers or subcontractors, or failure of such suppliers or subcontractors to perform; •difficulties in obtaining required governmental permits or approvals; •changes in laws and regulations; and •changes in general economic conditions. |
For example, with any past or future acquisition, there is the possibility that: •we may not have implemented company policies, procedures and cultures, in an efficient and effective manner; •we may not be able to successfully reduce costs, increase advertising revenue or audience share; •we may fail to retain and integrate employees and key personnel of the acquired business and assets; •our management may be reassigned from overseeing existing operations by the need to integrate the acquired business; •we may encounter unforeseen difficulties in extending internal control and financial reporting systems at the newly acquired business; •we may fail to successfully implement technological integration with the newly acquired business or may exceed the capabilities of our technology infrastructure and applications; •we may not be able to generate adequate returns; •we may encounter and fail to address risks or other problems associated with or arising from our reliance on the representations and warranties and related indemnities, if any, provided to us by the sellers of acquired companies and assets; •we may suffer adverse short-term effects on operating results through increased costs and may incur future impairments of goodwill associated with the acquired business; •we may be required to increase our leverage and debt service or to assume unexpected liabilities in connection with our acquisitions; and •we may encounter unforeseen challenges in entering new markets in which we have little or no experience. |
The Secured Notes are secured by a first priority lien on substantially all of the Company’s assets (except for certain "Excluded Assets," and subject to certain "Permitted Liens," each as defined in the Secured Indenture), including, without limitation: •all equity interests owned by the Company or a Subsidiary Guarantor (which, in the case of any equity interest in a foreign subsidiary, will be limited to 100% of the non-voting stock (if any) and 65% of the voting stock of such foreign subsidiary) and the related rights and privileges associated therewith (but excluding Equity Interests of Insurance Subsidiaries (as defined in the Secured Indenture), to the extent the pledge thereof is deemed a "change of control" under applicable insurance regulations); •all equipment, goods and inventory owned by the Company or a Subsidiary Guarantor; •all cash and investment securities owned by the Company or a Subsidiary Guarantor; •all documents, books and records, instruments and chattel paper owned by the Company or a Subsidiary Guarantor; •all general intangibles owned by the Company or a Subsidiary Guarantor; and •any proceeds and supporting obligations thereof. |
In conjunction with the conversions, the Company agreed to provide the following two forms of additional consideration for as long as the Preferred Stock remained entitled to receive dividend payments (the "Additional Share Consideration"): •The Company agreed that in the event that Corrib and Luxor would have been entitled to any Participating Dividends payable, had they not converted the Preferred Stock (as defined in the respective Series A and Series A-1 Certificate of Designation), after the date of their Preferred Share conversion, then the Company will issue to Corrib and Luxor, on the date such Participating Dividends HC2 HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED become payable by the Company, in a transaction exempt from the registration requirements of the Securities Act the number of shares of common stock equal to (a) the value of the Participating Dividends Corrib or Luxor would have received pursuant to Sections (2)(c) and (2)(d) of the respective Series A and Series A-1 Certificate of Designation, divided by (b) the Thirty Day VWAP (as defined in the respective Series A and Series A-1 Certificate of Designation) for the period ending two business days prior to the underlying event or transaction that would have entitled Corrib or Luxor to such Participating Dividend had Corrib’s or Luxor’s Preferred Stock remain unconverted. |
Our principal operating subsidiaries include the following assets: (i)DBM Global Inc. ("DBMG") (Construction), a family of companies providing fully integrated structural and steel construction services; (ii)Global Marine Group ("GMSL") (Marine Services), a leading provider of engineering and underwater services on submarine cables; (iii)American Natural Energy Corp. ("ANG") (Energy), a compressed natural gas fueling company; (iv)PTGi-International Carrier Services Inc. ("ICS") (Telecommunications), a provider of internet-based protocol and time-division multiplexing access for the transport of long-distance voice minutes; (v)Continental Insurance Group Ltd. ("CIG") (Insurance), a platform for our run-off long-term care and life and annuity business, through its insurance company, Continental General Insurance Company ("CGI" or the "Insurance Company"); (vi)Pansend Life Sciences, LLC ("Pansend") (Life Sciences), our subsidiary focused on supporting healthcare and biotechnology product development; (vii)HC2 Broadcasting Holdings Inc. and its subsidiaries ("HC2 Broadcasting"), a strategic acquirer and operator of Over-The-Air ("OTA") broadcasting stations across the United States ("U.S.") and Puerto Rico. |
Its services including plant maintenance, specialty welding, equipment rigging, and mechanical construction to customers in the power, industrial, petrochemical, water treatment, and refining markets at a national level; •Specialty construction solutions for processing markets: Customers in the pulp & paper, metals, mining & minerals, and petrochemical markets are able to receive specialized solutions including plant maintenance, process piping, equipment, and tank & vessel fabrication and erection that are catered to the needs and specifications of the customer’s industry through the Inco Services brand; •Turnarounds, tank construction, and piping services: GrayWolf offers services including plant maintenance, specialty welding, piping systems, and tanks & vessels construction to the power, refining, petrochemical, and water treatment markets in the Midwest, Mid-Atlantic, and West Coast; and •Custom steel fabrication: GrayWolf offers engineering, design, modularization, and additional services to the heavy industrial markets in the Midwest and Gulf Coast. |
This significant amount of indebtedness poses risks such as risk of inability to repay such indebtedness, as well as: •increased vulnerability to general adverse economic and industry conditions; •higher interest expense if interest rates increase on our floating rate borrowings are not effective to mitigate the effects of these increases; •our Secured Notes are secured by substantially all of HC2’s assets and those of certain of HC2’s subsidiaries that have guaranteed the Secured Notes, including certain equity interests in our other subsidiaries and other investments, as well as certain intellectual property and trademarks, and those assets cannot be pledged to secure other financings; •certain assets of our subsidiaries are pledged to secure their indebtedness, and those assets cannot be pledged to secure other financings; •our having to divert a significant portion of our cash flow from operations to payments on our indebtedness and other arrangements, thereby reducing the availability of cash to fund working capital, capital expenditures, acquisitions, investments and other general corporate purposes; •limiting our ability to obtain additional financing, on terms we find acceptable, if needed, for working capital, capital expenditures, expansion plans and other investments, which may limit our ability to implement our business strategy; •limiting our flexibility in planning for, or reacting to, changes in our businesses and the markets in which we operate or to take advantage of market opportunities; and •placing us at a competitive disadvantage compared to our competitors that have less debt and fewer other outstanding obligations. |
Our international operations are subject to a number of risks, including: •political conditions and events, including embargo; •changing regulatory environments, including as a result of Brexit; •outbreaks of pandemic diseases or fear of such outbreaks; •restrictive actions by U.S. and foreign governments; •the imposition of withholding or other taxes on foreign income, tariffs or restrictions on foreign trade and investment; •adverse tax consequences; •limitations on repatriation of earnings and cash; •currency exchange controls and import/export quotas; •nationalization, expropriation, asset seizure, blockades and blacklisting; •limitations in the availability, amount or terms of insurance coverage; •loss of contract rights and inability to adequately enforce contracts; •political instability, war and civil disturbances or other risks that may limit or disrupt markets, such as terrorist attacks, piracy and kidnapping; •fluctuations in currency exchange rates, hard currency shortages and controls on currency exchange that affect demand for our services and our profitability; •potential noncompliance with a wide variety of anti-corruption laws and regulations, such as the U.S. Foreign Corrupt Practices Act of 1977 (the "FCPA"), and similar non-U.S. laws and regulations, including the U.K. |
The issuance of additional shares of common stock or preferred stock may, among other things: •significantly dilute the equity interest and voting power of all other stockholders; •subordinate the rights of holders of our outstanding common stock and/or preferred stock if preferred stock is issued with rights senior to those afforded to holders of our common stock and/or preferred stock; •trigger an adjustment to the price at which all or a portion of our outstanding preferred stock converts into our common stock, if such stock is issued at a price lower than the then-applicable conversion price; •entitle our existing holders of preferred stock to purchase a portion of such issuance to maintain their ownership percentage, subject to certain exceptions; •call for us to make dividend or other payments not available to the holders of our common stock; and •cause a change in control of our company if a substantial number of shares of our common stock are issued and/or if additional shares of preferred stock having substantial voting rights are issued. |
While our Board of Directors and management team strive to maintain constructive, ongoing communications with all of our stockholders, including Percy Rockdale, and we welcome constructive input from all stockholders toward the shared goal of enhancing stockholder value, activist campaigns that contest, or seek to change, our strategic direction could have an adverse effect on us because: (i) responding to actions by activist stockholders can disrupt our operations, be costly (resulting in significant professional fees and proxy solicitation expenses) and time-consuming, and divert the attention of our Board of Directors and senior management from the pursuit of business strategies, which could materially and adversely affect our business, operating results and financial condition; (ii) perceived uncertainties as to our future direction may lead to the perception of a change in the direction of the business, instability or lack of continuity, which may be exploited by our competitors, cause concern to our stakeholders, including the current or potential customers of our operating segments, may result in the loss of potential business opportunities and make it more difficult to attract and retain qualified personnel and business partners; and (iii) these types of actions could cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business. |
The revenue, cost and gross profit realized on such contracts can vary, sometimes substantially, from the original projections due to a variety of factors, including, but not limited to: •failure to properly estimate costs of materials, including steel and steel components, engineering services, equipment, labor or subcontractors; •costs incurred in connection with modifications to a contract that may be unapproved by the customer as to scope, schedule, and/or price; •unanticipated technical problems with the structures, equipment or systems we supply; •unanticipated costs or claims, including costs for project modifications, customer-caused delays, errors or changes in specifications or designs, or contract termination; •changes in the costs of materials, engineering services, equipment, labor or subcontractors; •changes in labor conditions, including the availability and productivity of labor; •productivity and other delays caused by weather conditions; •failure to engage necessary suppliers or subcontractors, or failure of such suppliers or subcontractors to perform; •difficulties in obtaining required governmental permits or approvals; •changes in laws and regulations; and •changes in general economic conditions. |
For example, with any past or future acquisition, there is the possibility that: •we may not have implemented company policies, procedures and cultures, in an efficient and effective manner; •we may not be able to successfully reduce costs, increase advertising revenue or audience share; •we may fail to retain and integrate employees and key personnel of the acquired business and assets; •our management may be reassigned from overseeing existing operations by the need to integrate the acquired business; •we may encounter unforeseen difficulties in extending internal control and financial reporting systems at the newly acquired business; •we may fail to successfully implement technological integration with the newly acquired business or may exceed the capabilities of our technology infrastructure and applications; •we may not be able to generate adequate returns; •we may encounter and fail to address risks or other problems associated with or arising from our reliance on the representations and warranties and related indemnities, if any, provided to us by the sellers of acquired companies and assets; •we may suffer adverse short-term effects on operating results through increased costs and may incur future impairments of goodwill associated with the acquired business; •we may be required to increase our leverage and debt service or to assume unexpected liabilities in connection with our acquisitions; and •we may encounter unforeseen challenges in entering new markets in which we have little or no experience. |
In conjunction with the conversions, the Company agreed to provide the following two forms of additional consideration for as long as the Preferred Stock remained entitled to receive dividend payments (the "Additional Share Consideration"): •The Company agreed that in the event that Corrib and Luxor would have been entitled to any Participating Dividends payable, had they not converted the Preferred Stock (as defined in the respective Series A and Series A-1 Certificate of Designation), after the date of their Preferred Share conversion, then the Company will issue to Corrib and Luxor, on the date such Participating Dividends become payable by the Company, in a transaction exempt from the registration requirements of the Securities Act the number of shares of common stock equal to (a) the value of the Participating Dividends Corrib or Luxor would have received pursuant to Sections (2)(c) and (2)(d) of the respective Series A and Series A-1 Certificate of Designation, divided by (b) the Thirty Day VWAP (as defined in the respective Series A and Series A-1 Certificate of Designation) for the period ending two business days prior to the underlying event or transaction that would have entitled Corrib or Luxor to such Participating Dividend had Corrib’s or Luxor’s Preferred Stock remain unconverted. |
HC2 HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED •The Company agreed that it will issue to Corrib and Luxor, on each quarterly anniversary commencing May 29, 2017 (or, if later, the date on which the corresponding dividend payment is made to the holders of the outstanding Preferred Stock), through and until the Maturity Date (as defined in the respective Series A and Series A-1 Certificate of Designation), in a transaction exempt from the registration requirements of the Securities Act the number of shares of common stock equal to (a) 1.875% the Accrued Value (as defined in the respective Series A and Series A-1 Certificate of Designation) of Corrib’s or Luxor’s Preferred Stock as of the Closing Date (as defined in applicable Voluntary Conversion Agreements) divided by (b) the Thirty Day VWAP (as defined in the respective Series A and Series A-1 Certificate of Designation) for the period ending two business days prior to the applicable Dividend Payment Date (as defined in the respective Series A and Series A-1 Certificate of Designation). |
Our principal operating subsidiaries include the following assets: (i) DBM Global Inc. ("DBMG") (Construction), a family of companies providing fully integrated structural and steel construction services; (ii) Global Marine Group ("GMSL") (Marine Services), a leading provider of engineering and underwater services on submarine cables; (iii) American Natural Gas ("ANG") (Energy), a compressed natural gas fueling company; (iv) PTGi-International Carrier Services Inc. ("ICS") (Telecommunications), a provider of internet-based protocol and time-division multiplexing access for the transport of long-distance voice minutes; (v) Continental Insurance Group Ltd. ("CIG") (Insurance), a platform for our run-off long-term care and life and annuity business, through its insurance company, Continental General Insurance Company ("CGI" or the "Insurance Company"); (vi) Pansend Life Sciences, LLC ("Pansend") (Life Sciences), our subsidiary focused on supporting healthcare and biotechnology product development; (vii) HC2 Broadcasting Holdings Inc. ("HC2 Broadcasting") and its subsidiaries, a strategic acquirer and operator of Over-The-Air ("OTA") broadcasting stations across the United States ("U.S."). |
GrayWolf provides the following service types through its four major brands (Titan Contracting, Inco Services, Milco National Constructors and Titan Fabricators): • Specialty mechanical contracting services: GrayWolf offers services including plant maintenance, specialty welding, equipment rigging, and mechanical construction to customers in the power, industrial, petrochemical, water treatment, and refining markets at a national level; • Specialty construction solutions for processing markets: Customers in the pulp & paper, metals, mining & minerals, and petrochemical markets are able to receive specialized solutions including plant maintenance, process piping, equipment, and tank & vessel fabrication and erection that are catered to the needs and specifications of the customer’s industry through the Inco Services brand; • Turnarounds, tank construction, and piping services: GrayWolf offers services including plant maintenance, specialty welding, piping systems, and tanks & vessels construction to the power, refining, petrochemical, and water treatment markets in the Midwest, Mid-Atlantic, and West Coast; • Custom steel fabrication: GrayWolf offers engineering, design, modularization, and additional services to the heavy industrial markets in the Midwest and Gulf Coast; Suppliers DBMG currently purchases its steel from a variety of domestic and foreign steel producers but is not dependent on any one producer. |
This significant amount of indebtedness poses risks such as risk of inability to repay such indebtedness, as well as: • increased vulnerability to general adverse economic and industry conditions; • higher interest expense if interest rates increase on our floating rate borrowings are not effective to mitigate the effects of these increases; • our Secured Notes are secured by substantially all of HC2’s assets and those of certain of HC2’s subsidiaries that have guaranteed the Secured Notes, including certain equity interests in our other subsidiaries and other investments, as well as certain intellectual property and trademarks, and those assets cannot be pledged to secure other financings; • certain assets of our subsidiaries are pledged to secure their indebtedness, and those assets cannot be pledged to secure other financings; • our having to divert a significant portion of our cash flow from operations to payments on our indebtedness and other arrangements, thereby reducing the availability of cash to fund working capital, capital expenditures, acquisitions, investments and other general corporate purposes; • limiting our ability to obtain additional financing, on terms we find acceptable, if needed, for working capital, capital expenditures, expansion plans and other investments, which may limit our ability to implement our business strategy; • limiting our flexibility in planning for, or reacting to, changes in our businesses and the markets in which we operate or to take advantage of market opportunities; and • placing us at a competitive disadvantage compared to our competitors that have less debt and fewer other outstanding obligations. |
Our international operations are subject to a number of risks, including: • political conditions and events, including embargo; • changing regulatory environments, including as a result of Brexit; • restrictive actions by U.S. and foreign governments; • the imposition of withholding or other taxes on foreign income, tariffs or restrictions on foreign trade and investment; • adverse tax consequences; • limitations on repatriation of earnings and cash; • currency exchange controls and import/export quotas; • nationalization, expropriation, asset seizure, blockades and blacklisting; • limitations in the availability, amount or terms of insurance coverage; • loss of contract rights and inability to adequately enforce contracts; • political instability, war and civil disturbances or other risks that may limit or disrupt markets, such as terrorist attacks, piracy and kidnapping; • outbreaks of pandemic diseases or fear of such outbreaks; • fluctuations in currency exchange rates, hard currency shortages and controls on currency exchange that affect demand for our services and our profitability; • potential noncompliance with a wide variety of anti-corruption laws and regulations, such as the U.S. Foreign Corrupt Practices Act of 1977 (the "FCPA"), and similar non-U.S. laws and regulations, including the U.K. |
The issuance of additional shares of common stock or preferred stock may, among other things: • significantly dilute the equity interest and voting power of all other stockholders; • subordinate the rights of holders of our outstanding common stock and/or preferred stock if preferred stock is issued with rights senior to those afforded to holders of our common stock and/or preferred stock; • trigger an adjustment to the price at which all or a portion of our outstanding preferred stock converts into our common stock, if such stock is issued at a price lower than the then-applicable conversion price; • entitle our existing holders of preferred stock to purchase a portion of such issuance to maintain their ownership percentage, subject to certain exceptions; • call for us to make dividend or other payments not available to the holders of our common stock; and • cause a change in control of our company if a substantial number of shares of our common stock are issued and/or if additional shares of preferred stock having substantial voting rights are issued. |
The revenue, cost and gross profit realized on such contracts can vary, sometimes substantially, from the original projections due to a variety of factors, including, but not limited to: • failure to properly estimate costs of materials, including steel and steel components, engineering services, equipment, labor or subcontractors; • costs incurred in connection with modifications to a contract that may be unapproved by the customer as to scope, schedule, and/or price; • unanticipated technical problems with the structures, equipment or systems we supply; • unanticipated costs or claims, including costs for project modifications, customer-caused delays, errors or changes in specifications or designs, or contract termination; • changes in the costs of materials, engineering services, equipment, labor or subcontractors; • changes in labor conditions, including the availability and productivity of labor; • productivity and other delays caused by weather conditions; • failure to engage necessary suppliers or subcontractors, or failure of such suppliers or subcontractors to perform; • difficulties in obtaining required governmental permits or approvals; • changes in laws and regulations; and • changes in general economic conditions. |
Vessel construction, upgrade, refurbishment and repair projects may be subject to the risks of delay or cost overruns, including delays or cost overruns resulting from any one or more of the following: • unexpectedly long delivery times for, or shortages of, key equipment, parts or materials; • shortages of skilled labor and other shipyard personnel necessary to perform the work; • shipyard delays and performance issues; • failures or delays of third-party equipment vendors or service providers; • unforeseen increases in the cost of equipment, labor and raw materials, particularly steel; • work stoppages and other labor disputes; • unanticipated actual or purported change orders; • disputes with shipyards and suppliers; • design and engineering problems; • latent damages or deterioration to equipment and machinery in excess of engineering estimates and assumptions; • financial or other difficulties at shipyards; • interference from adverse weather conditions; • difficulties in obtaining necessary permits or in meeting permit conditions; and • customer acceptance delays. |
For example, with any past or future acquisition, there is the possibility that: • we may not have implemented company policies, procedures and cultures, in an efficient and effective manner; • we may not be able to successfully reduce costs, increase advertising revenue or audience share; • we may fail to retain and integrate employees and key personnel of the acquired business and assets; • our management may be reassigned from overseeing existing operations by the need to integrate the acquired business; • we may encounter unforeseen difficulties in extending internal control and financial reporting systems at the newly acquired business; • we may fail to successfully implement technological integration with the newly acquired business or may exceed the capabilities of our technology infrastructure and applications; • we may not be able to generate adequate returns; • we may encounter and fail to address risks or other problems associated with or arising from our reliance on the representations and warranties and related indemnities, if any, provided to us by the sellers of acquired companies and assets; • we may suffer adverse short-term effects on operating results through increased costs and may incur future impairments of goodwill associated with the acquired business; • we may be required to increase our leverage and debt service or to assume unexpected liabilities in connection with our acquisitions; and • we may encounter unforeseen challenges in entering new markets in which we have little or no experience. |
The Secured Notes are secured by a first priority lien on substantially all of the Company’s assets (except for certain "Excluded Assets," and subject to certain "Permitted Liens," each as defined in the Secured Indenture), including, without limitation: • all equity interests owned by the Company or a Subsidiary Guarantor (which, in the case of any equity interest in a foreign subsidiary, will be limited to 100% of the non-voting stock (if any) and 65% of the voting stock of such foreign subsidiary) and the related rights and privileges associated therewith (but excluding Equity Interests of Insurance Subsidiaries (as defined in the Secured Indenture), to the extent the pledge thereof is deemed a "change of control" under applicable insurance regulations); • all equipment, goods and inventory owned by the Company or a Subsidiary Guarantor; • all cash and investment securities owned by the Company or a Subsidiary Guarantor; • all documents, books and records, instruments and chattel paper owned by the Company or a Subsidiary Guarantor; • all general intangibles owned by the Company or a Subsidiary Guarantor; and • any proceeds and supporting obligations thereof. |
HC2 Holdings, Inc. and Subsidiaries Our actual results or other outcomes may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following: • limitations on our ability to successfully identify any strategic acquisitions or business opportunities and to compete for these opportunities with others who have greater resources; • our possible inability to generate sufficient liquidity, margins, earnings per share, cash flow and working capital from our operating segments; • our dependence on distributions from our subsidiaries to fund our operations and payments on our obligations; • the impact on our business and financial condition of our substantial indebtedness and the significant additional indebtedness and other financing obligations we may incur; • the impact of covenants in the Indenture governing HC2’s Notes, the Certificates of Designation governing HC2’s Preferred Stock and all other subsidiary debt obligations as summarized in Note 14. |
Debt Obligations and future financing agreements on our ability to operate our business and finance our pursuit of acquisition opportunities; • our dependence on certain key personnel, in particular, our Chief Executive Officer, Philip Falcone; • uncertain global economic conditions in the markets in which our operating segments conduct their businesses; • the ability of our operating segments to attract and retain customers; • increased competition in the markets in which our operating segments conduct their businesses; • our expectations regarding the timing, extent and effectiveness of our cost reduction initiatives and management’s ability to moderate or control discretionary spending; • management’s plans, goals, forecasts, expectations, guidance, objectives, strategies and timing for future operations, acquisitions, synergies, asset dispositions, fixed asset and goodwill impairment charges, tax and withholding expense, selling, general and administrative expenses, product plans, performance and results; • management’s assessment of market factors and competitive developments, including pricing actions and regulatory rulings; • the impact of additional material charges associated with our oversight of acquired or target businesses and the integration of our financial reporting; • the impact of expending significant resources in considering acquisition targets or business opportunities that are not consummated; • our expectations and timing with respect to our ordinary course acquisition activity and whether such acquisitions are accretive or dilutive to stockholders; • our expectations and timing with respect to any strategic dispositions and sales of our operating subsidiaries including GMSL, or businesses that we may make in the future and the effect of any such dispositions or sales on our results of operations; • our expectations and timing with respect to any strategic dispositions and sales of our operating subsidiaries or businesses that we may make in the future and the effect of any such dispositions or sales on our results of operations; • the possibility of indemnification claims arising out of divestitures of businesses; • tax consequences associated with our acquisition, holding and disposition of target companies and assets; • the effect any interests our officers, directors, stockholders and their respective affiliates may have in certain transactions in which we are involved; • our ability to effectively increase the size of our organization, if needed, and manage our growth; • the potential for, and our ability to, remediate future material weaknesses in our internal controls over financial reporting; • our possible inability to raise additional capital when needed or refinance our existing debt, on attractive terms, or at all; and • our possible inability to hire and retain qualified executive management, sales, technical and other personnel. |
Construction / DBM Global Inc. Our actual results or other outcomes of DBM Global, Inc. and its wholly-owned subsidiaries ("DBMG"), and, thus, our Construction segment, may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following: • its ability to realize cost savings from expected performance of contracts, whether as a result of improper estimates, performance, or otherwise; • potential impediments and limitations on our ability to complete ordinary course acquisitions in anticipated time frames or at all; • uncertain timing and funding of new contract awards, as well as project cancellations; • cost overruns on fixed-price or similar contracts or failure to receive timely or proper payments on cost-reimbursable contracts, whether as a result of improper estimates, performance, disputes, or otherwise; • risks associated with labor productivity, including performance of subcontractors that DBMG hires to complete projects; • its ability to settle or negotiate unapproved change orders and claims; • changes in the costs or availability of, or delivery schedule for, equipment, components, materials, labor or subcontractors; • adverse impacts from weather affecting DBMG’s performance and timeliness of completion of projects, which could lead to increased costs and affect the quality, costs or availability of, or delivery schedule for, equipment, components, materials, labor or subcontractors; • fluctuating revenue resulting from a number of factors, including the cyclical nature of the individual markets in which our customers operate; • adverse outcomes of pending claims or litigation or the possibility of new claims or litigation, and the potential effect of such claims or litigation on DBMG’s business, financial condition, results of operations or cash flow; and • lack of necessary liquidity to provide bid, performance, advance payment and retention bonds, guarantees, or letters of credit securing DBMG’s obligations under bids and contracts or to finance expenditures prior to the receipt of payment for the performance of contracts. |
Marine Services / Global Marine Group Our actual results or other outcomes of Global Marine Group ("GMSL"), and, thus, our Marine Services segment, may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following: • its ability to realize cost savings from expected performance of contracts, whether as a result of improper estimates, performance, or otherwise; • the possibility of global recession or market downturn with a reduction in capital spending within the targeted market segments in which the business operates; • project implementation issues and possible subsequent overruns; • risks associated with operating outside of core competencies when moving into different market segments; • possible loss or severe damage to marine assets; • vessel equipment aging or reduced reliability; • risks associated with two equity method investments that operate in China (i.e., Huawei Marine Systems Co. Limited, a Hong Kong holding company with a Chinese operating subsidiary and SB Submarine Systems Co. Ltd.); • risks related to noncompliance with a wide variety of anti-corruption laws; • changes to the local laws and regulatory environment in different geographical regions; • loss of key senior employees; • difficulties attracting enough skilled technical personnel; • foreign exchange rate risk; • liquidity risk; and • potential for financial loss arising from the failure by customers to fulfill their obligations as and when these obligations come due. |
Energy / ANG Holdings, Inc. Our actual results or other outcomes of ANG, and, thus, our Energy segment, may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following: • automobile and engine manufacturers’ limited production of originally manufactured natural gas vehicles and engines for the markets in which ANG participates; • environmental regulations and programs mandating the use of cleaner burning fuels; • competition from oil and gas companies, retail fuel providers, industrial gas companies, natural gas utilities and other organizations; • the infrastructure for natural gas vehicle fuels; • the safety and environmental risks of natural gas fueling operations and vehicle conversions; • our Energy segment’s ability to implement its business plan in a regulated environment; • the adoption, modification or repeal in environmental, tax, government regulations, and other programs and incentives that encourage the use of clean fuel and alternative vehicles; • demand for natural gas vehicles; • advances in other alternative vehicle fuels or technologies, or improvements in gasoline, diesel or hybrid engines; and • increases, decreases and general volatility in oil, gasoline, diesel and natural gas prices. |
Insurance / Continental Insurance Group Ltd. Our actual results or other outcomes of Continental Insurance Group Ltd. ("CIG"), the parent operating company of Continental General Insurance Company ("CGI"), which together comprise our Insurance segment, may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following: • our Insurance segment’s ability to maintain statutory capital and maintain or improve their financial strength; • our Insurance segment’s reserve adequacy, including the effect of changes to accounting or actuarial assumptions or methodologies; • the accuracy of our Insurance segment’s assumptions and estimates regarding future events and ability to respond effectively to such events, including mortality, morbidity, persistency, expenses, interest rates, tax liability, business mix, frequency of claims, severity of claims, contingent liabilities, investment performance, and other factors related to its business and anticipated results; • availability, affordability and adequacy of reinsurance and credit risk associated with reinsurance; • extensive regulation and numerous legal restrictions on our Insurance segment; • our Insurance segment’s ability to defend itself against litigation, inherent in the insurance business (including class action litigation) and respond to enforcement investigations or regulatory scrutiny; • the performance of third parties, including distributors and technology service providers, and providers of outsourced services; • the impact of changes in accounting and reporting standards; • our Insurance segment’s ability to protect its intellectual property; • general economic conditions and other factors, including prevailing interest and unemployment rate levels and stock and credit market performance which may affect, among other things, our Insurance segment’s ability to access capital resources and the costs associated therewith, the fair value of our Insurance segment’s investments, which could result in impairments and other-than-temporary impairments, and certain liabilities; • our Insurance segment’s exposure to any particular sector of the economy or type of asset through concentrations in its investment portfolio; • the ability to increase sufficiently, and in a timely manner, premiums on in-force long-term care insurance policies and/or reduce in-force benefits, as may be required from time to time in the future (including as a result of our Insurance segment’s failure to obtain any necessary regulatory approvals or unwillingness or inability of policyholders to pay increased premiums); • other regulatory changes or actions, including those relating to regulation of financial services affecting, among other things, regulation of the sale, underwriting and pricing of products, and minimum capitalization, risk-based capital and statutory reserve requirements for our Insurance segment, and our Insurance segment’s ability to mitigate such requirements; • our Insurance segment’s ability to effectively implement its business strategy or be successful in the operation of its business; • our Insurance segment’s ability to retain, attract and motivate qualified employees; • interruption in telecommunication, information technology and other operational systems, or a failure to maintain the security, confidentiality or privacy of sensitive data residing on such systems; • medical advances, such as genetic research and diagnostic imaging, and related legislation; and • the occurrence of natural or man-made disasters or a pandemic. |
In conjunction with the conversions, the Company agreed to provide the following two forms of additional consideration for as long as the Preferred Stock remained entitled to receive dividend payments (the "Additional Share Consideration"): • The Company agreed that in the event that Corrib and Luxor would have been entitled to any Participating Dividends payable, had they not converted the Preferred Stock (as defined in the respective Series A and Series A-1 Certificate of Designation), after the date of their Preferred Share conversion, then the Company will issue to Corrib and Luxor, on the date such Participating Dividends become payable by the Company, in a transaction exempt from the registration requirements of the Securities Act the number of shares of common stock equal to (a) the value of the Participating Dividends Corrib or Luxor would have received pursuant to Sections (2)(c) and (2)(d) of the respective Series A and Series A-1 Certificate of Designation, divided by (b) the Thirty Day VWAP (as defined in the respective Series A and Series A-1 Certificate of Designation) for the period ending two business days prior to the underlying event or transaction that would have entitled Corrib or Luxor to such Participating Dividend had Corrib’s or Luxor’s Preferred Stock remain unconverted. |
Our principal operating subsidiaries include the following assets: (i) DBM Global Inc. ("DBMG") (Construction), a family of companies providing fully integrated structural and steel construction services; (ii) Global Marine Systems Limited ("GMSL") (Marine Services), a leading provider of engineering and underwater services on submarine cables; (iii) American Natural Gas ("ANG") (Energy), a compressed natural gas fueling company; (iv) PTGi-International Carrier Services Inc. ("ICS") (Telecommunications), a provider of internet-based protocol and time-division multiplexing access and transport of long-distance voice minutes; (v) Continental Insurance Group Ltd. ("CIG") (Insurance), a platform for our run-off long-term care and life and annuity business, through its insurance company, Continental General Insurance Company ("CGI" or the "Insurance Company"); (vi) Pansend Life Sciences, Ltd. ("Pansend") (Life Sciences), our subsidiary focused on supporting healthcare and biotechnology product development; and (vii) Other, including controlling interests in 704Games Company (f/k/a DMi, Inc.) ("704Games"), which owns licenses to create and distribute NASCAR® video games and HC2 Broadcasting Holdings Inc. ("Broadcasting"), which strategically acquires broadcasting assets across the United States. |
The indenture governing the 11.0% Notes dated November 20, 2014, by and among HC2, the guarantors party thereto and U.S. Bank National Association, a national banking association ("U.S. Bank"), as trustee (the "11.0% Notes Indenture"), contain, and any future indentures may contain, various covenants, including those that restrict our ability to, among other things: • incur liens on our property, assets and revenue; • borrow money, and guarantee or provide other support for the indebtedness of third parties; • redeem or repurchase our capital stock; • prepay, redeem or repurchase certain of our indebtedness, including our preferred stock; • enter into certain change of control transactions; • make investments in entities that we do not control, including joint ventures; • enter into certain asset sale transactions, including divestiture of certain Company assets and divestiture of capital stock of wholly-owned subsidiaries; • enter into certain transactions with affiliates; • enter into secured financing arrangements; and • enter into sale and leaseback transactions. |
This significant amount of indebtedness poses risks such as risk of inability to repay such indebtedness, as well as: • increased vulnerability to general adverse economic and industry conditions; • higher interest expense if interest rates increase on our floating rate borrowings are not effective to mitigate the effects of these increases; • our 11.0% Notes are secured by substantially all of HC2’s assets and those of certain of HC2’s subsidiaries that have guaranteed the 11.0% Notes, including certain equity interests in our other subsidiaries and other investments, as well as certain intellectual property and trademarks, and those assets cannot be pledged to secure other financings; • certain assets of our subsidiaries are pledged to secure their indebtedness, and those assets cannot be pledged to secure other financings; • our having to divert a significant portion of our cash flow from operations to payments on our indebtedness and other arrangements, thereby reducing the availability of cash to fund working capital, capital expenditures, acquisitions, investments and other general corporate purposes; • limiting our ability to obtain additional financing, on terms we find acceptable, if needed, for working capital, capital expenditures, expansion plans and other investments, which may limit our ability to implement our business strategy; • limiting our flexibility in planning for, or reacting to, changes in our businesses and the markets in which we operate or to take advantage of market opportunities; and • placing us at a competitive disadvantage compared to our competitors that have less debt and fewer other outstanding obligations. |
Our international operations are subject to a number of risks, including: • political conditions and events, including embargo; • restrictive actions by U.S. and foreign governments; • the imposition of withholding or other taxes on foreign income, tariffs or restrictions on foreign trade and investment; • adverse tax consequences; • limitations on repatriation of earnings and cash; • currency exchange controls and import/export quotas; • nationalization, expropriation, asset seizure, blockades and blacklisting; • limitations in the availability, amount or terms of insurance coverage; • loss of contract rights and inability to adequately enforce contracts; • political instability, war and civil disturbances or other risks that may limit or disrupt markets, such as terrorist attacks, piracy and kidnapping; • outbreaks of pandemic diseases or fear of such outbreaks; • fluctuations in currency exchange rates, hard currency shortages and controls on currency exchange that affect demand for our services and our profitability; • potential noncompliance with a wide variety of anti-corruption laws and regulations, such as the U.S. Foreign Corrupt Practices Act of 1977 (the "FCPA"), and similar non-U.S. laws and regulations, including the U.K. |
The issuance of additional shares of common stock or preferred stock may, among other things: • significantly dilute the equity interest and voting power of all other stockholders; • subordinate the rights of holders of our outstanding common stock and/or preferred stock if preferred stock is issued with rights senior to those afforded to holders of our common stock and/or preferred stock; • trigger an adjustment to the price at which all or a portion of our outstanding preferred stock converts into our common stock, if such stock is issued at a price lower than the then-applicable conversion price; • entitle our existing holders of preferred stock to purchase a portion of such issuance to maintain their ownership percentage, subject to certain exceptions; • call for us to make dividend or other payments not available to the holders of our common stock; and • cause a change in control of our company if a substantial number of shares of our common stock are issued and/or if additional shares of preferred stock having substantial voting rights are issued. |
The revenue, cost and gross profit realized on such contracts can vary, sometimes substantially, from the original projections due to a variety of factors, including, but not limited to: • failure to properly estimate costs of materials, including steel and steel components, engineering services, equipment, labor or subcontractors; • costs incurred in connection with modifications to a contract that may be unapproved by the customer as to scope, schedule, and/or price; • unanticipated technical problems with the structures, equipment or systems we supply; • unanticipated costs or claims, including costs for project modifications, customer-caused delays, errors or changes in specifications or designs, or contract termination; • changes in the costs of materials, engineering services, equipment, labor or subcontractors; • changes in labor conditions, including the availability and productivity of labor; • productivity and other delays caused by weather conditions; • failure to engage necessary suppliers or subcontractors, or failure of such suppliers or subcontractors to perform; • difficulties in obtaining required governmental permits or approvals; • changes in laws and regulations; and • changes in general economic conditions. |
Vessel construction, upgrade, refurbishment and repair projects may be subject to the risks of delay or cost overruns, including delays or cost overruns resulting from any one or more of the following: • unexpectedly long delivery times for, or shortages of, key equipment, parts or materials; • shortages of skilled labor and other shipyard personnel necessary to perform the work; • shipyard delays and performance issues; • failures or delays of third-party equipment vendors or service providers; • unforeseen increases in the cost of equipment, labor and raw materials, particularly steel; • work stoppages and other labor disputes; • unanticipated actual or purported change orders; • disputes with shipyards and suppliers; • design and engineering problems; • latent damages or deterioration to equipment and machinery in excess of engineering estimates and assumptions; • financial or other difficulties at shipyards; • interference from adverse weather conditions; • difficulties in obtaining necessary permits or in meeting permit conditions; and • customer acceptance delays. |
Factors that could affect such build-out include: • municipal or regional political events or local rulings; • our ability to obtain permits to use public rights of way; • state municipal elections and change of local government administration; • our ability to generate cash flow or to obtain future financing necessary for such build-out; • unforeseen delays, costs or impediments relating to the granting of municipal and state permits for our build-out; and • delays or disruptions resulting from physical damage, power loss, defective equipment or the failure of third party suppliers or contractors to meet their obligations in a timely and cost−effective manner; and regulatory and political risks, such as the revocation or termination of our concessions, the temporary seizure or permanent expropriation of assets, import and export controls, political instability, changes in the regulation of telecommunications and any future restrictions or easing of restrictions on the repatriation of profits or on foreign investment. |
For example, with any past or future acquisition, there is the possibility that: • we may not have implemented company policies, procedures and cultures, in an efficient and effective manner; • we may not be able to successfully reduce costs, increase advertising revenue or audience share; • we may fail to retain and integrate employees and key personnel of the acquired business and assets; • our management may be reassigned from overseeing existing operations by the need to integrate the acquired business; • we may encounter unforeseen difficulties in extending internal control and financial reporting systems at the newly acquired business; • we may fail to successfully implement technological integration with the newly acquired business or may exceed the capabilities of our technology infrastructure and applications; • we may not be able to generate adequate returns; • we may encounter and fail to address risks or other problems associated with or arising from our reliance on the representations and warranties and related indemnities, if any, provided to us by the sellers of acquired companies and assets; • we may suffer adverse short-term effects on operating results through increased costs and may incur future impairments of goodwill associated with the acquired business; • we may be required to increase our leverage and debt service or to assume unexpected liabilities in connection with our acquisitions; and • we may encounter unforeseen challenges in entering new markets in which we have little or no experience. |
HC2 Holdings, Inc. and Subsidiaries Our actual results or other outcomes may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following: • limitations on our ability to successfully identify any strategic acquisitions or business opportunities and to compete for these opportunities with others who have greater resources; • our possible inability to generate sufficient liquidity, margins, EPS, cash flow and working capital from our operating segments; • our dependence on distributions from our subsidiaries to fund our operations and payments on our obligations; • the impact on our business and financial condition of our substantial indebtedness and the significant additional indebtedness and other financing obligations we may incur; • the impact of covenants in the Certificates of Designation governing HC2’s preferred stock, the indenture governing the notes, the Credit and Security Agreement governing the DBM Global Facility (as defined herein), the CWind Limited line of credit with Barclays, the ANG term loans and notes with Signature Financial, Pioneer Savings Bank and M&T Bank, the Broadcasting Bridge Loan and future financing agreements on our ability to operate our business and finance our pursuit of acquisition opportunities; • our dependence on certain key personnel, in particular, our Chief Executive Officer, Philip Falcone; • uncertain global economic conditions in the markets in which our operating segments conduct their businesses; • the ability of our operating segments to attract and retain customers; • increased competition in the markets in which our operating segments conduct their businesses; • our expectations regarding the timing, extent and effectiveness of our cost reduction initiatives and management’s ability to moderate or control discretionary spending; • management’s plans, goals, forecasts, expectations, guidance, objectives, strategies and timing for future operations, acquisitions, synergies, asset dispositions, fixed asset and goodwill impairment charges, tax and withholding expense, selling, general and administrative expenses, product plans, performance and results; • management’s assessment of market factors and competitive developments, including pricing actions and regulatory rulings; • the impact of additional material charges associated with our oversight of acquired or target businesses and the integration of our financial reporting; • the impact of expending significant resources in considering acquisition targets or business opportunities that are not consummated; • our expectations and timing with respect to our ordinary course acquisition activity and whether such acquisitions are accretive or dilutive to shareholders; • our expectations and timing with respect to any strategic dispositions and sales of our operating subsidiaries or businesses that we may make in the future and the effect of any such dispositions or sales on our results of operations; • the possibility of indemnification claims arising out of divestitures of businesses; • tax consequences associated with our acquisition, holding and disposition of target companies and assets; • the effect any interests our officers, directors, stockholders and their respective affiliates may have in certain transactions in which we are involved; • our ability to effectively increase the size of our organization, if needed, and manage our growth; • the potential for, and our ability to, remediate future material weaknesses in our internal controls over financial reporting; • our possible inability to raise additional capital when needed or refinance our existing debt, on attractive terms, or at all; and • our possible inability to hire and retain qualified executive management, sales, technical and other personnel. |
Construction / DBM Global Inc. Our actual results or other outcomes of DBM Global, Inc. and its wholly-owned subsidiaries ("DBMG"), and thus, our Construction segment, may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following: • its ability to realize cost savings from expected performance of contracts, whether as a result of improper estimates, performance, or otherwise; • potential impediments and limitations on our ability to complete ordinary course acquisitions in anticipated time frames or at all; • uncertain timing and funding of new contract awards, as well as project cancellations; • cost overruns on fixed-price or similar contracts or failure to receive timely or proper payments on cost-reimbursable contracts, whether as a result of improper estimates, performance, disputes, or otherwise; • risks associated with labor productivity, including performance of subcontractors that DBMG hires to complete projects; • its ability to settle or negotiate unapproved change orders and claims; • changes in the costs or availability of, or delivery schedule for, equipment, components, materials, labor or subcontractors; • adverse impacts from weather affecting DBMG’s performance and timeliness of completion of projects, which could lead to increased costs and affect the quality, costs or availability of, or delivery schedule for, equipment, components, materials, labor or subcontractors; • fluctuating revenue resulting from a number of factors, including the cyclical nature of the individual markets in which our customers operate; • adverse outcomes of pending claims or litigation or the possibility of new claims or litigation, and the potential effect of such claims or litigation on DBMG’s business, financial condition, results of operations or cash flow; and • lack of necessary liquidity to provide bid, performance, advance payment and retention bonds, guarantees, or letters of credit securing DBMG’s obligations under bids and contracts or to finance expenditures prior to the receipt of payment for the performance of contracts. |
Marine Services / Global Marine Systems Limited Our actual results or other outcomes of Global Marine Systems Limited ("GMSL"), and thus, our Marine Services segment, may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following: • its ability to realize cost savings from expected performance of contracts, whether as a result of improper estimates, performance, or otherwise; • the possibility of global recession or market downturn with a reduction in capital spending within the targeted market segments in which the business operates; • project implementation issues and possible subsequent overruns; • risks associated with operating outside of core competencies when moving into different market segments; • possible loss or severe damage to marine assets; • vessel equipment aging or reduced reliability; • risks associated with operating two joint ventures in China (i.e., Huawei Marine Systems Co. Limited, a Hong Kong holding company with a Chinese operating subsidiary and SB Submarine Systems Co. Ltd.); • risks related to noncompliance with a wide variety of anti-corruption laws; • changes to the local laws and regulatory environment in different geographical regions; • loss of key senior employees; • difficulties attracting enough skilled technical personnel; • foreign exchange rate risk; • liquidity risk; and • potential for financial loss arising from the failure by customers to fulfill their obligations as and when these obligations come due. |
Energy / ANG Holdings, Inc. Our actual results or other outcomes of ANG, and thus, our Energy segment, may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following: • automobile and engine manufacturers’ limited production of originally manufactured natural gas vehicles and engines for the markets in which ANG participates; • environmental regulations and programs mandating the use of cleaner burning fuels; • competition from oil and gas companies, retail fuel providers, industrial gas companies, natural gas utilities and other organizations; • the infrastructure for natural gas vehicle fuels; • the safety and environmental risks of natural gas fueling operations and vehicle conversions; • our Energy segment’s ability to implement its business plan in a regulated environment; • the adoption, modification or repeal in environmental, tax, government regulations, and other programs and incentives that encourage the use of clean fuel and alternative vehicles; • demand for natural gas vehicles; • advances in other alternative vehicle fuels or technologies, or improvements in gasoline, diesel or hybrid engines; and • increases, decreases and general volatility in oil, gasoline, diesel and natural gas prices. |
Insurance / Continental Insurance Group Ltd. Our actual results or other outcomes of Continental Insurance Group Ltd. ("CIG"), the parent operating company of Continental General Insurance Company ("CGI"), and together comprise our Insurance segment, may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following: • our Insurance segment’s ability to maintain statutory capital and maintain or improve their financial strength; • our Insurance segment’s reserve adequacy, including the effect of changes to accounting or actuarial assumptions or methodologies; • the accuracy of our Insurance segment’s assumptions and estimates regarding future events and ability to respond effectively to such events, including mortality, morbidity, persistency, expenses, interest rates, tax liability, business mix, frequency of claims, severity of claims, contingent liabilities, investment performance, and other factors related to its business and anticipated results; • availability, affordability and adequacy of reinsurance and credit risk associated with reinsurance; • extensive regulation and numerous legal restrictions on our Insurance segment; • our Insurance segment’s ability to defend itself against litigation, inherent in the insurance business (including class action litigation) and respond to enforcement investigations or regulatory scrutiny; • the performance of third parties, including distributors and technology service providers, and providers of outsourced services; • the impact of changes in accounting and reporting standards; • our Insurance segment’s ability to protect its intellectual property; • general economic conditions and other factors, including prevailing interest and unemployment rate levels and stock and credit market performance which may affect, among other things, our Insurance segment’s ability to access capital resources and the costs associated therewith, the fair value of our Insurance segment’s investments, which could result in impairments and other-than-temporary impairments, and certain liabilities; • our Insurance segment’s exposure to any particular sector of the economy or type of asset through concentrations in its investment portfolio; • the ability to increase sufficiently, and in a timely manner, premiums on in-force long-term care insurance policies and/or reduce in-force benefits, as may be required from time to time in the future (including as a result of our Insurance segment’s failure to obtain any necessary regulatory approvals or unwillingness or inability of policyholders to pay increased premiums); • other regulatory changes or actions, including those relating to regulation of financial services affecting, among other things, regulation of the sale, underwriting and pricing of products, and minimum capitalization, risk-based capital and statutory reserve requirements for our Insurance segment, and our Insurance segment’s ability to mitigate such requirements; • our Insurance segment’s ability to effectively implement its business strategy or be successful in the operation of its business; • our Insurance segment’s ability to retain, attract and motivate qualified employees; • interruption in telecommunication, information technology and other operational systems, or a failure to maintain the security, confidentiality or privacy of sensitive data residing on such systems; • medical advances, such as genetic research and diagnostic imaging, and related legislation; and • the occurrence of natural or man-made disasters or a pandemic. |
The Company agreed that in the event that Corrib and Luxor would have been entitled to any Participating Dividends payable, had they not converted the Preferred Stock (as defined in the respective Series A and Series A-1 Certificate of Designation), after the date of their Preferred Share conversion, then the Company will issue to Corrib and Luxor, on the date such Participating Dividends become payable by the Company, in a transaction exempt from the registration requirements of the Securities Act the number of shares of common stock equal to (a) the value of the Participating Dividends Corrib or Luxor would have received pursuant to Sections (2)(c) and (2)(d) of the respective Series A and Series A-1 Certificate of Designation, divided by (b) the Thirty Day VWAP (as defined in the respective Series A and Series A-1 Certificate of Designation) for the period ending two business days prior to the underlying event or transaction that would have entitled Corrib or Luxor to such Participating Dividend had Corrib’s or Luxor’s Preferred Stock remain unconverted. |
HC2 HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Further, the Company agreed that it will issue to Corrib and Luxor, on each quarterly anniversary commencing May 29, 2017 (or, if later, the date on which the corresponding dividend payment is made to the holders of the outstanding Preferred Stock), through and until the Maturity Date (as defined in the respective Series A and Series A-1 Certificate of Designation), in a transaction exempt from the registration requirements of the Securities Act the number of shares of common stock equal to (a) 1.875% the Accrued Value (as defined in the respective Series A and Series A-1 Certificate of Designation) of Corrib’s or Luxor’s Preferred Stock as of the Closing Date (as defined in applicable Voluntary Conversion Agreements) divided by (b) the Thirty Day VWAP (as defined in the respective Series A and Series A-1 Certificate of Designation) for the period ending two business days prior to the applicable Dividend Payment Date (as defined in the respective Series A and Series A-1 Certificate of Designation). |
Pursuant to the terms of the Series A Voluntary Conversion Agreement, HC2 and Hudson mutually agreed that on the closing date of the voluntary conversion, (i) Hudson voluntarily converted 12,499 of the 12,500 shares of Series A Preferred Stock it held into 2,980,912 shares of HC2’s common stock pursuant to the terms of the Certificate of Designation of Series A Convertible Participating Preferred Stock (the "Series A Certificate of Designation"), with such amount representing the number of shares of common stock into which the 12,499 shares of Series A Preferred Stock held by Hudson convertible pursuant to the terms of the Series A Certificate of Designation and (ii) in consideration of the conversion referenced in clause (i) above, the Company issued to the Series A holder in exchange for the single remaining share of Series A Preferred Stock held, in an exchange transaction exempt from the registration requirements of the Securities Act of 1933 and all of the rules and regulations promulgated thereunder (the "Securities Act") under Section 3(a)(9) of the Securities Act, 770,926 shares of common stock. |
Our principal operating subsidiaries include the following assets: (i) DBM Global Inc. (Construction), a family of companies providing fully integrated structural and steel construction services; (ii) Global Marine Systems Limited (Marine Services), a leading provider of engineering and underwater services on submarine cables; (iii) Continental Insurance Group Ltd. (Insurance), a platform for our run-off long-term care and life and annuity business, through its insurance company, Continental General Insurance Company ("CGI" or the "Insurance Company"); (iv) PTGi-International Carrier Services Inc. ("ICS") (Telecommunications), a provider of internet-based protocol and time-division multiplexing access and transport of long-distance voice minutes; (v) American Natural Gas (Energy), a compressed natural gas fueling company; (vi) Pansend Life Sciences, Ltd. (Life Sciences), our subsidiary focused on supporting healthcare and biotechnology product development; and (vii) Other includes controlling interests in DMi, Inc., ("DMi") which owns licenses to create and distribute NASCAR® video games, and NerVve, Inc. ("NerVve"), which provides analytics on broadcast TV, digital and social media online platforms. |
Our ability to generate cash depends on many factors beyond our control, and any failure to meet our debt service obligations, including under the 11.0% Notes, the 11.0% Bridge Note (as defined), the DBMG Facility, the ANG Facilities (as defined), the GMSL Facility (as defined) and the CWind Facility (as defined), as well as the obligations with respect to (i) 30,000 shares of Series A Preferred Stock issued on May 29, 2014 (of which 14,364 shares have been converted into common stock as of December 31, 2016), (ii) 11,000 shares of Series A-1 Preferred Stock issued on September 22, 2014 (of which 10,000 shares have been converted into common stock as of December 31, 2016), and (iii) 14,000 shares of Series A-2 Preferred Stock (together with the Series A Preferred Stock and Series A-1 Preferred Stock, the “Preferred Stock”) issued on January 5, 2015, each of which is governed by a certificate of designation forming a part of HC2’s Certificate of Incorporation (collectively, the “Certificates of Designation”), could harm our business, financial condition and results of operations. |
This significant amount of indebtedness poses risks such as risk of inability to repay such indebtedness, as well as: •increased vulnerability to general adverse economic and industry conditions; • higher interest expense if interest rates increase on our floating rate borrowings are not effective to mitigate the effects of these increases; • our 11.0% Notes and the 11.0% Bridge Note are secured by substantially all of HC2’s assets and those of certain of HC2’s subsidiaries that have guaranteed the 11.0% Notes and the 11.0% Bridge Note, including certain equity interests in our other subsidiaries and other investments, as well as certain intellectual property and trademarks, and those assets cannot be pledged to secure other financings; • certain assets of our subsidiaries are pledged to secure their indebtedness, and those assets cannot be pledged to secure other financings; • our having to divert a significant portion of our cash flow from operations to payments on our indebtedness and other arrangements, thereby reducing the availability of cash to fund working capital, capital expenditures, acquisitions, investments and other general corporate purposes; • limiting our ability to obtain additional financing, on terms we find acceptable, if needed, for working capital, capital expenditures, expansion plans and other investments, which may limit our ability to implement our business strategy; • limiting our flexibility in planning for, or reacting to, changes in our businesses and the markets in which we operate or to take advantage of market opportunities; and • placing us at a competitive disadvantage compared to our competitors that have less debt and fewer other outstanding obligations. |
Our international operations are subject to a number of risks, including: •political conditions and events, including embargo; •restrictive actions by U.S. and foreign governments; •the imposition of withholding or other taxes on foreign income, tariffs or restrictions on foreign trade and investment; •adverse tax consequences; •limitations on repatriation of earnings and cash; •currency exchange controls and import/export quotas; •nationalization, expropriation, asset seizure, blockades and blacklisting; •limitations in the availability, amount or terms of insurance coverage; •loss of contract rights and inability to adequately enforce contracts; • political instability, war and civil disturbances or other risks that may limit or disrupt markets, such as terrorist attacks, piracy and kidnapping; •outbreaks of pandemic diseases or fear of such outbreaks; • fluctuations in currency exchange rates, hard currency shortages and controls on currency exchange that affect demand for our services and our profitability; • potential noncompliance with a wide variety of anti-corruption laws and regulations, such as the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”), and similar non-U.S. laws and regulations, including the U.K. |
The issuance of additional shares of common stock or preferred stock may, among other things: • significantly dilute the equity interest and voting power of all other stockholders; • subordinate the rights of holders of our outstanding common stock and/or Preferred Stock if preferred stock is issued with rights senior to those afforded to holders of our common stock and/or Preferred Stock; • trigger an adjustment to the price at which all or a portion of our outstanding Preferred Stock converts into our common stock, if such stock is issued at a price lower than the then-applicable conversion price; • entitle our existing holders of Preferred Stock to purchase a portion of such issuance to maintain their ownership percentage, subject to certain exceptions; • call for us to make dividend or other payments not available to the holders of our common stock; and • cause a change in control of our company if a substantial number of shares of our common stock are issued and/or if additional shares of preferred stock having substantial voting rights are issued. |
The revenue, cost and gross profit realized on such contracts can vary, sometimes substantially, from the original projections due to a variety of factors, including, but not limited to: • failure to properly estimate costs of materials, including steel and steel components, engineering services, equipment, labor or subcontractors; • costs incurred in connection with modifications to a contract that may be unapproved by the customer as to scope, schedule, and/or price; • unanticipated technical problems with the structures, equipment or systems we supply; • unanticipated costs or claims, including costs for project modifications, customer-caused delays, errors or changes in specifications or designs, or contract termination; • changes in the costs of materials, engineering services, equipment, labor or subcontractors; • changes in labor conditions, including the availability and productivity of labor; • productivity and other delays caused by weather conditions; • failure to engage necessary suppliers or subcontractors, or failure of such suppliers or subcontractors to perform; •difficulties in obtaining required governmental permits or approvals; •changes in laws and regulations; and •changes in general economic conditions. |
Vessel construction, upgrade, refurbishment and repair projects may be subject to the risks of delay or cost overruns, including delays or cost overruns resulting from any one or more of the following: • unexpectedly long delivery times for, or shortages of, key equipment, parts or materials; • shortages of skilled labor and other shipyard personnel necessary to perform the work; • shipyard delays and performance issues; • failures or delays of third-party equipment vendors or service providers; • unforeseen increases in the cost of equipment, labor and raw materials, particularly steel; • work stoppages and other labor disputes; • unanticipated actual or purported change orders; • disputes with shipyards and suppliers; • design and engineering problems; • latent damages or deterioration to equipment and machinery in excess of engineering estimates and assumptions; • financial or other difficulties at shipyards; • interference from adverse weather conditions; • difficulties in obtaining necessary permits or in meeting permit conditions; and • customer acceptance delays. |
Factors that could affect such build-out include: •municipal or regional political events or local rulings; •our ability to obtain permits to use public rights of way; •state municipal elections and change of local government administration; •our ability to generate cash flow or to obtain future financing necessary for such build-out; •unforeseen delays, costs or impediments relating to the granting of municipal and state permits for our build-out; and • delays or disruptions resulting from physical damage, power loss, defective equipment or the failure of third party suppliers or contractors to meet their obligations in a timely and cost−effective manner; and regulatory and political risks, such as the revocation or termination of our concessions, the temporary seizure or permanent expropriation of assets, import and export controls, political instability, changes in the regulation of telecommunications and any future restrictions or easing of restrictions on the repatriation of profits or on foreign investment. |
HC2 Holdings, Inc. and Subsidiaries Our actual results or other outcomes may differ from those expressed or implied by forward-looking statements contained or incorporated herein due to a variety of important factors, including, without limitation, the following: • limitations on our ability to successfully identify any strategic acquisitions or business opportunities and to compete for these opportunities with others who have greater resources; • our possible inability to generate sufficient liquidity, margins, earnings per share, cash flow and working capital from our operating segments; • our dependence on distributions from our subsidiaries to fund our operations and payments on our obligations; • the impact on our business and financial condition of our substantial indebtedness and the significant additional indebtedness and other financing obligations we may incur; • the impact of covenants in the Certificates of Designation governing HC2’s preferred stock, the 11.0% Notes Indenture, the Credit and Security Agreement governing the DBMG Facility (as defined herein), the CWind line of credit with Barclays (“CWind Facility”), the ANG term loans and notes with Signature Financial and Pioneer Savings Bank (“ANG Facilities”), and future financing agreements, on our ability to operate our business and finance our pursuit of acquisition opportunities; • our dependence on certain key personnel, in particular, our Chief Executive Officer, Philip Falcone; • the potential for, and our ability to, remediate future material weaknesses in our internal controls over financial reporting; • uncertain global economic conditions in the markets in which our operating segments conduct their businesses; • the ability of our operating segments to attract and retain customers; • increased competition in the markets in which our operating segments conduct their businesses; • our expectations regarding the timing, extent and effectiveness of our cost reduction initiatives and management’s ability to moderate or control discretionary spending; • management’s plans, goals, forecasts, expectations, guidance, objectives, strategies and timing for future operations, acquisitions, synergies, asset dispositions, fixed asset and goodwill impairment charges, tax and withholding expense, selling, general and administrative expenses, product plans, performance and results; • management’s assessment of market factors and competitive developments, including pricing actions and regulatory rulings; • the impact of additional material charges associated with our oversight of acquired or target businesses and the integration of our financial reporting; • the impact of expending significant resources in considering acquisition targets or business opportunities that are not consummated; • the possibility of indemnification claims arising out of divestitures of businesses; • tax consequences associated with our acquisition, holding and disposition of target companies and assets; • the effect any interests our officers, directors, stockholders and their respective affiliates may have in certain transactions in which we are involved; • the impact on the holders of HC2’s common stock if we issue additional shares of HC2 common stock or preferred stock; • the impact of decisions by HC2’s significant stockholders, whose interest may differ from those of HC2’s other stockholders, or their ceasing to remain significant stockholders; •our ability to effectively increase the size of our organization, if needed, and manage our growth; •our possible inability to raise additional capital when needed or refinance our existing debt, on attractive terms, or at all; and •our possible inability to hire and retain qualified executive management, sales, technical and other personnel. |
Construction / DBM Global Inc. Our actual results or other outcomes of DBMG, f/k/a Schuff International, Inc, and thus, our Construction segment, may differ from those expressed or implied by forward-looking statements contained or incorporated herein due to a variety of important factors, including, without limitation, the following: • its ability to realize cost savings from expected performance of contracts, whether as a result of improper estimates, performance, or otherwise; • uncertain timing and funding of new contract awards, as well as project cancellations; • cost overruns on fixed-price or similar contracts or failure to receive timely or proper payments on cost-reimbursable contracts, whether as a result of improper estimates, performance, disputes, or otherwise; • risks associated with labor productivity, including performance of subcontractors that DBMG hires to complete projects; • its ability to settle or negotiate unapproved change orders and claims; • changes in the costs or availability of, or delivery schedule for, equipment, components, materials, labor or subcontractors; • adverse impacts from weather affecting DBMG’s performance and timeliness of completion of projects, which could lead to increased costs and affect the quality, costs or availability of, or delivery schedule for, equipment, components, materials, labor or subcontractors; • fluctuating revenue resulting from a number of factors, including the cyclical nature of the individual markets in which our customers operate; • adverse outcomes of pending claims or litigation or the possibility of new claims or litigation, and the potential effect of such claims or litigation on DBMG’s business, financial condition, results of operations or cash flow; and lack of necessary liquidity to provide bid, performance, advance payment and retention bonds, guarantees, or letters of credit securing DBMG’s obligations under bids and contracts or to finance expenditures prior to the receipt of payment for the performance of contracts. |
Marine Services / Global Marine Systems Limited Our actual results or other outcomes of Global Marine Systems Limited (“GMSL”), and thus, our Marine Services segment, may differ from those expressed or implied by forward-looking statements contained or incorporated herein due to a variety of important factors, including, without limitation, the following: • the possibility of global recession or market downturn with a reduction in capital spending within the targeted market segments in which the business operates; • project implementation issues and possible subsequent overruns; • risks associated with operating outside of core competencies when moving into different market segments; • possible loss or severe damage to marine assets; • vessel equipment aging or reduced reliability; • risks associated with operating two joint ventures in China (i.e., Huawei Marine Systems Co. Limited, a Hong Kong holding company with a Chinese operating subsidiary and SB Submarine Systems Co. Ltd.); • risks related to noncompliance with a wide variety of anti-corruption laws; • changes to the local laws and regulatory environment in different geographical regions; • loss of key senior employees; • difficulties attracting enough skilled technical personnel; • foreign exchange rate risk; •liquidity risk; and •potential for financial loss arising from the failure by customers to fulfill their obligations as and when these obligations come due. |
Telecommunications / PTGi International Carrier Services, Inc. Our actual results or other outcomes of PTGi International Carrier Services, Inc. (“ICS”), and thus, our Telecommunications segment, may differ from those expressed or implied by forward-looking statements contained or incorporated herein due to a variety of important factors, including, without limitation, the following: • our expectations regarding increased competition, pricing pressures and usage patterns with respect to ICS’s product offerings; • significant changes in ICS’s competitive environment, including as a result of industry consolidation, and the effect of competition in its markets, including pricing policies; • its compliance with complex laws and regulations in the U.S. and internationally; • further changes in the telecommunications industry, including rapid technological, regulatory and pricing changes in its principal markets; and • an inability of ICS’s suppliers to obtain credit insurance on ICS in determining whether or not to extend credit. |
Insurance / Continental Insurance Group Ltd. Our actual results or other outcomes of Continental Insurance Group Ltd. (“CIG”), the parent operating company of CGI (and the formerly separate operating subsidiary UTA, which merged into CGI on December 31, 2016), and together comprise our Insurance segment, may differ from those expressed or implied by forward-looking statements contained or incorporated herein due to a variety of important factors, including, without limitation, the following: •our Insurance segment’s ability to maintain statutory capital and maintain or improve their financial strength; •our Insurance segment’s reserve adequacy, including the effect of changes to accounting or actuarial assumptions or methodologies; • the accuracy of our Insurance segment’s assumptions and estimates regarding future events and ability to respond effectively to such events, including mortality, morbidity, persistency, expenses, interest rates, tax liability, business mix, frequency of claims, severity of claims, contingent liabilities, investment performance, and other factors related to its business and anticipated results; • availability, affordability and adequacy of reinsurance and credit risk associated with reinsurance; • extensive regulation and numerous legal restrictions on our Insurance segment; • our Insurance segment’s ability to defend itself against litigation, inherent in the insurance business (including class action litigation) and respond to enforcement investigations or regulatory scrutiny; • the performance of third parties, including distributors and technology service providers, and providers of outsourced services; • the impact of changes in accounting and reporting standards; • our Insurance segment’s ability to protect its intellectual property; • general economic conditions and other factors, including prevailing interest and unemployment rate levels and stock and credit market performance which may affect, among other things. |
our Insurance segment’s ability to access capital resources and the costs associated therewith, the fair value of our Insurance segment’s investments, which could result in impairments and other-than-temporary impairments, and certain liabilities; • our Insurance segment’s exposure to any particular sector of the economy or type of asset through concentrations in its investment portfolio; • the ability to increase sufficiently, and in a timely manner, premiums on in-force long-term care insurance policies and/or reduce in-force benefits, as may be required from time to time in the future (including as a result of our Insurance segment’s failure to obtain any necessary regulatory approvals or unwillingness or inability of policyholders to pay increased premiums); • other regulatory changes or actions, including those relating to regulation of financial services affecting, among other things, regulation of the sale, underwriting and pricing of products, and minimum capitalization, risk-based capital and statutory reserve requirements for our Insurance segment, and our Insurance segment’s ability to mitigate such requirements; • our Insurance segment’s ability to effectively implement its business strategy or be successful in the operation of its business; • our Insurance segment’s ability to retain, attract and motivate qualified employees; • interruption in telecommunication, information technology and other operational systems, or a failure to maintain the security, confidentiality or privacy of sensitive data residing on such systems; • medical advances, such as genetic research and diagnostic imaging, and related legislation; and •the occurrence of natural or man-made disasters or a pandemic. |
The Company agreed that in the event that Corrib and Luxor would have been entitled to any Participating Dividends payable, had they not converted the Preferred Stock (as defined in the respective Series A and Series A-1 Certificate of Designation), after the date of their Preferred Share conversion, then the Company will issue to Corrib and Luxor, on the date such Participating Dividends become payable by the Company, in a transaction exempt from the registration requirements of the Securities Act the number of shares of common stock equal to (a) the value of the Participating Dividends Corrib or Luxor would have received pursuant to Sections (2)(c) and (2)(d) of the respective Series A and Series A-1 Certificate of Designation, divided by (b) the Thirty Day VWAP (as defined in the respective Series A and Series A-1 Certificate of Designation) for the period ending two business days prior to the underlying event or transaction that would have entitled Corrib or Luxor to such Participating Dividend had Corrib’s or Luxor’s Preferred Stock remain unconverted. |
Pursuant to the terms of the Series A Voluntary Conversion Agreement, HC2 and the Series A holder mutually agreed that on the closing date of the voluntary conversion, (i) the Series A Holder voluntarily converted 12,499 of the 12,500 shares of Series A Preferred Stock it held into 2,980,912 shares of HC2’s common stock pursuant to the terms of the Certificate of Designation of Series A Convertible Participating Preferred Stock (the “Series A Certificate of Designation”), with such amount representing the number of shares of common stock into which the 12,499 shares of Series A Preferred Stock held by the Series A holder convertible pursuant to the terms of the Series A Certificate of Designation and (ii) in consideration of the conversion referenced in clause (i) above, the Company issued to the Series A holder in exchange for the single remaining share of Series A Preferred Stock held, in an exchange transaction exempt from the registration requirements of the Securities Act of 1933 and all of the rules and regulations promulgated thereunder (the “Securities Act”) under Section 3(a)(9) of the Securities Act, 770,926 shares of common stock. |
Additional risks relating to our indebtedness and other financing arrangements include: • our 11% Notes are secured by substantially all of HC2’s assets and those of certain of HC2’s subsidiaries that have guaranteed the 11% Notes, including certain equity interests in our other subsidiaries and other investments, as well as certain intellectual property and trademarks, and those assets cannot be pledged to secure other financings; • certain assets of our subsidiaries are pledged to secure their indebtedness, and those assets cannot be pledged to secure other financings; • increased vulnerability to general adverse economic and industry conditions; • higher interest expense if interest rates increase on our floating rate borrowings and our hedging strategies are not effective to mitigate the effects of these increases; • our having to divert a significant portion of our cash flow from operations to payments on our indebtedness and other arrangements, thereby reducing the availability of cash to fund working capital, capital expenditures, acquisitions, investments and other general corporate purposes; • limiting our ability to obtain additional financing, on terms we find acceptable, if needed, for working capital, capital expenditures, expansion plans and other investments, which may limit our ability to implement our business strategy; • limiting our flexibility in planning for, or reacting to, changes in our businesses and the markets in which we operate or to take advantage of market opportunities; and • placing us at a competitive disadvantage compared to our competitors that have less debt and other outstanding obligations. |
Our ability to generate cash depends on many factors beyond our control, and any failure to meet our debt service obligations, including those under (a) the 11% Notes Indenture governing the 11% Notes, (b) the Schuff Facility and (c) the GMSL Facility, as well as the obligations with respect to our (i) 30,000 shares of Series A Preferred Stock issued on May 29, 2014 (of which 828 shares have been converted into common stock as of December 31, 2015), (ii) 11,000 shares of Series A-1 Preferred Stock issued on September 22, 2014 (of which 1,000 shares have been converted into common stock as of December 31, 2015), and (iii) 14,000 shares of Series A-2 Preferred Stock (together with the Series A Preferred Stock and Series A-1 Preferred Stock, the “Preferred Stock”) issued on January 5, 2015, each of which is governed by a certificate of designation forming a part of HC2’s Certificate of Incorporation (collectively, the “Certificates of Designation”), could harm our business, financial condition and results of operations. |
The issuance of additional shares of common stock or preferred stock may, among other things: • significantly dilute the equity interest and voting power of all other stockholders; • subordinate the rights of holders of our outstanding common stock and/or Preferred Stock if preferred stock is issued with rights senior to those afforded to holders of our common stock and/or Preferred Stock; • trigger an adjustment to the price at which all or a portion of our outstanding Preferred Stock converts into our common stock, if such stock is issued at a price lower than the then-applicable conversion price; • entitle our existing holders of Preferred Stock to purchase a portion of such issuance to maintain their ownership percentage, subject to certain exceptions; • entitle Philip Falcone to purchase additional shares of our common stock pursuant to the terms of his existing option agreement; • call for us to make dividend or other payments not available to the holders of our common stock; and • cause a change in control of our company if a substantial number of shares of our common stock is issued and/or if additional shares of preferred stock having substantial voting rights are issued. |
Our international operations are subject to a number of risks, including: • political conditions and events, including embargo; • restrictive actions by U.S. and foreign governments; • the imposition of withholding or other taxes on foreign income, tariffs or restrictions on foreign trade and investment; • adverse tax consequences; • limitations on repatriation of earnings; • currency exchange controls and import/export quotas; • nationalization, expropriation, asset seizure, blockades and blacklisting; • limitations in the availability, amount or terms of insurance coverage; • loss of contract rights and inability to adequately enforce contracts; • political instability, war and civil disturbances or other risks that may limit or disrupt markets, such as terrorist attacks, piracy and kidnapping; • outbreaks of pandemic diseases or fear of such outbreaks; • fluctuations in currency exchange rates, hard currency shortages and controls on currency exchange that affect demand for our services and our profitability; • potential noncompliance with a wide variety of anti-corruption laws and regulations, such as the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”), and similar non-U.S. laws and regulations, including the U.K. |
The revenue, cost and gross profit realized on such contracts can vary, sometimes substantially, from the original projections due to a variety of factors, including, but not limited to: • failure to properly estimate costs of materials, including steel and steel components, engineering services, equipment, labor or subcontractors; • costs incurred in connection with modifications to a contract that may be unapproved by the customer as to scope, schedule, and/or price; • unanticipated technical problems with the structures, equipment or systems we supply; • unanticipated costs or claims, including costs for project modifications, customer-caused delays, errors or changes in specifications or designs, or contract termination; • changes in the costs of materials, engineering services, equipment, labor or subcontractors; • changes in labor conditions, including the availability and productivity of labor; • productivity and other delays caused by weather conditions; • failure to engage necessary suppliers or subcontractors, or failure of such suppliers or subcontractors to perform; • difficulties in obtaining required governmental permits or approvals; • changes in laws and regulations; and • changes in general economic conditions. |
HC2 Important factors or risks that could cause HC2’s actual results to differ materially from the results we anticipate include, but are not limited to: • unanticipated issues related to the restatement of our financial statements; • our ability to remediate future material weaknesses in our internal control over financial reporting; • the possibility of indemnification claims arising out of divestitures of businesses; • uncertain global economic conditions in the markets in which our operating segments conduct their businesses; • the ability of our operating segments to attract and retain customers; • increased competition in the markets in which our operating segments conduct their businesses; • our possible inability to generate sufficient liquidity, margins, earnings per share, cash flow and working capital from our operating segments; • our expectations regarding the timing, extent and effectiveness of our cost reduction initiatives and management’s ability to moderate or control discretionary spending; • management’s plans, goals, forecasts, expectations, guidance, objectives, strategies and timing for future operations, acquisitions, synergies, asset dispositions, fixed asset and goodwill impairment charges, tax and withholding expense, selling, general and administrative expenses, product plans, performance and results; • management’s assessment of market factors and competitive developments, including pricing actions and regulatory rulings; • limitations on our ability to successfully identify any strategic acquisitions or business opportunities and to compete for these opportunities with others who have greater resources; • the impact of additional material charges associated with our oversight of acquired or target businesses and the integration of our financial reporting; • the impact of expending significant resources in considering acquisition targets or business opportunities that are not consummated; • tax consequences associated with our acquisition, holding and disposition of target companies and assets; • our dependence on distributions from our subsidiaries to fund our operations and payments on our obligations; • the impact of covenants in the Certificates of Designation governing HC2’s Preferred Stock, the 11% Notes Indenture, the credit agreements governing the Schuff Facility and the GMSL Facility and future financing or refinancing agreements, on our ability to operate our business and finance our pursuit of acquisition opportunities; • the impact on the holders of HC2’s common stock if we issue additional shares of HC2 common stock or preferred stock; • the impact of decisions by HC2’s significant stockholders, whose interest may differ from those of HC2’s other stockholders, or their ceasing to remain significant stockholders; • the effect any interests our officers, directors, stockholders and their respective affiliates may have in certain transactions in which we are involved; • our dependence on certain key personnel; • our ability to effectively increase the size of our organization, if needed, and manage our growth; • the impact of a determination that we are an investment company or personal holding company; • the impact of delays or difficulty in satisfying the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 or negative reports concerning our internal controls; • the impact on our business and financial condition of our substantial indebtedness and the significant additional indebtedness and other financing obligations we may incur; • our possible inability to raise additional capital when needed or refinance our existing debt, on attractive terms, or at all; and • our possible inability to hire and retain qualified executive management, sales, technical and other personnel. |
Marine Services / GMSL Important factors or risks that could cause GMSL’s, and thus our Marine Services segment’s, actual results to differ materially from the results we anticipate include, but are not limited to: • the possibility of global recession or market downturn with a reduction in capital spending within the targeted market segments the business operates in; • project implementation issues and possible subsequent overruns; • risks associated with operating outside of core competencies when moving into different market segments; • possible loss or severe damage to marine assets; • vessel equipment aging or reduced reliability; • risks associated with operating two joint ventures in China (China Telecom, Huawei); • risks related to foreign corrupt practices; • changes to the local laws and regulatory environment in different geographical regions; • loss of key senior employees; • difficulties attracting enough skilled technical personnel; • foreign exchange rate risk; • liquidity risk; and • potential for financial loss arising from the failure by customers to fulfil their obligations as and when these obligations fall due. |
Manufacturing / Schuff Important factors or risks that could cause Schuff’s, and thus our Manufacturing segment’s, actual results to differ materially from the results we anticipate include, but are not limited to: • its ability to realize cost savings from expected performance of contracts, whether as a result of improper estimates, performance, or otherwise; • uncertain timing and funding of new contract awards, as well as project cancellations; • cost overruns on fixed-price or similar contracts or failure to receive timely or proper payments on cost-reimbursable contracts, whether as a result of improper estimates, performance, disputes, or otherwise; • risks associated with labor productivity, including performance of subcontractors that Schuff hires to complete projects; • its ability to settle or negotiate unapproved change orders and claims; • changes in the costs or availability of, or delivery schedule for, equipment, components, materials, labor or subcontractors; • adverse impacts from weather affecting Schuff’s performance and timeliness of completion of projects, which could lead to increased costs and affect the quality, costs or availability of, or delivery schedule for, equipment, components, materials, labor or subcontractors; • fluctuating revenue resulting from a number of factors, including the cyclical nature of the individual markets in which our customers operate; • adverse outcomes of pending claims or litigation or the possibility of new claims or litigation, and the potential effect of such claims or litigation on Schuff’s business, financial condition, results of operations or cash flow; and • lack of necessary liquidity to provide bid, performance, advance payment and retention bonds, guarantees, or letters of credit securing Schuff’s obligations under bids and contracts or to finance expenditures prior to the receipt of payment for the performance of contracts. |
Our international operations are subject to a number of risks, including: • political conditions and events, including embargoes; • restrictive actions by U.S. and foreign governments; • the imposition of withholding or other taxes on foreign income, tariffs or restrictions on foreign trade and investment; • adverse tax consequences; • limitations on repatriation of earnings; • currency exchange controls and import/export quotas; • nationalization, expropriation, asset seizure, blockades and blacklisting; • limitations in the availability, amount or terms of insurance coverage; • loss of contract rights and inability to adequately enforce contracts; • political instability, war and civil disturbances or other risks that may limit or disrupt markets, such as terrorist attacks, piracy and kidnapping; • outbreaks of pandemic diseases or fear of such outbreaks; • fluctuations in currency exchange rates, hard currency shortages and controls on currency exchange that affect demand for our services and our profitability; • potential noncompliance with a wide variety of laws and regulations, such as the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”), and similar non-U.S. laws and regulations, including the U.K. |
The revenue, cost and gross profit realized on such contracts can vary, sometimes substantially, from the original projections due to a variety of factors, including, but not limited to: • failure to properly estimate costs of materials, including steel and steel components, engineering services, equipment, labor or subcontractors; • costs incurred in connection with modifications to a contract that may be unapproved by the customer as to scope, schedule, and/or price; • unanticipated technical problems with the structures, equipment or systems we supply; • unanticipated costs or claims, including costs for project modifications, customer-caused delays, errors or changes in specifications or designs, or contract termination; • changes in the costs of materials, engineering services, equipment, labor or subcontractors; • changes in labor conditions, including the availability and productivity of labor; • productivity and other delays caused by weather conditions; • failure to engage necessary suppliers or subcontractors, or failure of such suppliers or subcontractors to perform; • difficulties in obtaining required governmental permits or approvals; • changes in laws and regulations; and • changes in general economic conditions. |
Our ability to generate cash depends on many factors beyond our control, and any failure to meet our debt service obligations, including those under (a) the indenture (the “11% Notes Indenture”) governing our 11% senior secured notes due 2019 (the “11% Notes”), (b) the Schuff Facility and (c) the GMSL Facility, as well as the obligations with respect to HC2’s (i) 30,000 shares of Series A Convertible Participating Preferred Stock (the “Series A Preferred Stock”) issued on May 29, 2014, (ii) 11,000 shares of Series A-1 Convertible Participating Preferred Stock (the “Series A-1 Preferred Stock”) issued on September 22, 2014, and (iii) 14,000 shares of Series A-2 Convertible Participating Preferred Stock (the “Series A-2 Preferred Stock” and, together with the Series A Preferred Stock and Series A-1 Preferred Stock, the “Preferred Stock”) issued on January 5, 2015, each of which is governed by a certificate of designation forming a part of HC2’s Certificate of Incorporation (collectively, the “Certificates of Designation”), could harm our business, financial condition and results of operations. |
Additional risks relating to our indebtedness and other financing arrangements include: • increased vulnerability to general adverse economic and industry conditions; • higher interest expense if interest rates increase on our floating rate borrowings and our hedging strategies are not effective to mitigate the effects of these increases; • our having to divert a significant portion of our cash flow from operations to payments on our indebtedness and other arrangements, thereby reducing the availability of cash to fund working capital, capital expenditures, acquisitions, investments and other general corporate purposes; • limiting our ability to obtain additional financing, on terms we find acceptable, if needed, for working capital, capital expenditures, expansion plans and other investments, which may limit our ability to implement our business strategy; • limiting our flexibility in planning for, or reacting to, changes in our businesses and the markets in which we operate or to take advantage of market opportunities; and · • placing us at a competitive disadvantage compared to our competitors that have less debt and other outstanding obligations. |
HC2 Factors or risks that could cause HC2’s actual results to differ materially from the results we anticipate include, but are not limited to: • the possibility of indemnification claims arising out of divestitures of businesses; • uncertain global economic conditions in the markets in which our operating segments conduct their businesses; • the ability of our operating segments to attract and retain customers; • increased competition in the markets in which our operating segments conduct their businesses; • our possible inability to generate sufficient liquidity, margins, earnings per share, cash flow and working capital from our operating segments; • our expectations regarding the timing, extent and effectiveness of our cost reduction initiatives and management’s ability to moderate or control discretionary spending; • management’s plans, goals, forecasts, expectations, guidance, objectives, strategies and timing for future operations, acquisitions, synergies, asset dispositions, fixed asset and goodwill impairment charges, tax and withholding expense, selling, general and administrative expenses, product plans, performance and results; • management’s assessment of market factors and competitive developments, including pricing actions and regulatory rulings; • limitations on our ability to successfully identify any strategic acquisitions or business opportunities and to compete for these opportunities with others who have greater resources; • the impact of additional material charges associated with our oversight of acquired or target businesses and the integration of our financial reporting; • the impact of expending significant resources in considering acquisition targets or business opportunities that are not consummated; • tax consequences associated with our acquisition, holding and disposition of target companies and assets; • our dependence on distributions from our subsidiaries to fund our operations and payments on our obligations; • the impact of covenants in the Certificates of Designation governing HC2’s Preferred Stock, the 11% Notes Indenture, the credit agreements governing the Schuff Facility and the GMSL Facility and future financing or refinancing agreements, on our ability to operate our business and finance our pursuit of acquisition opportunities; • the impact on the holders of HC2’s common stock if we issue additional shares of HC2 common stock or preferred stock; • the impact of decisions by HC2’s significant stockholders, whose interest may differ from those of HC2’s other stockholders, or their ceasing to remain significant stockholders; • the effect any interests our officers, directors, stockholders and their respective affiliates may have in certain transactions in which we are involved; • our dependence on certain key personnel; • our ability to effectively increase the size of our organization, if needed, and manage our growth; • the impact of a determination that we are an investment company or personal holding company; • the impact of delays or difficulty in satisfying the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 or negative reports concerning our internal controls; • the impact on our business and financial condition of our substantial indebtedness and the significant additional indebtedness and other financing obligations we may incur; • our possible inability to raise additional capital when needed or refinance our existing debt, on attractive terms, or at all; and • our possible inability to hire and retain qualified executive management, sales, technical and other personnel. |
Marine Services / GMSL Factors or risks that could cause GMSL’s, and thus our Marine Services segment’s, actual results to differ materially from the results we anticipate include, but are not limited to: • the possibility of global recession or market downturn with a reduction in capital spending within the targeted market segments the business operates in; • project implementation issues and possible subsequent overruns; • risks associated with operating outside of core competencies when moving into different market segments; • possible loss or severe damage to marine assets; • vessel equipment aging or reduced reliability; • risks associated with operating two joint ventures in China (China Telecom, Huawei); • risks related to foreign corrupt practices; • changes to the local laws and regulatory environment in different geographical regions; • loss of key senior employees; • difficulties attracting enough skilled technical personnel; • foreign exchange rate risk; • liquidity risk; and • potential for financial loss arising from the failure by customers to fulfil their obligations as and when these obligations fall due. |
Manufacturing / Schuff Factors or risks that could cause Schuff’s, and thus our Manufacturing segment’s, actual results to differ materially from the results we anticipate include, but are not limited to: • its ability to realize cost savings from expected performance of contracts, whether as a result of improper estimates, performance, or otherwise; • uncertain timing and funding of new contract awards, as well as project cancellations; • cost overruns on fixed-price or similar contracts or failure to receive timely or proper payments on cost-reimbursable contracts, whether as a result of improper estimates, performance, disputes, or otherwise; • risks associated with labor productivity, including performance of subcontractors that Schuff hires to complete projects; • its ability to settle or negotiate unapproved change orders and claims; • changes in the costs or availability of, or delivery schedule for, equipment, components, materials, labor or subcontractors; • adverse impacts from weather affecting Schuff’s performance and timeliness of completion of projects, which could lead to increased costs and affect the quality, costs or availability of, or delivery schedule for, equipment, components, materials, labor or subcontractors; • fluctuating revenue resulting from a number of factors, including the cyclical nature of the individual markets in which our customers operate; • adverse outcomes of pending claims or litigation or the possibility of new claims or litigation, and the potential effect of such claims or litigation on Schuff’s business, financial condition, results of operations or cash flow; and • lack of necessary liquidity to provide bid, performance, advance payment and retention bonds, guarantees, or letters of credit securing Schuff’s obligations under bids and contracts or to finance expenditures prior to the receipt of payment for the performance of contracts. |
HC2 HOLDINGS, INC. By: /S/ PHILIP A. FALCONE Philip A. Falcone Chairman, President and Chief Executive Officer (Principal Executive Officer) KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Philip A. Falcone and Mesfin Demise, or each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities to sign any and all amendments to the Company’s Form 10-K for the fiscal year ended December 31, 2014, and to file the same, with all exhibits thereto, and any other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. |
The long-term investments accounted for under the equity method of accounting include the following: Joint ventures by GMSL (ownership interest reflects the Company’s 97% ownership in GMSL) • $0.1 million for investment in Global Cable Technology Ltd. representing a 63% ownership interest • $12.9 million for investment in SB Submarine Systems Co., Ltd. representing a 48% ownership interest • $2.1 million for investment in International Cableship Pte., Ltd. representing a 29% ownership interest • $0.8 million for investment in Sembawang Cable Depot Ptd., Ltd. representing a 39% ownership interest • $10.1 million for investment in Huawei Marine Systems Co., Ltd. representing a 48% ownership interest • $0.4 million for investment in Visser Smit Global Marine Partnership representing a 48% ownership interest HC2 HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED Novatel Wireless, Inc. (“Novatel”) • An initial investment of $14.2 million for a combination of common stock, warrants and convertible preferred stock. |
These obligations could result in: • default and foreclosure on our assets if we are unable to repay our financial obligations; • acceleration of our obligations to repay such indentedness even if we make all required payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant; • our immediate payment of all amounts owed, if any, if such financial obligations are payable on demand; • our inability to obtain necessary additional financing if such financial obligations contain covenants restricting our ability to obtain such financing while the financial obligations remain outstanding; • our inability to pay dividends on our capital stock; • the use of a substantial portion of our cash flow to pay principal and interest or dividends on our financial obligations, which will reduce the funds available for dividends, expenses, capital expenditures and other general corporate purposes; • limitations on our flexibility in planning for and reacting to changes in our business and in the industries in which we operate; • an event of default that triggers a cross default with respect to any other financial obligations; • increased vulnerability to adverse changes in general economic, industry, financial, competitive, legislative, regulatory and other conditions and adverse changes in government regulation; and • limitations on our ability to borrow additional amounts for expenses, capital expenditures, execution of our strategy and other purposes and other disadvantages compared to our competitors that have less debt. |
Factors or risks that could cause our actual results to differ materially from the results we anticipate include, but are not limited to: • the outcome of purchase price adjustments related to divested businesses or the possibility of indemnification claims arising out of such divestitures; • continuing uncertain global economic conditions; • significant changes in the competitive environment, including as a result of industry consolidation, and the effect of competition in our markets, including our pricing policies; • the ability of ICS to generate sufficient revenue and cash flow to fund our ongoing operations; • our ability to complete the sale of the remaining portion of our North America Telecom segment; • our possible inability to generate sufficient liquidity, margins, earnings per share, cash flow and working capital; • our ability to attract and retain customers; • our expectations regarding increased competition, pricing pressures and usage patterns with respect to our product offerings; • our compliance with complex laws and regulations in the U.S. and internationally; • further changes in the telecommunications industry, including rapid technological, regulatory and pricing changes in our principal markets; • our expectations regarding the timing, extent and effectiveness of our cost reduction initiatives and management’s ability to moderate or control discretionary spending; • management’s plans, goals, forecasts, expectations, guidance, objectives, strategies and timing for future operations, acquisitions, synergies, asset dispositions, fixed asset and goodwill impairment charges, tax and withholding expense, selling, general and administrative expenses, product plans, performance and results; • management’s assessment of market factors and competitive developments, including pricing actions and regulatory rulings; • limitations on our ability to successfully identify any strategic acquisitions or business opportunities and to compete for these opportunities with others who have greater resources; • the impact of additional material charges associated with our oversight of acquired or target businesses and the integration of our financial reporting; • the impact of expending significant resources in considering acquisition targets or business opportunities that are not consummated; • tax consequences associated with our acquisition, holding and disposition of target companies and assets; • our dependence on distributions from our subsidiaries to fund our operations and payments on our obligations; • the impact on the holders of PTGi’s common stock if we issue additional shares of PTGi common stock or preferred stock; • the impact of decisions by PTGi’s significant stockholders, whose interest may differ from those of PTGi’s other stockholders, or their ceasing to remain significant stockholders; • the effect any interests of our officers, directors, stockholders and their respective affiliates may have in certain transactions in which we are involved; • our dependence on certain key personnel; • our ability to effectively increase the size of our organization, if needed, and manage our growth; • the impact of a determination that we are an investment company or personal holding company; • the impact of delays or difficulty in satisfying the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 or negative reports concerning our internal controls; • the impact of the relatively low market liquidity for PTGi’s common stock as a result of our delisting from the NYSE or other conditions, and the failure of PTGi to subsequently relist its common stock on a national securities exchange; • our possible inability to raise additional capital when needed, on attractive terms, or at all; and • our possible inability to hire and retain qualified executive management, sales, technical and other personnel. |
PTGi HOLDING, INC. By: /S/ ROBERT M. PONS Robert M. Pons Executive Chairman of the Board and Chief Executive Officer (Principal Executive Officer) KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Robert M. Pons and Mesfin Demise, or each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities to sign any and all amendments to the Company’s Form 10-K for the fiscal year ended December 31, 2013, and to file the same, with all exhibits thereto, and any other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. |
The most significant competitors in our primary markets include: • United States: AT&T Inc., Verizon Communications Inc., CenturyLink Inc., and other incumbent carriers, cable companies, including Comcast Corporation, Time Warner Cable Inc., Cablevision Systems Corporation and Charter Communications, Inc., other competitive LECs, including PaeTec Communications, Inc., Time Warner Telecom Inc., XO Communications Services, Inc. and Frontier Communications Corp., independent VoIP providers, including Vonage Holdings Corp and Cbeyond, Inc., wireless carriers in the U.S., including Verizon Communications Inc., AT&T Inc., Sprint Corp., T-Mobile USA Inc., MetroPCS Communications, Inc. and Leap Wireless International, Inc., and Web-based companies, including Skype Technologies S.A. and Google Inc.; • Canada: TELUS, Bell Canada, MTS, Saskatchewan Telecommunications, wireless providers, including Rogers, TELUS, Bell Canada, Bragg Communications Inc., Cogeco, Quebecor Inc. and Shaw, cable companies, and other service providers and resellers including Globalive Communications Corp. in Canada. |
Additionally, in case of any reclassification, merger, consolidation, capital reorganization or other change in the capital stock of PTGi (other than in connection with certain change of control transactions involving the Company) in which all or substantially all of the outstanding shares of PTGi common stock are converted into or exchanged for stock, other securities or other property, PTGi shall make appropriate provision so that the holders of CVRs shall thereafter be entitled to receive, at such time such holder would have otherwise been entitled to receive a distribution under the CVR Agreement, the kind and amount of stock and other securities and property having a value substantially equivalent to the value of PTGi common stock that the holders of CVRs would have been entitled to receive in connection with a distribution of CVR Shares immediately prior to such reclassification, merger, consolidation, reorganization or other change in the capital stock of PTGi at a CVR Strike Price that, in each case, is reasonably determined by the Board of Directors of PTGi after consultation with an independent valuation advisor to preserve, to the extent practicable, the intrinsic value of such CVR immediately prior to such event. |
Factors or risks that could cause our actual results to differ materially from the results we anticipate include, but are not limited to: • continuing uncertain global economic conditions; • significant changes in the competitive environment, including as a result of industry consolidation, and the effect of competition in our markets, including our pricing policies; • uncertainties from our announcement of our exploration and evaluation of strategic alternatives that may enhance shareholder value or our ability to complete any transactions arising out of that evaluation, including the pursuit of a divestiture of our ICS business unit; • our possible inability to generate sufficient liquidity, margins, earnings per share, cash flow and working capital; • our ability to attract and retain customers; • our expectations regarding increased competition, pricing pressures, and declining usage patterns in our traditional products; • the effectiveness and profitability of our growth products and bundled service offerings, the pace and cost of customer migration onto our networks, and the successful network platform migration to reduce costs and increase efficiencies; • volatility in the volume and mix of trading activity on the Exchange; • strengthening of the U.S. dollar against foreign currencies, which may reduce the amount of U.S. dollars generated from foreign operating subsidiaries and adversely affect our ability to service our significant debt obligations and pay corporate expenses; • our compliance with complex laws and regulations in the U.S. and internationally; • further changes in the telecommunications or Internet industry, including rapid technological, regulatory and pricing changes in our principal markets; • our liquidity and possible inability to service our substantial indebtedness; • an occurrence of a default or event of default under our indentures; • our expectations regarding the timing, extent and effectiveness of our cost reduction initiatives and management’s ability to moderate or control discretionary spending; • management’s plans, goals, forecasts, expectations, guidance, objectives, strategies, and timing for future operations, acquisitions, synergies, asset dispositions, fixed asset and goodwill impairment charges, tax and withholding expense, selling, general and administrative expenses, product plans, performance and results; • management’s assessment of market factors and competitive developments, including pricing actions and regulatory rulings; • our possible inability to raise additional capital when needed, on attractive terms, or at all; and • our possible inability to hire and retain qualified executive management, sales, technical and other personnel. |
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED By: /S/ ANDREW DAY Andrew Day President and Chief Executive Officer (Principal Executive Officer) KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Andrew Day and James C. Keeley, or each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities to sign any and all amendments to the Company’s Form 10-K for the fiscal year ended December 31, 2012, and to file the same, with all exhibits thereto, and any other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. |
/s/ BDO USA, LLP Bethesda, Maryland March 14, 2013 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Primus Telecommunications Group, Incorporated and subsidiaries McLean, VA We have audited, before the effects of the retrospective adjustments (1) for the discontinued operations of Brazil, Australia, and the International Carrier Services (“ICS”) segment, (2) to the disclosures for a change in the composition of reportable segments, and (3) for the reclassification of certain amounts in selling, general and administrative expense related to the BLACKIRON Data operating segment which were reclassified to cost of revenue on the statement of operations, discussed in Notes 18, 14, and 2, respectively, to the consolidated financial statements, the consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows of Primus Telecommunications Group, Incorporated and subsidiaries (the “Company”) for the year ended December 31, 2010 (the 2010 consolidated financial statements before the effects of the retrospective adjustments discussed in Notes 18, 14, and 2 to the consolidated financial statements are not presented herein). |
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED 10% Senior Secured Notes due 2017 and 10% Senior Secured Exchange Notes due 2017 Exchange Offers and Consent Solicitation; Issuance of the 10% Notes On July 7, 2011, in connection with the consummation of the private (i) exchange offers (the “Exchange Offers”) for any and all outstanding Units representing the 13% Notes issued by PTHI and Primus Canada and the 14 1/4% Senior Subordinated Secured Notes due 2013 (the “14 1/4% Notes”) issued by Primus Telecommunications IHC, Inc., (ii) consent solicitation (the “Consent Solicitation”) to amend the indenture governing the 13% Notes and release the collateral securing the 13% Notes, and (iii) related transactions, PTHI issued $240.2 million in aggregate principal amount of the 10% Senior Secured Notes due 2017 (the “10% Notes”) under that certain indenture, dated as of July 7, 2011 (as amended or supplemented from time to time, the “10% Notes Indenture”), by and among PTHI, each of the Guarantors party thereto and U.S. Bank National Association, as Trustee and Collateral Trustee. |
Additionally, in case of any reclassification, merger, consolidation, capital reorganization or other change in the capital stock of the Company (other than in connection with certain change of control transactions involving the Company) in which all or substantially all of the outstanding shares of PTGi common stock are converted into or exchanged for stock, other securities or other property, the Company shall make appropriate provision so that the holders of CVRs shall thereafter be entitled to receive, at such time such holder would have otherwise been entitled to receive a distribution under the CVR Agreement, the kind and amount of stock and other securities and property having a value substantially equivalent to the value of PTGi common stock that the holders of CVRs would have been entitled to receive in connection with a distribution of CVR Shares immediately prior to such reclassification, merger, consolidation, reorganization or other change in the capital stock of the Company at a CVR Strike Price that, in each case, is reasonably determined by the board of directors of the Company after consultation with an independent valuation advisor to preserve, to the extent practicable, the intrinsic value of such CVR immediately prior to such event. |
We provide services over our global, facilities-based network, which consists of: • 11 data centers in 7 cities in Canada and Australia (this includes 1 data center under construction in Toronto) • 19 carrier-grade international gateway and domestic switching systems (the hardware/software devices that direct voice traffic across the network), Internet routers and media gateways in the U.S., Canada, western Europe and the Asia-Pacific region; • approximately 500 interconnection points to our network, or points of presence (“POPs”), which includes digital subscriber line access multiplexers (“DSLAMs”), which is equipment that allows digital traffic to flow over copper wiring, within our service regions and other markets; • undersea and land-based fiber optic transmission line systems that we own or lease and that carry voice and data traffic across the network; • a global network that uses a high-bandwidth network standard ATM+IP; and • a global VoIP network based on routers and gateways with an open network architecture which connects our partners in over 150 countries. |
The most significant competitors in our primary markets include: • United States: AT&T Inc., Verizon Communications Inc., CenturyLink Inc., and other incumbent carriers, cable companies, including Comcast Corporation, Time Warner Cable Inc., Cablevision Systems Corporation and Charter Communications, Inc., other competitive LECs, including PaeTec Communications, Inc., Time Warner Telecom Inc., XO Communications Services, Inc. and Frontier Communications Corp., independent VoIP providers, including Vonage Holdings Corp and Cbeyond, Inc., wireless carriers in the U.S., including Verizon Communications Inc., AT&T Inc., Sprint Corp., T-Mobile USA Inc., MetroPCS Communications, Inc. and Leap Wireless International, Inc., and Web-based companies, including Skype Technologies S.A. and Google Inc.; • Australia: Telstra, SingTel Optus Pty Limited, Telecom New Zealand Limited, iiNet Limited, SP Telemedia Limited (known as TPG), Macquarie Telecom Group Ltd. and other smaller national and regional service providers and resellers; and • Canada: TELUS, Bell Canada, MTS Allstream, Inc., Saskatchewan Telecommunications, wireless providers, including Rogers, TELUS, Bell Canada, Bragg Communications Inc., COGECO Inc., Quebecor Inc. and Shaw Communications, Inc., cable companies, and other service providers and resellers including Globalive Communications Corp. in Canada. |
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