-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EtZCCI7yaASCelhqzGEVl5A+7N2R4RJO1q2b8SPUEapUAD+WQ2HWcCU1KQS0Emoh 2HR5LRGp//Cb33j+RqV9KA== 0000950115-97-001509.txt : 19971001 0000950115-97-001509.hdr.sgml : 19971001 ACCESSION NUMBER: 0000950115-97-001509 CONFORMED SUBMISSION TYPE: S-2 PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19970930 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERILINK CORP CENTRAL INDEX KEY: 0000924774 STANDARD INDUSTRIAL CLASSIFICATION: WATER, SEWER, PIPELINE, COMM AND POWER LINE CONSTRUCTION [1623] IRS NUMBER: 311409345 STATE OF INCORPORATION: OH FISCAL YEAR END: 0329 FILING VALUES: FORM TYPE: S-2 SEC ACT: SEC FILE NUMBER: 333-36821 FILM NUMBER: 97688813 BUSINESS ADDRESS: STREET 1: 1900 E DUBLIN GRANVILLE RD CITY: COLUMBUS STATE: OH ZIP: 43229 BUSINESS PHONE: 6148951313 S-2 1 REGISTRATION STATEMENT AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, VIA EDGAR, ON SEPTEMBER 30, 1997 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------ FORM S-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------ AMERILINK CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Ohio 31-1409345 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number) LARRY R. LINHART President and Chief Executive Officer 1900 East Dublin-Granville Road 1900 East Dublin-Granville Road Columbus, Ohio 43229 Columbus, Ohio 43229 (614) 895-1313 (614) 895-1313 (Address of principal executive offices) (Name and address of agent for service)
------------------ Copy to: FRED A. SUMMER, ESQ. RICHARD A. SILFEN, ESQ. Squire, Sanders & Dempsey L.L.P. Wolf, Block, Schorr and Solis-Cohen LLP 41 South High Street Twelfth Floor Packard Building Columbus, Ohio 43215 111 South 15th Street (614) 365-2700 Philadelphia, Pennsylvania 19102 (215) 977-2000 Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, please check the following box. / / If the registrant elects to deliver its latest annual report to security holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1) of this Form, check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / CALCULATION OF REGISTRATION FEE
======================================================================================================================== | | | PROPOSED MAXIMUM | | | PROPOSED | AGGREGATE | TITLE OF EACH CLASS OF | AMOUNT TO BE | MAXIMUM OFFERING | OFFERING | AMOUNT OF SECURITIES TO BE REGISTERED | REGISTERED(1)| PRICE PER UNIT(2) | PRICE(2) | REGISTRATION FEE - ------------------------------------------------------------------------------------------------------------------------ Common Shares, without par value............... | 1,150,000 | $28.0625 | $32,271,875 | $9,779 ========================================================================================================================
(1) Includes 150,000 shares subject to the Underwriters' over-allotment option. (2) Estimated solely for purpose of calculating the filing fee pursuant to Rule 457(c) under the Securities Act of 1933, based on the average of the high and low prices per share reported on the Nasdaq National Market on September 23, 1997. ------------------ The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SUBJECT TO COMPLETION, DATED SEPTEMBER 30, 1997 PROSPECTUS 1,000,000 SHARES AMERILINK CORPORATION COMMON SHARES ------------------------ Of the 1,000,000 Common Shares, without par value (the "Common Shares"), offered hereby, 600,000 shares are being offered by AmeriLink Corporation, an Ohio corporation (the "Company"), and 400,000 shares are being offered by certain shareholders (the "Selling Shareholders"). The Company will not receive any of the proceeds from the sale of the Common Shares being offered by the Selling Shareholders hereby. See "Selling Shareholders." The Common Shares are quoted on the Nasdaq National Market under the symbol "ALNK." On September 29, 1997, the last reported sale price of the Common Shares as quoted on the Nasdaq National Market was $29.625 per share. ------------------------ PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE "RISK FACTORS" BEGINNING ON PAGE 7. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
=============================================================================================================== | | | | PROCEEDS TO | PRICE TO | UNDERWRITING | PROCEEDS TO | SELLING | PUBLIC | DISCOUNTS (1) | COMPANY (2) | SHAREHOLDERS - --------------------------------------------------------------------------------------------------------------- Per Share.............................. | $ | $ | $ | $ - --------------------------------------------------------------------------------------------------------------- Total (3).............................. | $ | $ | $ | $ ===============================================================================================================
(1) The Company and the Selling Shareholders have agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). See "Underwriting." (2) Before deducting expenses payable by the Company estimated to be $350,000. (3) The Selling Shareholders have granted to the Underwriters a 30-day option to purchase up to an additional 150,000 Common Shares to cover over-allotments, if any. If the Underwriters exercise the over-allotment option in full, the total Price to Public, Underwriting Discounts, Proceeds to Company and Proceeds to Selling Shareholders will be $ , $ , $ and $ , respectively. See "Underwriting." ------------------------ The Common Shares offered hereby are offered by the Underwriters subject to prior sale, when, as, and if sold to and accepted by them, subject to their right to reject any order in whole or in part and to certain other conditions. The Underwriters reserve the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. It is expected that delivery of the Common Shares offered hereby will be made at the offices of Legg Mason Wood Walker, Incorporated, Baltimore, Maryland, on or about , 1997. LEGG MASON WOOD WALKER J.C. BRADFORD & CO. INCORPORATED , 1997 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. AmeriLink NaCom / / AmeriLink Regional Offices == AmeriLink Satellite Offices o AmeriLink Service Areas [In the printed version appears a map of the continental United States showing the AmeriLink Corporation regional and satellite offices and service areas.] [In the printed version appears a photo of a cable installer.] [In the printed version appears a photo of cables.] AMERILINK CORPORATION DESIGNS, CONSTRUCTS, INSTALLS AND MAINTAINS CABLING SYSTEMS FOR THE TRANSMISSION OF VIDEO, VOICE AND DATA. CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES. SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF COMMON SHARES PRIOR TO THE PRICING OF THE OFFERING FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON SHARES, THE PURCHASE OF COMMON SHARES FOLLOWING THE PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE COMMON SHARES OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON SHARES, AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON SHARES ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE "UNDERWRITING." - -------------------------------------------------------------------------------- PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and Financial Statements (including Notes thereto) appearing elsewhere or incorporated by reference in this Prospectus. Unless otherwise indicated, the information in this Prospectus does not give effect to the exercise of the Underwriters' over-allotment option and, unless the context otherwise requires or indicates, all references to the Company in this Prospectus include the Company and the business and properties of its wholly-owned subsidiary. As used in this Prospectus, references to a "fiscal" year refer to the 52 or 53-week period ending on the last Sunday of March or the first Sunday of April of such period. THE COMPANY The Company is a nationwide provider to the telecommunications industry of cabling services for the transmission of video, voice and data. The Company designs, constructs, installs and maintains fiber optic, coaxial and twisted-pair copper cabling systems for telephone service providers, including regional Bell operating companies ("RBOCs"), traditional local exchange carriers ("LECs"), competitive local exchange carriers ("CLECs") and long distance carriers acting as CLECs (collectively, "Telcos"); major cable television multiple system operators ("MSOs"); systems integrators and users of local area network ("LAN") systems; and direct broadcast satellite ("DBS") providers. The Company, which conducts business under the trade name "NaCom," currently markets and provides its services through a national network of 18 regional offices and 11 satellite offices which in fiscal 1997 served customers in 44 states. Representative customers of the Company include Ameritech Corporation ("Ameritech"), Cox Communications, Inc. ("Cox"), GTE Corporation ("GTE"), International Business Machines ("IBM"), Lucent Technologies, Inc. ("Lucent"), MCI Communciations Corporation ("MCI"), PrimeStar Partners, L.P. ("PrimeStar"), Time Warner Cable and US West, Inc. ("US West"). The Company's cabling services include the drops and cable feeds to, and wiring of, residences, multi-family dwelling units ("MDUs") and commercial buildings (collectively, "premises wiring services") and the construction and installation of the aerial and underground distribution plant ("outside plant construction services"). The Company provides premises wiring services principally to the residential market and believes the Company is the only independent nationwide provider of residential premises wiring services. Increased demand for the transmission of video, voice and data into homes and businesses, as well as regulatory initiatives for greater competition to provide these services, have created a need to upgrade and expand the capacity of the telecommunications infrastructure. The Telecommunications Act of 1996 (the "Telecommunications Act"), which was enacted in February 1996, contains certain key provisions which were designed to enhance competition within the telecommunications industry. These provisions include: (1) allowing Telcos to sell video services, and in certain cases, to buy local cable televison companies, (2) deregulating cable television companies (such as allowing them to charge what they wish for many channels) once there is effective competition or after three years, (3) permitting RBOCs and other LECs to enter the long distance market once certain conditions are met in the local phone market and (4) allowing long distance providers to enter the local phone business. As MSOs, Telcos and other companies compete for the delivery of these services, each must expend significant capital on the deployment of fiber optic and broadband coaxial cable and other advanced cabling technologies to accommodate transmission requirements. Substantial expenditures in advanced cabling technologies are also occurring in the delivery of services to other markets, including the market for LAN systems, as the installed base of personal computers ("PCs") further penetrates commercial markets. - -------------------------------------------------------------------------------- 3 - -------------------------------------------------------------------------------- In late fiscal 1996, the Company initiated a two-step strategy to improve its results of operations and position the Company for future growth. First, the Company decided to increase its emphasis on premises wiring services and to shift its outside plant construction services from providing such services for both construction projects involving retrofit upgrades of existing systems with active subscribers ("retrofit construction projects") and construction projects involving new cable systems without active subscribers ("new construction projects") to providing exclusively outside plant construction services for new construction projects. Second, the Company restructured the management of its field operations into four regions, decentralizing regional operations and marketing decision making to senior field personnel. Since the implementation of these strategies, the Company's total revenues increased by 12.5% from $56.1 million in fiscal 1996 to $63.0 million in fiscal 1997 and by 60.1% from $13.5 million in the first quarter of fiscal 1997 to $21.7 million in the first quarter of fiscal 1998. Net income increased by approximately 250% from $457,000 in fiscal 1996 to $1.6 million in fiscal 1997 and by over 400% from $222,000 in the first quarter of fiscal 1997 to $1.2 million in the first quarter of fiscal 1998. The Company believes there continue to be growing opportunities in both residential and commercial markets to design, construct, install and maintain cabling systems as telecommunications service providers increase capital expenditures for their infrastructures and implement plans to improve service in response to competition. In order to eliminate the ongoing expense and effort required to manage labor intensive, multi-office service organizations, the cable television industry historically has sought to outsource a large portion of these services on a unit cost basis to independent contractors, such as the Company. Telcos and other telecommunications service providers are also beginning to seek new outsourcing solutions in response to competitive price pressures. In addition, LAN cabling services are typically performed by third party vendors which construct, install and maintain LAN systems for businesses on a contract basis. The Company believes that it will continue to gain significant cabling opportunities in both residential and commercial markets as new technologies, increased services and competition fuel the growing demand for the delivery of video, voice and data into homes and businesses. Finally, the Company believes that it will continue to gain significant cabling opportunities to provide services to DBS providers given the potential market for video, audio and data programming services via satellite. BUSINESS AND GROWTH STRATEGIES The Company intends to capitalize on the increasing demand for video, voice and data services, the increased competition fueled by the Telecommunications Act and the introduction of new technologies by pursuing the following strategies: o Leverage Existing Infrastructure to Capitalize on Industry Growth. Through its network of 29 regional and satellite offices which in fiscal 1997 served customers in 44 states, the Company is able to offer providers of video, voice and data services a one-stop outsourcing solution for their cabling services needs. Building on its existing customer base in the telecommunications, cable television and network services industries, the Company intends to further differentiate itself from its competitors by aggressively pursuing opportunities to provide cabling services on a national and regional basis, rather than on a strictly local basis. o Focus on Premises Wiring Services. The Company intends to continue its emphasis on premises wiring services, which have been the Company's core services for nearly 20 years. Premises wiring services, when provided on a regional or national scale, are logistically intensive. With its current residential premises wiring services volume in excess of 15,000 completed work orders per week, the Company believes that, as the only independent nationwide provider of residential premises wiring services, it is better positioned to bid on large-scale contracts than its competitors, allowing the Company to gain market share. - -------------------------------------------------------------------------------- 4 - -------------------------------------------------------------------------------- o Expand Services Performed for Telcos. The Company has already achieved significant growth in the premises wiring services performed for Telcos as revenues from Telcos (excluding CLECs) increased by over 400% from $2.0 million in fiscal 1996 (3.6% of revenues) to $10.3 million in fiscal 1997 (16.4% of revenues). Building on the base of premises wiring services performed for US West, GTE, Pacific Bell ("PacBell") and Ameritech, the Company intends to pursue further opportunities within its existing customer base as well as with additional Telcos it currently does not serve. o Build a Nationwide, Diversified Telecommunications Services Business. As a result of the opportunities presented by the passage of the Telecommunications Act and the continued industry trend toward the outsourcing of video, voice and data cabling services, the Company believes it has strong prospects for growth. The Company intends to gain greater market share from its existing customer base, to capture new customers in industries in which it currently competes, and to expand into new industries requiring cabling services, including the utility industry. As appropriate, the Company will selectively open new offices either to fill in existing markets or to gain access to new markets, such as the Pacific Northwest. Finally, the Company will consider acquisitions to complement its business if such acquisitions would enable the Company to add significant new customers, increase its ability to provide existing or new services or expand its business into new regional geographic markets. The executive offices of the Company are located at 1900 East Dublin-Granville Road, Columbus, Ohio 43229 and its telephone number is (614) 895-1313. THE OFFERING Common Shares offered: By the Company...................... 600,000 shares By the Selling Shareholders......... 400,000 shares (1) Common Shares to be outstanding after this offering....................... 4,205,580 shares (1)(2) Use of proceeds by the Company......... For the repayment of certain bank indebtedness and general corporate purposes, including working capital, expansion of sales and marketing ac- tivities, openings of new field offices and possible acquisitions of businesses, services or technology complementary to the Company's business. See "Use of Proceeds." Nasdaq National Market symbol.......... ALNK - ------------------ (1) Assumes no exercise of the Underwriters' over-allotment option. See "Underwriting." (2) Excludes an aggregate of 667,000 Common Shares reserved for issuance under the Company's stock option plans and other stock options, of which 551,136 are issuable upon the exercise of options outstanding as of the date of this Prospectus, after giving effect to the exercise by Larry R. Linhart of outstanding options to purchase 80,000 Common Shares immediately prior to Mr. Linhart's sale of such shares pursuant to this offering. - -------------------------------------------------------------------------------- 5 - -------------------------------------------------------------------------------- SUMMARY FINANCIAL DATA
THIRTEEN WEEKS FISCAL YEAR ENDED ENDED ------------------------------------------------------- ------------------- MARCH 28, APRIL 3, APRIL 2, MARCH 31, MARCH 30, JUNE 30, JUNE 29, 1993 1994 1995 1996 1997 1996 1997 --------- -------- -------- --------- --------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA(1): Revenues....................... $24,970 $32,833 $47,541 $56,055 $63,036 $13,521 $21,651 Income from operations......... 686 1,084 2,780 1,170 3,301 496 2,166 Income before income taxes(2)..................... 577 841 2,487 686 2,691 369 2,001 Net income(2).................. 346 505 1,492 457 1,568 222 1,181 Net income per common share(2)..................... $ 0.13 $ 0.19 $ 0.45 $ 0.13 $ 0.44 $ 0.06 $ 0.33 SUPPLEMENTAL PRO FORMA DATA AS ADJUSTED(3): Income before income taxes..... $ 3,308 $ 2,166 Pro forma net income........... 1,928 1,278 Pro forma net income per common share........................ $ 0.49 $ 0.33 Pro forma weighted average common shares outstanding.... 3,918 3,879
JUNE 29, 1997 ------------------------ ACTUAL AS ADJUSTED(4) ------- -------------- (IN THOUSANDS) BALANCE SHEET DATA: Working capital........................................... $13,434 $22,087 Total assets.............................................. 27,676 36,329 Long-term debt............................................ 7,750 -- Shareholders' equity...................................... 11,983 28,386
- ------------------ (1) All fiscal years represent 52-week periods, except fiscal 1994 represents a 53-week period. (2) Net income for fiscal 1993 and 1994 has been adjusted, on a pro forma basis, for income taxes that would have been reported had the Company been subject to federal, state and local income taxes for such periods. See Notes 1 and 7 of Notes to Financial Statements. (3) Supplemental pro forma as adjusted income before taxes and net income reflect the elimination of interest on existing debt. The pro forma weighted average Common Shares outstanding include the estimated number of shares to be issued to fund the repayment of such debt. (4) Adjusted to reflect the sale of the Common Shares offered by the Company hereby and the use of the net proceeds therefrom. See "Use of Proceeds." - -------------------------------------------------------------------------------- 6 RISK FACTORS The statements contained in this Prospectus that are not historical facts or are descriptions of emerging developments in the Markets for the Company's services are forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995). Such forward-looking statements may be identified by, among other things, the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. From time to time, the Company or its representatives have made or may make forward-looking statements, orally or in writing. Such forward-looking statements may be included in various filings made by the Company with the Securities and Exchange Commission (the "Commission"), or press releases or oral statements made by or with the approval of an authorized executive officer of the Company. These forward-looking statements, such as statements regarding anticipated future revenues, capital expenditures and other statements regarding matters that are not historical facts, involve predictions. The Company's actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements depending upon a variety of important factors including, among others, competitive and regulatory risks associated with the telecommunications industry, the risk of changing market conditions and customer purchase authorizations which may be influenced by budget cycles of the Company's customers, consolidation within the telecommunications industry, and the success of various technologies and business strategies employed by the Company's customers, and other risks described in the Company's Commission filings and those described under the headings "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and in the risk factors set forth below. Prospective investors should carefully consider the following factors, in addition to other information contained in this Prospectus, prior to making an investment in the Common Shares. Ability to Manage Growth. The Company's ability to manage its anticipated growth successfully will depend upon the ability of the Company to manage the corresponding increase in the demands on its administrative and operational resources and the training and management of its human resources. In particular, to the extent the Company expands its services, customer base and targeted markets, there will be additional demands on the Company's customer support, sales and field management resources. There can be no assurance that the Company's administrative and operational infrastructure will be adequate to effectively manage its growth. The inability to manage its growth successfully could have a material adverse effect on the Company's results of operations and financial condition. Short-Term Contracts. The Company has no long-term contractual commitments to provide its services. However, in order to provide proper support for its service contracts (which generally can be terminated on 30 days' notice), the Company must make financial commitments to staff local field offices and incur overhead expenses, including leases extending for terms of at least one year. There can be no assurance that the Company will be retained to perform a sufficient number of projects to fund its long-term commitments and to be profitable in any given market. See "Business -- Principal Services" and "-- Principal Customer Groups." Reliance on Continued Use of Outsourcing by Customers. The Company relies upon outsourcing as the exclusive source of its business. Nearly all MSOs and Telcos employ personnel who perform the same types of services as those provided by the Company. Although a significant portion of these services is outsourced today, there can be no assurance that MSOs and Telcos will continue to outsource cabling services in the future. Moveover, the Company's reliance upon outsourcing may make it more vulnerable in an economic downturn to the extent such downturn causes the Company's customers to change their outsourcing policies. Available Sources of Labor. The Company's operating profitability and capacity to increase revenues are largely dependent upon the Company's ability to attract and retain qualified regional directors, regional managers, area managers, project managers and cable installers. When economic activity increases, sources of such personnel available to the Company may be adversely affected. 7 Customer Concentration. Generally, a field office relies on one customer for a significant portion of its revenues. If a project for such customer is completed, curtailed or terminated, and not replaced, the resulting loss of revenue would have a material adverse effect on the field office and could have a material adverse effect on the results of operations and financial condition of the Company. For fiscal 1997, approximately 17%, 13% and 10% of the Company's revenues were generated from its Los Angeles offices (primary customer GTE), Columbus offices (primary customer Time Warner Cable) and Houston offices (primary customer Time Warner Cable), respectively. Time Warner Cable represented approximately 19% of the Company's revenue for fiscal 1997. No other customer of the Company represented more than 10% of revenue for fiscal 1997. Time Warner Cable, GTE and Ameritech represented approximately 17%, 17% and 11%, respectively, of the Company's revenue for the first quarter of fiscal 1998. See "Business -- Principal Services" and " -- Principal Customer Groups" and Note 1 of Notes to Financial Statements. Variability in Quarterly Results and Seasonality. The Company's quarterly revenues and associated operating results have in the past, and may in the future, vary depending upon a number of factors. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Variability in Quarterly Results and Seasonality." The Company has no long-term contractual commitments to provide its services. The contractual commitments which do exist generally can be terminated on 30 days' notice and are contracted on a project-by-project basis. Therefore, the amount of work performed at any given time and the general mix of customers for which work is being performed can vary significantly. For example, in June 1997, SBC Communications, Inc. halted construction of a hybrid fiber-coaxial cable project in California. That project generated revenues of approximately $1.1 million for the first quarter of fiscal 1997. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Results of Operations -- Thirteen Weeks Ended June 29, 1997 compared to Thirteen Weeks Ended June 30, 1996" and "Business -- Principal Services" and " -- Principal Customer Groups." Consolidation within the telecommunications industry may also delay or depress capital spending, as companies assess their new business plans and strategies and focus on administrative and operational issues associated with their acquisitions or alliances. The Company's operations historically have also been influenced by the budget cycles of the Company's customers. Many of the Company's customers utilize a calendar year budget cycle funded with quarterly purchase authorizations, which in certain fiscal years has resulted in a lack of availability of funds in the Company's third fiscal quarter and has delayed work authorizations in the Company's fourth fiscal quarter. Telecommunications providers are also subject to actual and potential local, state, and federal regulations that influence the availability of work for which the Company may compete. Weather may affect operating results due to the fact that outside plant construction services are performed outdoors. Weather can also impact the Company's premises wiring services due to the limited and lost production associated with poor driving conditions and generally difficult working environments. Operating results may also be affected by the success of various technologies and business strategies employed by them. Variable Capital Spending by MSOs. Historically, the Company's revenues and results of operations have been largely impacted by the level of capital spending by MSOs which, in fiscal 1997, represented approximately 49% of the Company's revenues. The amount of that capital spending has been cyclical and affected by anticipated or actual government regulation, industry access to financial markets, industry consolidation and other demands for capital. In the past, delayed, depressed or erratic capital spending has negatively affected the Company's operating results. While various MSOs have recently either increased their capital expenditures or announced plans to do so, the level of capital spending by MSOs could be erratic and unpredictable. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview." Competition. The Company faces competition from the in-house service organizations of MSOs and Telcos and from independent third parties in most of the markets in which it operates. The Company believes that while it may be considered a major competitor in many of the markets in which it provides cabling services, there are few barriers to entry into the cabling service business and, as a result, any business that has access to persons who possess technical expertise may become a 8 competitor of the Company. The market for providing cabling services to Telcos is highly competitive and, in the case of outside plant construction services and cabling services for commercial buildings, includes national competitors with greater financial resources than the Company which historically have provided telephone cabling services to Telcos. The markets in which the Company provides LAN cabling services are highly competitive and many of the competitors in those markets have greater financial resources than the Company. In addition, there are a large number of competitors which are smaller than the Company. Smaller regional and local competitors may be able to offer lower prices because of lower overhead expenses. Because of the highly competitive bidding environment for cabling service contracts, the price of a cabling service contractor's bid has often been the deciding factor in determining whether such contractor was awarded a contract for a cabling project. There can be no assurance that the Company's competitors will not develop cabling services that achieve greater market acceptance or that are superior in both price and quality to the Company's services. Further, there can be no assurance that the Company will be able to maintain and enhance its competitive position. See "Business -- Competition." Government Regulation of Customers. The Telecommunications Act has resulted in substantial changes in the marketplace for communications services. There can be no assurance that the intent of the Telecommunications Act to promote competition among providers of telecommunications services will be successfully realized in all areas. For example, the Telecommunications Act contains provisions which are designed to permit access by long distance providers to local exchanges. The Federal Communication Commission ("FCC") adopted pricing and other guidelines to implement the interconnection provisions of the Telecommunications Act, but the 8th Circuit Court of Appeals recently vacated most of the FCC's guidelines leaving the responsibility for setting pricing and other guidelines with respect to interconnection up to the individual state public service commissions. To the extent that implementation of the Telecommunications Act is delayed or uncertain, some of the Company's customers may delay capital expenditures, which delay could have an adverse effect on the Company's results of operations and financial condition. Technological Displacement of Cabling Technology. Cabling systems that are used for the transmission of video, voice and data face potential displacement by various technologies, including wireless technologies, such as DBS services. Wireless technologies may reduce consumer demand for wired services and, thus, the need for the Company's cabling services. Although wireless communications may displace the demand for cable television, current wireless systems depend upon the use of satellite dishes or other antennae and require residential cabling services which the Company does perform for DBS providers. There can be no assurance, however, that if wireless technologies continue to reduce consumer demand for cable television, that the Company will continue to be able to replace the work performed for MSOs with projects for DBS providers. Use of Independent Contractors and Potential Adverse Impact of Reclassification as Employees by Governmental Authorities. The Company provides most of its services through independent contractors. The Company's success is dependent upon its ability to attract and retain the services of qualified independent contractors. From time to time, state and federal authorities have asserted that these contractors should be deemed to be employees of the Company for purposes of taxation and coverage under wage and hour, workers' compensation and unemployment compensation laws and regulations. None of these asserted claims has had a material adverse effect on the Company's results of operations or financial condition. However, if, in the future, additional assertions by state or federal authorities are upheld, the Company could incur significant litigation costs and liabilities and, if the Company were required to treat individual installers as employees rather than independent contractors, the Company's operating expenses could increase significantly with potential adverse effects on its results of operations and financial condition. See "Business -- Personnel." Dependence on Key Employees. The development of the Company's business has been dependent, to a large extent, on Larry R. Linhart, Chairman of the Board of Directors, President and Chief Executive Officer of the Company, Joseph L. Govern, Vice President -- Operations of the Company, James W. Brittan, Treasurer and Vice President -- Finance and the Company's regional 9 directors. The loss of the services of Messrs. Linhart, Govern or Brittan or any of such regional directors could adversely affect the Company. State and Local Licenses. The Company is required by many state and local authorities to obtain various contracting or engineering licenses or permits to conduct its business. The Company has historically been successful in obtaining and maintaining proper licensing and acquiring necessary permits from all appropriate authorities. However, because the standards for certain state and local licenses and permits are often unclear, there can be no assurance that state and local regulatory authorities who administer such licenses or permits will not determine that the Company has not obtained a relevant license or permit. Although the Company has not experienced significant difficulties in obtaining a license or permit, the failure of the Company to obtain and maintain necessary licenses or permits in some of the jurisdictions in which it conducts business may have an adverse effect on the Company. The Company believes that it is currently in compliance with all material state and local license and permit requirements. Shares Eligible For Future Sale. Future sales of the Common Shares in the public market following this offering could adversely affect the market price of the Common Shares. Substantially all outstanding Common Shares are freely tradeable by persons other than "affiliates" of the Company without restriction, including 401,260 Common Shares tradeable pursuant to an effective Registration Statement on Form S-8. The Company, its directors and executive officers have agreed not to offer to sell, sell, transfer or otherwise dispose of any Common Shares for a period of 120 days after the date of this Prospectus without the consent of the representatives of the Underwriters, except for issuances of Common Shares upon the exercise of outstanding stock options or pursuant to other employee benefit plans. Pursuant to the Shareholders' Agreement (as hereinafter defined), Larry R. Linhart, Robert L. Powelson and E. Len Gibson (the "Principal Shareholders") have registration rights which will obligate the Company to register Common Shares to be offered and sold on their behalf under certain circumstances. See "Selling Shareholders -- Principal Shareholders' Agreement." The offer, issuance or sale or the potential for offer, issuance or sale of any such Common Shares could have an adverse effect on the market price for the Common Shares. Continued Control by Principal Shareholders. The Principal Shareholders will beneficially own approximately 47.0% of the outstanding Common Shares immediately after this offering (43.5% if the Underwriters' over-allotment option is exercised in full), including an aggregate of 270,000 Common Shares (240,000 Common Shares if the Underwriters' over-allotment option is exercised in full) issuable upon the exercise of options held by Mr. Linhart, and will have significant influence over the outcome of all matters submitted to the shareholders for approval, including the ability to effectively control the election of all directors of the Company. See "Selling Shareholders" and "Capital Shares." Pursuant to the terms of the Shareholders' Agreement, the Principal Shareholders have agreed until August 19, 2004 (i) to nominate or cause the Board of Directors to nominate and recommend to the shareholders for election each of the Principal Shareholders and such number of outside directors as are necessary to fill any vacancies on the Board of Directors, and (ii) to cause the directors of each subsidiary of the Company to be Messrs. Linhart and Powelson and a third individual to be selected by them. See "Selling Shareholders -- Shareholders' Agreement." Dividend Policy. The Company presently intends to retain its earnings to finance the growth and development of its business and does not expect to pay any cash dividends in the foreseeable future. See "Price Range of Common Shares and Dividend Policy." Anti-Takeover Provisions. Certain provisions of the Company's Articles of Incorporation and Code of Regulations, including the provisions in the Company's Articles of Incorporation which require a supermajority shareholder vote of 75% of the voting shares to approve certain business combinations and which authorize the Company to purchase its capital shares by action of its Board of Directors. The effect of such provisions may inhibit takeover bids and decrease the chance of shareholders realizing a premium over market price for their Common Shares as a result of a takeover bid. See "Capital Shares." 10 USE OF PROCEEDS The net proceeds to be received by the Company from the sale of the Common Shares offered by the Company hereby, after deducting the estimated underwriting discount and offering expenses (assuming a public offering price of $29.625 per share), are expected to be approximately $16.4 million, without giving effect to the exercise by Larry R. Linhart of outstanding options to purchase 80,000 Common Shares for an aggregate purchase price of $320,000 immediately prior to Mr. Linhart's sale of such shares pursuant to this offering. Approximately $7.8 million will be used to repay in full the Company's revolving credit note (approximately $7.8 million outstanding at June 29, 1997) under its loan agreement with a commercial bank which bears interest at prime minus 1% (7.5% at September 29, 1997) and which matures at September 30, 1998. The balance will be used for general corporate purposes, including working capital, expansion of sales and marketing activities, openings of new field offices and possible acquisitions of businesses, services or technology complementary to the Company's business; however, the Company currently has no understandings, commitments or agreements with respect to any material acquisition. Pending such uses, the net proceeds will be invested in short-term investment grade securities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." PRICE RANGE OF COMMON SHARES AND DIVIDEND POLICY The Common Shares are quoted on the Nasdaq National Market under the symbol "ALNK." The following table sets forth for the periods indicated the high and low last sales prices for the Common Shares as reported by the Nasdaq National Market. HIGH LOW ------- ------ FISCAL 1996 First Quarter.......................................... $10.000 $6.000 Second Quarter......................................... $ 9.250 $7.250 Third Quarter.......................................... $ 8.750 $6.250 Fourth Quarter......................................... $ 9.250 $6.750 FISCAL 1997 First Quarter.......................................... $ 9.000 $7.625 Second Quarter......................................... $ 7.750 $6.500 Third Quarter.......................................... $ 7.625 $5.000 Fourth Quarter......................................... $ 8.000 $5.125 FISCAL 1998 First Quarter.......................................... $ 9.500 $6.000 Second Quarter (through September 29, 1997)............ $33.875 $9.406 On September 29, 1997, the last reported sale price of the Common Shares on the Nasdaq National Market was $29.625 per share. As of June 18, 1997, there were approximately 1,468 beneficial owners of the Company's Common Shares. The Company has not paid cash dividends since its initial public offering in August 1994. The Company presently intends to retain its earnings, if any, to finance the growth and development of its business and does not expect to pay any cash dividends in the foreseeable future. The payment and rate of future dividends, if any, are subject to the discretion of the Board of Directors and will depend upon the Company's earnings, financial condition, capital requirements and other factors. 11 CAPITALIZATION The following table sets forth the capitalization of the Company, as of June 29, 1997, and as adjusted, as of that date, to give effect to the sale by the Company of 600,000 Common Shares in this offering and the application of the estimated net proceeds from this offering (assuming a public offering price of $29.625 per share), as described in "Use of Proceeds." The following table should be read in conjunction with the Financial Statements of the Company and the related Notes thereto.
JUNE 29, 1997 --------------------------- ACTUAL AS ADJUSTED(1) ------- -------------- (IN THOUSANDS) Long-term debt (2).......................................... $ 7,750 $ -- Shareholders' equity: Preferred shares, without par; 1,000,000 shares authorized; none issued and outstanding.......................................... -- -- Common shares, without par; 10,000,000 shares authorized; 3,481,580 shares issued and outstanding; 4,081,580 shares as adjusted........................... 8,085 24,488 Retained earnings........................................... 3,898 3,898 ------- ------- Total shareholders' equity.................................. 11,983 $28,386 ------- ------- Total capitalization........................................ $19,733 $28,386 ======= =======
- ------------------ (1) Adjusted to reflect the sale of Common Shares offered by the Company hereby and the use of the net proceeds therefrom. See "Use of Proceeds." Adjustments do not give effect to the exercise by Larry R. Linhart of outstanding options to purchase 80,000 Common Shares for an aggregate purchase price of $320,000 immediately prior to Mr. Linhart's sale of such shares pursuant to this offering. (2) See Note 4 of Notes to Financial Statements for a description of the Company's long-term debt. 12 SELECTED FINANCIAL DATA The selected financial data included in the following table should be read in conjunction with the Company's Financial Statements and related Notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Prospectus. The selected financial data relating to the statements of operations for each of the Company's five fiscal years in the period ended March 30, 1997 and the balance sheet data as of March 28, 1993, April 3, 1994, April 2, 1995, March 31, 1996 and March 30, 1997 have been derived from the Company's audited financial statements. The selected financial data as of, and for the thirteen weeks ended, June 30, 1996 and June 29, 1997 are derived from the Company's unaudited financial statements, which, in management's opinion, include all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of the information set forth therein but are not necessarily indicative of the results that may be expected for the full year.
THIRTEEN WEEKS FISCAL YEAR ENDED ENDED ------------------------------------------------------- ------------------- MARCH 28, APRIL 3, APRIL 2, MARCH 31, MARCH 30, JUNE 30, JUNE 29, 1993 1994 1995 1996 1997 1996 1997 --------- -------- -------- --------- --------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA(1): Revenues......................... $24,970 $32,833 $47,541 $56,055 $63,036 $13,521 $21,651 Gross profit..................... 8,496 10,994 15,675 17,105 21,738 4,500 8,302 Selling, general and administrative expenses........ 7,810 9,910 12,895 15,935 18,437 4,004 6,136 Income from operations........... 686 1,084 2,780 1,170 3,301 496 2,166 Interest expense................. 117 245 343 512 617 128 165 Income before income taxes (2)... 577 841 2,487 686 2,691 369 2,001 Net income (2)................... 346 505 1,492 457 1,568 222 1,181 Net income per common share (2)............................ $ 0.13 $ 0.19 $ 0.45 $ 0.13 $ 0.44 $ 0.06 $ 0.33 Weighted average common shares outstanding.................... 2,702 2,702 3,351 3,626 3,589 3,640 3,596 SUPPLEMENTAL PRO FORMA DATA AS ADJUSTED(3): Income before income taxes....... $ 3,308 $ 2,166 Pro forma net income............. 1,928 1,278 Pro forma net income per common share.......................... $ 0.49 $ 0.33 Pro forma weighted average common shares outstanding............. 3,918 3,879
JUNE 29, 1997 MARCH 28, APRIL 3, APRIL 2, MARCH 31, MARCH 30, JUNE 30, ------------------------ 1993 1994 1995 1996 1997 1996 ACTUAL AS ADJUSTED(4) --------- -------- -------- --------- --------- -------- ------- -------------- (IN THOUSANDS) BALANCE SHEET DATA: Working capital..... $2,968 $ 3,691 $ 7,703 $ 9,068 $13,679 $ 9,756 $13,434 $22,087 Total assets........ 8,334 10,363 17,133 20,554 26,211 21,524 27,676 36,329 Total debt.......... 2,321 4,206 4,009 6,563 9,069 6,959 7,750 -- Shareholders' equity (5)............... 3,641 3,315 8,754 9,211 10,082 9,432 11,983 28,386
- ------------------ (1) All fiscal years represent 52-week periods, except fiscal 1994 represents a 53-week period. (2) Net income for fiscal 1993 and 1994 has been adjusted, on a pro forma basis, for income taxes that would have been reported had the Company been subject to federal, state and local income taxes for such periods. See Notes 1 and 7 of Notes to Financial Statements. (3) Supplemental pro forma as adjusted income before taxes and net income reflect the elimination of interest on existing debt. The pro forma weighted average common shares outstanding include the estimated number of shares to be issued to fund the repayment of such debt. (4) Adjusted to reflect the sale of Common Shares offered by the Company hereby and the use of the net proceeds therefrom. See "Use of Proceeds." (5) The Company made S corporation distributions of $940,000 in fiscal 1993, no distributions in fiscal 1994, and distributions of $3.2 million in fiscal 1995 ($2.7 million of which was made in conjunction with the Company's initial public offering in August 1994 and $500,000 of which was paid in April 1994). No dividends have been paid since the Company's initial public offering. 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company reported record revenues and operating income for the 1997 fiscal year which ended March 30, 1997. Net income per common share for the year more than tripled to $0.44 per share versus $0.13 recorded in fiscal 1996. The Company's increased revenues and operating profitability are the result of three primary factors: (1) an improving market and more work opportunities as a result of the Telecommunications Act; (2) successful implementation of a two-step strategy of (a) increasing its emphasis on premises wiring projects and shifting its outside plant construction services exclusively to new construction projects, and (b) restructuring the management of its field operations; and (3) a continued focus on broadening the Company's customer base beyond its traditional cable television industry base. Key provisions of the Telecommunications Act were designed to enhance competition within the telecommunications industry. These provisions include: (1) allowing Telcos to sell video services, and in certain cases, to buy local cable television companies, (2) deregulating cable companies (such as allowing them to charge what they wish for many channels) once there is effective competition or after three years, (3) permitting RBOCs and other LECs to enter the long distance market once certain conditions are met in the local phone market, and (4) allowing long distance providers to enter the local phone business. The Company believes that the enhanced competitive environment fostered by the Telecommunications Act has had, and should continue to have, a favorable impact on the Company as it should increase spending by telecommunication providers and the demand for the Company's cabling services. Faced with competition for video services from both Telcos and DBS providers, many cable television companies have announced plans to increase their capital spending in order to expand their existing channel capacity and to offer new services and next generation technologies and to improve picture and sound quality. Increased competition and capital spending allows the Company to deploy its resources on those projects that offer the highest possible profitability. Since all premises wiring cabling services are substantially similar in nature, the Company has the ability to shift management and production resources to those industries, customers, and projects that provide the most economic potential. In late fiscal 1996, the Company initiated a two-step strategy to improve its results of operations and position the Company for future growth. First, the Company decided to increase its emphasis on premises wiring services and to shift its outside plant construction services from providing such services for both retrofit construction projects and new construction projects to providing exclusively outside plant construction services for new construction projects. See "Business -- Principal Services." Second, the Company restructured the management of its field operations into four regions, decentralizing regional operations and marketing decision making to senior field personnel. As a result of the implementation of these strategies, the Company's total revenues increased by 12.5% from $56.1 million in fiscal 1996 to $63.0 million in fiscal 1997 and by 60.1% from $13.5 million in the first quarter of fiscal 1997 to $21.7 million in the first quarter of fiscal 1998. Net income increased by approximately 250% from $457,000 in fiscal 1996 to $1.6 million in fiscal 1997 and by over 400% from $222,000 in the first quarter of fiscal 1997 to $1.2 million in the first quarter of fiscal 1998. 14 The following table sets forth for fiscal 1996 and 1997 approximate Company revenues by principal services provided and the change in Company revenues from each service from fiscal 1996 to fiscal 1997.
CHANGE FROM PRINCIPAL SERVICES PROVIDED FISCAL 1996 FISCAL 1997 FISCAL 1996 - --------------------------- ------------- ------------- ------------- (DOLLARS IN MILLIONS) Premises wiring....................... $37.3 66% $53.4 85% $16.1 43% Outside plant construction............ 18.8 34% 9.6 15% (9.2) (49%) ----- --- ----- ---- ----- Total............................... $56.1 100% $63.0 100% $ 6.9 12% ===== === ===== ==== =====
In addition, the Company has continued to diversify its customer base beyond its traditional cable television industry base. Historically, the Company's revenues and results of operations have largely been impacted by the level of capital spending within the domestic cable industry. The amount of capital spending has been cyclical and has been affected by a number of factors, including perceived or actual government regulation, industry access to financial markets, industry consolidation, and other demands for capital, such as personal communication service ("PCS") capital commitments. In the past, delayed, depressed or erratic capital spending has negatively affected the Company's operating results. The Company has progressively reduced its concentration in the cable industry by actively marketing its premises wiring services to other industries, primarily Telcos and commercial network customers. The following table sets forth for fiscal 1996 and 1997 approximate Company revenues by principal customer group and the change in Company revenues by principal customer group from fiscal 1996 to fiscal 1997.
CHANGE FROM PRINCIPAL CUSTOMER GROUP FISCAL 1996 FISCAL 1997 FISCAL 1996 - ------------------------ ---------------- ---------------- ----------------- (DOLLARS IN MILLIONS) MSOs(1)........................... $37.8 67% $30.7 49% ($7.1) (19%) LAN customers..................... 7.7 14% 13.8 22% 6.1 79% Telcos(2)......................... 2.7 5% 11.3 18% 8.6 319% DBS providers(3).................. 5.1 9% 6.8 11% 1.7 33% Other............................. 2.8 5% 0.4 -- (2.4) (86%) ----- --- ----- --- ----- Total........................... $56.1 100% $63.0 100% $ 6.9 12% ===== === ===== === =====
- ------------------ (1) Includes (a) approximately $2.0 million and $1.5 million in fiscal 1996 and 1997, respectively, from an MSO that was acquired by a Telco in late 1996 and (b) approximately $2.4 million in fiscal 1997 from a general contractor in its capacity as a contractor for an MSO which is owned by a Telco. (2) Includes (a) approximately $0.4 million and $0.9 million in fiscal 1996 and 1997, respectively, from a CLEC and (b) approximately $0.2 million in fiscal 1996 from a general contractor in its capacity as a contractor for a Telco. (3) Includes approximately $4.6 million and $5.2 million in fiscal 1996 and 1997, respectively, from a DBS provider which is controlled by MSOs. RESULTS OF OPERATIONS Revenue is generated from cabling projects performed via work orders issued under master contracts. Contract costs may vary depending upon the contract volume, the level of productivity, competitive factors in the local market, and other items. Cost of sales includes subcontractor production costs, materials not supplied by the customer, vehicle and machinery expenses, and business insurance related costs. Selling, general and administrative expenses consist primarily of field employee wages and payroll costs. The Company believes that its selling, general and administrative cost structure is maintained at levels necessary to adequately support both anticipated near term 15 revenue levels and projected longer term revenue levels. These anticipated revenue levels and associated cost structures may vary among the Company's regional field offices and geographic market areas. THIRTEEN WEEKS ENDED JUNE 29, 1997 COMPARED TO THIRTEEN WEEKS ENDED JUNE 30, 1996 Revenues Total revenues for the first quarter of fiscal 1998 were $21,651,070 compared to $13,521,020 for the first quarter of fiscal 1997, an increase of 60.1%. Revenues derived from residential and commercial premises wiring activities increased by 81.1% to a record $18.6 million in the first quarter of fiscal 1998, versus approximately $10.2 million in the prior year period. Such revenues accounted for 85.7% of the Company's total revenues for the most recent quarter, versus 75.8% a year earlier, consistent with the Company's announced strategy to focus efforts on premises wiring activities. Premises wiring revenues derived from Telcos that are building or expanding video systems increased to approximately $8.3 million (approximately 38% of total Company revenues) in the first quarter of fiscal 1998 compared to approximately $0.6 million (approximately 4% of total Company revenues) in the first quarter of fiscal 1997. Of the total $8.3 million of revenues from Telcos, approximately $3.7 million, or 17.2% of total Company revenues, was generated from work orders issued under contracts with GTE Media Ventures, a division of GTE. The Company believes that as a result of the Telecommunications Act, certain Telcos have increased their capital expenditures for video systems, and the Company has aggressively marketed its services to these companies. The first quarter of fiscal 1998 included Telco revenues of approximately $1.1 million pursuant to a contract that was terminated in June 1997, due to that customer's decision to stop deployment of its hardwire cable system. Gross Profit Gross profit for the first quarter of fiscal 1998 was $8,302,042, or 38.3% of revenues, as compared to $4,499,776, or 33.3% of revenues, the first quarter of fiscal 1997. The increase in gross margin is due primarily to a decrease in cabling materials expense (included in cost of sales) as a percent of total Company revenues. The majority of the Company's commercial network cabling contracts are turnkey contracts, in which the Company provides both the labor and materials necessary for the network installation. These cabling materials, which are billed at near cost, comprised approximately 8% of total Company revenues in the first quarter of fiscal 1998 versus approximately 15% in the comparable period in fiscal 1997. The percentage decline in cabling materials is primarily due to strong first quarter fiscal 1998 labor only revenues derived from Telcos. The increase in gross margin is also a result of subcontractor production costs, which decreased as a percent of labor cabling revenues in the first quarter of fiscal 1998 compared to the first quarter of fiscal 1997. Contract and project subcontractor costs are dependent upon a number of factors, including pricing for the Company's services, the level of productivity, competitive factors in the local market, and other items. Selling, General and Administrative Selling, general and administrative expenses for the first quarter of fiscal 1998 were $6,136,163, or 28.3% of revenues, as compared to $4,004,152 or 29.6% of revenues for fiscal 1997. The Company's selling, general and administrative cost structure, which consists primarily of field employee wages and payroll costs, is maintained at levels necessary to adequately support both anticipated near term revenues and projected longer term revenues. These anticipated revenue levels and associated cost structures may vary among the Company's regional field offices and geographic market areas. The dollar increase in selling, general, and administrative expenses for the first quarter of fiscal 1998 is primarily due to increased employee wages and associated costs incurred to support both current period revenues and anticipated future revenues. Interest Expense Interest expense was $165,051 or 0.8% of revenues for the first quarter of fiscal 1998 as compared to $127,632 or 0.9% of revenues for the first quarter of fiscal 1997. The dollar increase in interest expense is primarily due to increased borrowings to finance accounts receivable and work-in-process. 16 FISCAL 1997 COMPARED TO FISCAL 1996 Revenues Total revenues for fiscal 1997 were $63,035,814 compared to $56,055,416 for fiscal 1996, an increase of 12.5%. Total residential and commercial premises wiring revenues for fiscal 1997 increased 43.4% to approximately $53.4 million compared to approximately $37.3 million in fiscal 1996. Revenues derived from network cabling services increased $6.1 million or 79.0% from the $7.7 million recorded in fiscal 1996 to approximately $13.8 million in fiscal 1997 due to increased marketing efforts by the Company for these services. In addition, premises wiring revenues derived from Telcos that are building or expanding video systems increased to approximately $10.3 million for fiscal 1997 compared to approximately $2.0 million for the 1996 fiscal year. The Company believes that as a result of the Telecommunications Act, certain Telcos have increased their capital expenditures for video systems, and the Company has aggressively marketed its services to these companies. Outside plant construction revenues for fiscal 1997 declined to approximately $9.6 million from approximately $18.8 million in fiscal 1996, reflecting management's strategy to increase its emphasis on premises wiring services. The Company recorded sequential increases in revenues during each quarter of fiscal 1997, including a record $17,120,507 in the fourth quarter ended March 30, 1997. Revenues during the fourth quarter of fiscal 1996 were negatively impacted by the following: (1) lower than anticipated capital spending by its cable television customers in several market areas, (2) delays in the start-up of network cabling projects, and (3) unusually severe weather in January, 1996. Gross Profit Gross profit for fiscal 1997 was $21,738,347, or 34.5% of revenues, as compared to $17,104,657, or 30.5% of revenues, for fiscal 1996. The increase in gross margin for fiscal 1997 can primarily be attributed to the emphasis on premises wiring projects over outside plant construction projects. Outside plant construction projects require the use of heavy machinery, specialized trucks, tool systems, and other related construction equipment which reduce the Company's gross margin. In fiscal 1996, the Company's overall operating results were negatively impacted by operating losses incurred on a large outside plant construction project in the San Diego area. These operating losses totaled approximately $600,000, due primarily to high vehicle, equipment, and production costs, on contract revenues of approximately $4.9 million. The Company's overall operating results for the first six months of fiscal 1997 were negatively impacted by operating losses of approximately $370,000 as a result of the Company's decision to close its San Diego regional office and the completion of remaining outside plant construction projects there. Selling, General and Administrative Selling, general and administrative expenses for fiscal 1997 were $18,436,896, or 29.2% of revenues, as compared to $15,935,087 or 28.4% of revenues, for fiscal 1996. The dollar increase in selling, general, and administrative expenses for fiscal 1997 is primarily due to increased employee wages and associated costs incurred to support both current period revenues and anticipated future revenues. Selling, general, and administrative expenses also include additional amounts for sales personnel engaged in marketing the Company's local area network cabling services. The Company's selling, general and administrative expenses during the current fiscal year were also impacted by an unusually large charge to bad debts of $234,000 as a result of a customer filing for protection under Chapter 11 of the Bankruptcy Code. Interest Expense Interest expense was $617,004 or 1.0% of revenues for fiscal 1997 as compared to $512,214, or 0.9% of revenues, for fiscal 1996. The dollar increase in interest expense is primarily due to increased borrowings to finance accounts receivable and work-in-process. 17 FISCAL 1996 COMPARED TO FISCAL 1995 Revenues Total revenues for fiscal 1996 were $56,055,416, compared to $47,541,021 for fiscal 1995, representing an 18% increase. Approximately $3.3 million and $2.6 million of the total $8.5 million increase in revenues is the result of growth in both network cabling and DBS services, respectively. This growth is due to increased marketing efforts for such services. The remaining revenue increase resulted primarily from an increase in the volume of work orders from either existing or new contracts. For the year, residential and commercial premises wiring revenues increased approximately 27%. Revenues during the fourth quarter of fiscal 1996 were negatively impacted by the following: (1) lower than anticipated capital spending by its cable television customers in several market areas (2) delays in the start-up of network cabling projects, and (3) unusually severe weather in January, 1996. Gross Profit Gross profit was $17,104,657, or 30.5% of revenues, for fiscal 1996, as compared to $15,674,936, or 33.0% of revenues, for fiscal 1995. The decrease in gross profit as a percentage of revenues can be attributed primarily to two factors. The first is higher cabling material revenues generated from the Company's network cabling services. The cost of these materials, which are billed at near cost because of competitive pressures, is included in cost of sales, which decreases gross profit as a percentage of sales. Secondly, the Company's gross profit for fiscal 1996 was negatively impacted by operating losses, due primarily to high production costs and vehicle and equipment costs, incurred on a large construction project in the San Diego area. Selling, General and Administrative Selling, general and administrative expenses were $15,935,087, or 28.4% of revenues, for fiscal 1996 as compared to $12,895,108, or 27.1% of revenues, for fiscal 1995. The dollar increase in selling, general and administrative expenses is primarily due to additional employee wages incurred to support both actual and anticipated increased revenues. During fiscal 1996, the Company also increased sales personnel for marketing network cabling services. Interest Expense Interest expense was $512,214, or 0.9% of revenues, for fiscal 1996, as compared to $342,891, or 0.7% of revenues, for fiscal 1995. The dollar and percentage increase in interest expense can principally be attributed to increased borrowings in fiscal 1996 to finance capital expenditures and for related receivables financing. LIQUIDITY AND CAPITAL RESOURCES General. Historically, the Company's principal sources of liquidity have come from operating cash flow and credit arrangements. The Company's primary requirements for working capital are to finance accounts receivable, work-in-process and capital expenditures. Pursuant to a typical construction, MDU, or LAN cabling contract, work performed by the Company is generally not billed to a customer until various stages in a project are complete or until the entire project is complete. Because the Company pays its suppliers and subcontractors on a current basis, to the extent that trade payables exceed customer accounts paid at any given time, the Company draws on its revolving credit note to finance its work-in-process until project work is billed to and paid by the customer. Combined accounts receivable and work-in-process at June 29, 1997 totaled $19,346,655 compared to $17,853,591 at March 30, 1997, an increase of $1,493,064 or 8.4%. This increase is due primarily to the record level of revenues that the Company recorded during the fiscal quarter of 1998 which ended June 29, 1997. Combined accounts receivable and work-in-process at March 30, 1997 totaled $17,853,591 compared to $11,802,060 at March 31, 1996, an increase of $6,051,531 or 51.3%. This increase is due primarily to the increased level of revenues that the Company recorded during the 1997 fiscal fourth quarter which ended March 30, 1997. Revenues for all of fiscal 1997 were $63,035,814, an increase of $6,980,398 or 12.5% from the $56,055,416 recorded in fiscal 1996; however, revenues for the fourth quarter of fiscal 1997 increased by 32.3% to $17,120,507 compared with $12,935,879 in the comparable quarter last year. In addition, fiscal 1997 revenues and work-in- 18 process include increases in the Company's volume of MDU and network cabling projects. The Company anticipates that it will continue to receive collections of its accounts receivable in the ordinary course of business in sufficient amounts to permit it to comply with all covenants and terms of its revolving credit note. There is no assurance, however, that the Company will be able to collect all or substantially all of its accounts receivable outstanding at any time, although the Company believes it has adequately provided for potential losses through its allowance for doubtful accounts. The Company's failure to collect substantially all of its accounts receivable and work-in-process would have an adverse impact on its working capital and could adversely affect its results of operations. Capital requirements are dependent upon a number of factors, including the Company's revenues, level of operations, and the type of contracts and work that the Company performs. Due to the fact that the Company generally has no extended commitments from its customers, it is difficult to forecast longer term revenues and associated capital expenditure and operating cash requirements. The Company reviews credit arrangements with its commercial bank annually. As of June 29, 1997, the Company had available $4,250,000 under its revolving credit note compared to $3,000,000 available at March 30, 1997, an increase of $1,250,000 in available funds. The Company does not anticipate difficulties in obtaining additional credit from its commercial bank should the need arise. The Company will also periodically examine financing capital needs through the issuance of additional common stock. Management believes that current and possible additional credit from its commercial bank, cash flow from operations, and funds which may be obtained from the issuance of common stock should provide sufficient capital to meet the reasonably foreseeable business needs of the Company. Current Credit Arrangements. Under a loan agreement with its commercial bank that was amended September 27, 1996, the Company has a $12,000,000 unsecured revolving credit note and had an unsecured term note which has been paid in full. The interest rate on the revolving credit note is prime minus 1% and interest is payable monthly. The revolving credit note matures September 30, 1998 and includes a commitment fee of 1/4% on any unused portion of the note. Borrowings under the revolving credit note were $9,000,000 at March 30, 1997 and $7,750,000 at June 29, 1997. The loan agreement limits the Company's ability to create or incur liens on its assets, to incur additional indebtedness, to guarantee the indebtedness of others and to make loans or advances. Additionally, the agreement restricts the Company from entering into merger or acquisition transactions or transactions involving the sale of substantially all of its assets without the prior consent of the bank. The loan agreement also requires the Company to meet certain financial tests. Cash Flow From Operating Activities. For the first three months of fiscal 1998, net cash provided by operating activities was $2,129,529. This was due primarily to the Company's net income, depreciation and amortization, and income taxes payable which totaled $2,443,998. These items were somewhat negated by increases in accounts receivable and work-in-process that were not offset by corresponding increases in trade accounts payable and liabilities to subcontractors. For fiscal 1997, net cash used in operating activities totaled $258,607. This is principally the result of increases in accounts receivable and work-in-process that were not offset by corresponding increases in trade accounts payable and liabilities to subcontractors. The Company is limited in its ability to offset increases in accounts receivable and work-in-process through increases in accounts payable or liabilities to subcontractors. Increased cash requirements due to increased accounts receivable and work-in-process were somewhat negated by noncash expenses of depreciation and amortization which totaled $2,242,312. Cash Used In Investing Activities. Net cash used in investing activities for the first three months of fiscal 1998 totaled $829,672 compared to $569,856 for the comparable period last year. Cash used in investing activities is primarily a result of the purchase of property and equipment, which totaled $1,004,126 (4.6% of revenues) for the fiscal 1998 first quarter versus $609,169 (4.5% of revenues) for the comparable period last year. For fiscal 1997, net cash used in investing activities totaled $2,205,641. This was mainly due to the purchase of property and equipment in the amount of $2,752,254. The level of capital expenditures is dependent largely upon the level of outside plant construction services that the Company performs. The Company uses heavy machinery, specialized trucks, and other construction equipment to perform its construction services. Capital expenditures for fiscal 1997 decreased approximately $1.5 million or 34.5% from fiscal 1996. This decrease is the result of the Company doing less outside plant construction work in fiscal 1997. 19 VARIABILITY IN QUARTERLY RESULTS AND SEASONALITY The Company's quarterly revenues and associated operating results have in the past, and may in the future, vary depending upon a number of factors. The Company has no long-term contractual commitments to provide its services. The contractual commitments which do exist generally can be terminated on 30 days' notice. These contractual commitments do not involve a firm backlog of committed work because the nature of the Company's contracts with MSOs, Telcos and DBS providers produce daily work orders only on a project-by-project basis which must be funded by an approved purchase order. In addition, network cabling services are generally nonrecurring in nature and are contracted on a project-by-project basis. Therefore, the amount of work performed at any given time and the general mix of customers for which work is being performed can vary significantly. Consolidation within the telecommunications industry may also delay or depress capital spending, as companies assess their new business plans and strategies and focus on administrative and operational issues associated with their acquisitions or alliances. The Company's operations historically have also been influenced by the budget cycles of the Company's customers. Many of the Company's MSO customers utilize a calendar year budget cycle, funded with quarterly purchase authorizations, which in certain fiscal years has resulted in a lack of availability of funds in the Company's third fiscal quarter and has delayed work authorizations in the Company's fourth fiscal quarter. Telecommunications providers are also subject to actual and potential local, state, and federal regulations that influence the availability of work for which the Company may compete. For example, the Company believes that uncertainty regarding pending federal telecommunications legislation decreased capital spending by many of its customers during the 1996 fiscal year. Weather may affect operating results due to the fact that construction cabling services are performed outdoors. Weather can also impact the Company's premises wiring cabling services due to the limited and lost production associated with poor driving conditions and generally difficult working environments. Operating results may also be affected by the capital spending patterns of the Company's customers and by the success of various technologies and business strategies employed by them. In fiscal 1997, the Company recorded approximately $10.3 million (or 16.4% of total revenues for the year), and for the first quarter of fiscal 1998, the Company recorded approximately $8.3 million (38.1% of total revenues for the quarter) in revenues from Telcos that are building or expanding video systems. Of the total $8.3 million of revenues from Telcos, approximately $3.7 million (or 17% of total Company revenues) was generated from work orders issued under contracts with GTE Media Ventures, a part of GTE Corporation. The amount of future capital allocated by these companies to their video programs is largely contingent upon the financial success of these programs. The Company's operating profitability and capacity to increase revenues is also largely dependent upon its ability to locate and attract qualified field managers, project managers, and technical production personnel. Other factors that may affect the Company's operating results include the size and timing of significant projects, and the gain or loss of a significant contract or customer. INFLATION Historically, inflation has not been a significant factor to the Company as labor is the primary cost of operations and its contracts are typically short-term in nature. On an ongoing basis, the Company attempts to minimize any effects of inflation on its operating results by controlling operating costs and, whenever possible, seeking to insure that selling prices reflect increases in costs due to inflation. ENVIRONMENTAL MATTERS The Company anticipates that its compliance with various laws and regulations relating to the protection of the environment will not have a material effect on its capital expenditures, future earnings or competitive position. 20 BUSINESS GENERAL The Company is a nationwide provider to the telecommunications industry of cabling services for the transmission of video, voice and data. The Company provides its services to Telcos, MSOs, systems integrators and end users of LAN systems and DBS providers. The Company, which conducts business under the trade name "NaCom," currently markets and provides its services through a national network of 18 regional offices and 11 satellite offices which in fiscal 1997 served customers in 44 states. Representative customers of the Company include Ameritech, Cox, GTE, IBM, Lucent, MCI, PrimeStar, Time Warner Cable and US West. INDUSTRY OVERVIEW The telecommunications industry has been undergoing rapid change due to deregulation and the introduction of new technologies, both of which have resulted in increased competition in the industry. In addition, growing customer demand for enhanced video, voice and data telecommunications services have increased bandwidth requirements while highlighting bandwidth limitations of existing cabling in many markets. The Telecommunications Act has created incentives for providers of video, voice and data communications services to upgrade their network infrastructures by opening previously protected markets to competition. Specifically, the Telecommunications Act, once certain conditions are met (i) allows RBOCs and other LECs to enter the long distance services market; (ii) allows long distance carriers, such as AT&T Corp. ("AT&T"), MCI and Sprint Corporation ("Sprint"), to enter the local telephone services market; (iii) allows any other entity, including MSOs and utilities, to enter both the local telephone service and long distance services markets; (iv) allows Telcos to sell video services, and in certain cases, to buy local cable television companies; and (v) deregulates MSOs once there is effective competition or after three years. Further, continuing developments in multimedia applications are bringing new entrants to the telecommunications market. Internet service providers and cable television, entertainment and data transmission companies are all potential users of video, voice and data communications services over broadband cabling systems. These changes have had, and are expected to continue to have, a significant impact on each of the Company's customer groups. TELCOS Video Communications. The Telecommunications Act allows Telcos to build systems for the transmission of video communications in their existing territories. Ameritech and GTE are among the companies which have already begun to build video systems in their territories. In addition, PacBell and BellSouth Corporation have either begun, or announced plans to begin, building digital wireless cable video systems in certain major metropolitan areas. Local Telephone Service. There are presently an estimated 30 million households in the United States with PCs. The rapid growth in residential customer demand for access to the Internet and for other services, such as fax machines, has led to increased demand for additional telephone lines. The increased competition resulting from the Telecommunications Act has also led to customer demand for improved service. Such increased customer demand is forcing service providers to upgrade existing networks and to upgrade or extend the in-home cabling. Long Distance Providers. The Telecommunications Act allows long distance providers, such as AT&T, MCI and Sprint, to enter the local telephone services market. While the ability of such providers to enter the local telephone services market has been, and may continue to be, delayed by a variety of legal and procedural challenges which have been mounted by RBOCs and other LECs, MCI has already expended significant amounts to build facilities for local telephone service and MCI and other long distance providers have entered into reselling agreements with certain LECs. These new providers of local telephone services require cabling resources to support the interior premises wiring needs of their local telephone operations. 21 MSOS Faced with competition for video services from both Telcos and DBS providers, many MSOs have announced plans to increase their capital spending in order to expand their existing channel capacity and to offer new services and next generation technologies and to improve picture and sound quality. New technology in which video and data communications converge through the development of platforms which combine high-speed access to the Internet with a WebTV-like interface, could significantly add to the demand for premises wiring services. The cable television industry, which in recent years has generally been capital constrained, has begun to show signs of renewed financial strength. Recently Microsoft Corp. invested $1.0 billion in Comcast Corp. which is the nation's fourth largest cable operator. The two companies have publicly announced the intention to have trials of both set-top converter boxes that connect WebTV to hybrid fiber-coaxial networks and cable-ready PCs by the end of 1998. Tele-Communications, Inc. ("TCI") has recently announced a three-year $1.7 billion network-upgrade project which will include preparing 500,000 homes for two-way signalling which will enable TCI to roll out @Home Network, its high-speed Internet data service. Although MSOs have been given the opportunity to provide residential telephone services to their customers, the large majority of MSOs have not engaged in any meaningful activity beyond technical trials. SYSTEMS INTEGRATORS AND NETWORK USERS In the past decade, the commercial use of PCs has become pervasive. The development of more powerful processors and easier to use software has expanded applications from word processing, accounting and data base management to electronic mail and research. As the number of PCs in businesses has grown, the need to share information among users has also grown. This has given rise to a large and rapidly expanding networking industry consisting of LANs. LANs connect PCs to other PCs, file servers, wide area networks ("WANs") and other devices, such as printers. WANs connect LANs at one site to other sites and connect users working outside their offices to their LAN, third party information sources or the Internet. Rapid technological advances in computers and software, including the use of more powerful computers and distributed area processing, have created the need for increasingly sophisticated LAN and WAN technologies. Such technologies demand an advanced high bandwidth data transmission cable that enables increased volumes of data to be transmitted at faster speeds without diminishing data integrity. This rapid rate of technological change has created demand both for new LANs and for maintenance and upgrades of existing LAN systems which no longer provide the necessary speed or quality of data transmission. DBS PROVIDERS Two major DBS providers have evolved over the last several years: PrimeStar, which is controlled by certain MSOs and has approximately 1.9 million subscribers, and DirecTV, which is an indirect wholly-owned subsidiary of General Motors Corporation and has approximately 2.7 million subscribers. The Company believes that the potential market in the U.S. for video, audio and data programming services via satellite consists of (i) the approximately 8 to 11 million households that do not have access to cable television (not "passed by cable"), (ii) the approximately 21 million households currently passed by cable television systems with fewer than 40 channels of programming, (iii) other existing cable subscribers who desire a greater variety of programming, improved video and audio quality, better customer service and fewer transmission interruptions, (iv) the commercial marketplace, including restaurants, bars, hotels, motels, MDUs, businesses and schools, and (v) the approximately 2.2 million low power C-band subscribers who may desire to migrate to digital service. 22 UTILITY COMPANIES The Telecommunications Act allows public utility companies to provide local and long distance telecommunications services to third parties. Additionally, the utility industry is in the preliminary stages of the deregulation process. Several states have already enacted deregulation legislation and other states and the federal government are expected to address deregulation in the next several years. Many utilities have already announced plans to enter businesses or form joint ventures offering services, such as local and long distance telephone services, cable television services and Internet access, to their markets. The Company believes there will continue to be growing opportunities in both the residential and commercial markets to design, construct, install and maintain cabling systems as telecommunications service providers increase capital expenditures for their infrastructures and implement plans to improve service in response to competition. In order to eliminate the ongoing expense and effort required to manage labor intensive, multi-office service organizations, the cable television industry historically has sought to outsource a large portion of these services on a unit cost basis with independent contractors, such as the Company. Telcos are also beginning to seek new outsourcing solutions in response to competitive price pressures. In addition, LAN cabling services are typically performed by third party vendors which construct, install and maintain LAN systems for businesses on a contract basis. The Company believes that it will continue to gain significant cabling opportunities in both the residential and commerical markets as new technologies, increased services and competition fuel the growing demand for the delivery of video, voice and data into homes and businesses. Finally, the Company believes that it will continue to gain significant cabling opportunities to provide services to DBS providers given the potential market for video, audio and data programming services via satellite. BUSINESS AND GROWTH STRATEGIES The Company intends to capitalize on the increasing demand for video, voice and data services, the increased competition fueled by the Telecommunications Act and the introduction of new technologies by pursuing the following strategies: Leverage Existing Infrastructure to Capitalize on Industry Growth. Through its network of 29 regional and satellite offices which in fiscal 1997 served customers in 44 states, the Company is able to offer providers of video, voice and data services a one-stop outsourcing solution for their cabling services needs. Building on its existing customer base in the telecommunications, cable television and network services industries, the Company intends to further differentiate itself from its competitors by aggressively pursuing opportunities to provide cabling services on a national and regional basis, rather than on a strictly local basis. Focus on Premises Wiring Services. The Company intends to continue its emphasis on premises wiring services, which have been the Company's core service for nearly 20 years. Premises wiring services, when provided on a regional or national scale, are logistically intensive. With its current residential premises wiring services volume in excess of 15,000 completed work orders per week, the Company believes that, as the only independent nationwide provider of residential premises wiring services, it is better positioned to bid on large-scale contracts than its competitors, allowing the Company to gain market share. Expand Services Performed for Telcos. The Company has already achieved significant growth in the premises wiring services performed for Telcos as revenues from Telcos (excluding CLECs) increased by over 400% from $2.0 million in fiscal 1996 (3.6% of revenues) to $10.3 million in fiscal 1997 (16.4% of revenues). Building on the base of premises wiring services performed for US West, GTE, PacBell and Ameritech, the Company intends to pursue further opportunities within its existing customer base as well as with additional Telcos it currently does not serve. Build a Nationwide, Diversified Telecommunications Services Business. As a result of the opportunities presented by the passage of the Telecommunications Act and the continued industry 23 trend toward the outsourcing of video, voice and data cabling services, the Company believes it has strong prospects for growth. The Company intends to gain greater market share from its existing customer base, to capture new customers in industries in which it currently competes, and to expand into new industries requiring cabling services, including the utility industry. As appropriate, the Company will selectively open new offices either to fill in existing markets or to gain access to new markets, such as the Pacific Northwest. Finally, the Company will consider acquisitions to complement its business if such acquisitions would enable the Company to add significant new customers, increase its ability to provide existing or new services or expand its business into new regional geographic markets. PRINCIPAL SERVICES The Company designs, constructs, installs and maintains fiber optic, coaxial and twisted-pair copper cabling systems for the transmission of video, voice, and data. The Company's services include the drops and cable feeds to, and wiring of, residences, MDUs and commercial buildings (collectively, "premises wiring services") and the construction and installation of aerial and underground distribution plant ("outside plant construction services"). The Company provides these services on a national basis to providers of telecommunications services, including Telcos, MSOs, systems integrators and users of LAN systems and DBS providers. Premises Wiring Services. Premises wiring services include the installation and maintenance of both hardwire and wireless cable systems. Installation services for hardwire cable systems include installing coaxial drops connecting residences to the feeder cable carrying the cable operator's signal, cabling the exterior and interior of MDUs and single family residences and installing converter units within the residence. Maintenance services for hardwire cable systems include (1) replacement of damaged or obsolete cable, (2) reconnection and disconnection of subscriber services, (3) day-to-day additions and changes to installed drops, (4) upgrade sales and service changes and (5) miscellaneous service calls. Wireless cabling services include both installation and maintenance services for DBS systems or digital wireless multi-channel multi-point distribution systems ("MMDS"), popularly known as "wireless cable." DBS installation services consist of attaching a satellite dish to the subscriber's property, hooking up the digital set-top converter box and installing the related cabling, grounding, and connective materials. DBS maintenance services include the replacement of damaged cable, grounding and connective materials and satellite receiving equipment. MMDS cable system installations consist of attaching a microwave receiving antenna to the subscriber's property and installing the digital set-top converter and related cabling, grounding, and connective materials. Maintenance services for MMDS are essentially the same as maintenance services for DBS. Premises wiring services also include the design and data cabling of LAN and WAN systems for commercial business, governments and educational organizations. The Company's network cabling design services begin with an on location site survey to determine the most efficient cable routing path and the location of end user outlets. The Company may then utilize a computer-assisted design system to finalize a cabling plan that meets network requirements and performance specifications. Once approved by the customer, a blueprint or other working print is generated which is used as a guide for the network installation. The Company installs a variety of voice and data cabling, including coaxial, fiber optic, and twisted-pair copper wiring. Upon completion of a network installation, the Company generally delivers to the customer test documentation and an as-built design layout. Total premises wiring revenues increased by 43.4% from approximately $37.3 million (66.5% of total revenues) in fiscal 1996 to approximately $53.4 million (84.7% of total revenues) in fiscal 1997 and by 81.1% from approximately $10.2 million (75.8% of total revenues) in the first quarter of fiscal 1997 to approximately $18.6 million (85.7% of total revenues) in the first quarter of fiscal 1998. Outside Plant Construction Services. Outside plant construction projects can either involve retrofit upgrades of existing systems with active subscribers ("retrofit construction projects") or work performed for the construction of new systems without active subscribers ("new construction projects"). Outside plant construction services involve the installation of fiber optic cable and coaxial 24 cable for aerial and underground portions of cable systems. These services also include installation of all necessary electronic components, including signal amplification and conversion devices and the performance of diagnostic engineering tests at all levels of the infrastructure to determine whether new and existing systems are within appropriate manufacturer or FCC specifications. The Company uses heavy machinery, specialized trucks and other construction equipment to perform its outside plant construction services. In fiscal 1997, the Company implemented a strategy to shift its outside plant construction services from providing such services for both retrofit construction projects and new construction projects to providing exclusively outside plant construction services for new construction projects. Retrofit construction projects involve different skill sets than new construction projects. The Company believes that the competitive environment associated with retrofit construction projects, along with uncertainty regarding customer work commitments on these projects, make them less desirable for the Company's current resources than new construction projects and premises wiring projects. Revenues from outside plant construction projects for fiscal 1997 decreased approximately 49% to approximately $9.6 million (15.3% of total revenues), from approximately $18.8 million (33.5% of total revenues) recorded in fiscal 1996. PRINCIPAL CUSTOMER GROUPS Telcos. The Company provides premises wiring services to RBOCs and other LECs and outside plant construction services to CLECs. The Company provides premises wiring services for video systems to GTE, PacBell, Ameritech and US West and outside plant construction services to MFS Communications Company. The Company has recently begun to provide premises wiring services for voice telecommunications systems to MCI and US West. Revenues from Telcos (excluding CLECs) in fiscal 1997 were approximately $10.3 million. Telcos are more centralized in their purchasing requirements for cabling services than MSOs. Telcos require cabling contractors to be qualified approved bidders and meet certain financial, technical, operational, and administrative prequalifications; therefore, they tend to use a limited number of larger contractors. MSOs. The Company provides both premises wiring and outside plant construction services to MSOs. Historically, broadband video networks in the United States were almost exclusively provided by cable television operators. Accordingly, the Company had historically derived a large percentage of its revenues from this customer base. The Company has been diversifying its customer base beyond its traditional cable television industry base. The Company's revenues derived from services performed for or on behalf of MSOs for fiscal 1997 were approximately $30.7 million. See the Principal Customer Group table in "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview." Representative customers of the Company include Time Warner Cable, TCI, Comcast Cable, Charter Cable and Marcus Cable. Other than Time Warner Cable, which comprised approximately 19% of the Company's revenue in fiscal 1997, no other customer represented more than 10% of Company's revenues. MSOs generally contract for cabling services through their local and regional offices. As a result, the Company markets its services to MSOs in a decentralized manner. The Company seeks to develop contacts and learn of potential opportunities through attendance at trade shows and by membership of its key managers and corporate personnel in the Society of Cable Television Engineers and local cable associations. The Company's regional directors, regional managers and area managers are responsible for developing and maintaining relationships with local and regional cable operators. The Company's marketing and operations functions have recently been decentralized, giving regional directors, regional managers and area managers greater flexibility in their regions to maintain and develop relationships with existing customers and to pursue new opportunities. The Company believes that the development and maintenance of customer relationships as well as the consistent performance of quality services allows it to gain repeat business. Currently, MSOs are facing competition for video services primarily from DBS providers and, to a lesser extent, from Telcos. In response to this competition, many MSOs have announced plans to increase their capital spending in order to increase existing channel capacity to improve picture and sound quality and to offer new services and next generation technologies. See "Business -- Industry 25 Overview." Increased capital spending by MSOs should benefit the Company by increasing the demand for its cabling services. See "Risk Factors -- Variability in Quarterly Results and Seasonality." Systems Integrators and Network Users. Since 1987, the Company has provided network cabling services, consisting of design and premises wiring of network systems, for commercial businesses, governments, and educational organizations. Since the introduction of LANs and WANs, this industry has grown rapidly and comprises a growing portion of the overall communications market. Company revenues derived from network cabling services in fiscal 1997 were approximately $13.8 million. The Company provides network cabling services to both systems integrators of network systems and directly to the end users of the network. Systems integrators such as Unisys, IBM and Lucent submit competitive bids for network systems to third party customers. The Company submits a competitive bid to the systems integrator for the cabling portion of the overall proposal. If the systems integrator is awarded the project, the Company will perform the required cabling services if its bid is accepted and will invoice the systems integrator directly. In other projects, the end users request bids directly from third party suppliers for network related services. In this case, the Company submits a proposal directly to the end user. The Company provides network cabling services through all of its regional offices. This capability provides customers with a single source for large regional or nationwide network installation projects. For example, in 1996, the Company began work on a multi-year contract through Unisys to provide network cabling services to over 5,000 Nationwide Insurance Company offices located in 26 states. As of August 1997, approximately 2,000 of those offices had been completed. The Company employs a combined corporate and regional approach to marketing its network cabling services. In 1992, the Company created a dedicated corporate sales and installation support group to identify and establish relationships with systems integrators that can provide an ongoing source of network cabling business in markets in which the Company has regional offices. The Company augments this national sales effort with network sales engineers who market multi-state sales territories from key regional offices. DBS Providers. The Company provides premises wiring, installation and maintenance services to DBS providers, such as PrimeStar and DirecTV. During fiscal 1997, the Company recorded approximately $6.8 million in revenues from DBS providers, of which approximately $5.2 million, or 76.5%, was with PrimeStar, which is currently owned by certain MSOs. In early fiscal 1997, the Company performed work for DirecTV and EchoStar Communications Corporation but is not currently providing services to either company. The Company markets its services to PrimeStar in a manner similar to that used to market to MSOs. OPERATIONS The Company's projects are managed under the direct supervision of over 40 project managers who generally report to area or regional managers or, in certain cases, directly to one of the Company's four regional directors. The regional directors are all under the supervision of the Company's Vice President - -- Operations. The Company's marketing and operations functions have recently been decentralized, giving regional directors, regional managers and area managers greater flexibility in their regions to maintain and develop relationships with existing customers and to pursue new opportunities. The Company provides its services predominantly through the use of independent contractors via its national network of regional and satellite field offices. Each regional office is headed by a regional manager or area manager whose primary duties consist of new business development and contract oversight. Regional managers and area managers employ the project managers who are responsible for locating and qualifying independent contractor production personnel, maintaining and deploying vehicles and equipment, and supporting the regional managers and area managers in maintaining customer relationships. The smaller satellite offices report to and are supervised by the larger regional offices. Regional offices are "full service" providers and can typically offer both 26 premises wiring services, including LAN design and wiring services and outside plant construction services. The Company's operating profitability and capacity to increase revenues are largely dependent upon its ability to locate, attract and retain qualified regional directors, regional managers, area managers, project managers and production personnel. The Company's corporate headquarters in Columbus, Ohio provides national marketing support, strategic planning, administrative services and operations support for the Company's field offices. The corporate office develops and maintains customer relationships with national companies and provides support for field offices performing work for these customers in local markets. In addition, the corporate office assists regional directors and area managers in responding to all bid requests by providing engineering support, performing cost analyses to determine pricing, and preparing proposal response documentation. All purchasing and accounting functions are managed at the corporate level. The following table summarizes, by regional office, the primary services provided and primary customers served as of August 1997.
REGIONAL OFFICE PRIMARY SERVICES PROVIDED PRIMARY CUSTOMERS --------------- ------------------------- ----------------- Atlanta MSO single family residential, MSO CableCom, Inc. (MediaOne), Knology MDU of Montgomery, Inc. Chicago Telco single family residential, Ameritech Telco MDU, LAN Cincinnati MSO single family residential, LAN, Time Warner Cable, PrimeStar DBS Cleveland MSO single family residential, MSO Cablevision, Cox MDU, MSO construction Columbus Telco single family residential, Time Warner Cable, Ameritech, Telco MDU, MSO single family PrimeStar residential, MSO construction, LAN, DBS Detroit Telco single family residential, LAN Ameritech Houston MSO single family residential, MSO Time Warner Cable, PrimeStar MDU, MSO construction, LAN, DBS Indianapolis DBS PrimeStar Los Angeles Telco single family residential, GTE, PacBell, Marcus Cable, MediaOne Telco MDU, MSO single family residential, MSO construction, LAN Louisville MSO single family residential, LAN Intermedia, Insight Cable New York MSO single family residential, LAN, Comcast, PrimeStar DBS Omaha Telco single family residential, US West, Cox, MFS Telco construction, MSO single family residential, MSO MDU Phoenix Telco single family residential, MSO US West, Cox single family residential, LAN Richmond LAN, DBS PrimeStar San Antonio MSO single family residential Time Warner Cable San Francisco MSO single family residential, LAN, Century Cable, National Water and Utility single family residential Power St. Louis MSO single family residential, MSO Charter Communications, Time Warner MDU, LAN Cable Tampa Bay Telco single family residential, GTE Telco MDU, LAN
27 CONTRACTS Many Telcos, MSOs and DBS providers require cabling service contractors, such as the Company, to first enter into a master contract which establishes certain requirements to be met before actual work orders are issued. However, master contracts do not bind these companies to use any one cabling service contractor in any given locality or for any given project. Rather, they negotiate with individual cabling service contractors, nationally, regionally and locally, on a project-by-project basis. Therefore, the Company has no extended commitment from any single Telco, MSO or DBS provider and bids on individual projects along with its competitors. See "Risk Factors -- Short-Term Contracts." The Company is typically compensated on these projects on a per unit basis for actual services performed. The Company's network cabling and construction services, in contrast, are generally nonrecurring in nature and are contracted on a project-by-project basis. Since the Company's services are generally provided on a project-by-project basis, the amount of work being performed at any given time for any particular customer and the general mix of customers for which work is being performed can vary significantly. MATERIALS The Company provides both consignment and material turnkey services. In the majority of non-network cabling contracts, the Company's customers supply most or all of the materials required for the project. The majority of the Company's network contracts are turnkey contracts in which the Company provides both the labor and materials necessary for the network cabling installation. The Company purchases cabling materials directly from independent third party suppliers, and does not manufacture any materials for resale to customers. The Company is not dependent upon any one supplier for network cabling materials and has not experienced, nor does it anticipate experiencing, difficulties in obtaining network cabling materials. COMPETITION The Company competes both with the in-house service organizations of MSOs and Telcos and with independent third parties in most of the markets in which it operates. The Company believes that its competitive advantages include its track record of performance, the depth of its management and field office network, its ability to commit manpower and equipment to multiple ongoing projects, and its competitive pricing. In order to eliminate the ongoing expense and effort required to manage labor intensive, multi-office service organizations, the cable television and telephone industries historically have sought to outsource a large portion of these services to independent contractors, such as the Company. The Company believes that while it may be considered a major competitor in many of the markets in which it provides cabling services, there are few barriers to entry into the cabling service business and, as a result, any business that has access to persons who possess technical expertise may become a competitor of the Company. The market for providing cabling services to Telcos is highly competitive and, in the case of outside plant construction services and cabling services for commercial buildings, includes national competitors with greater financial resources than the Company which historically have provided telephone cabling services to Telcos. The markets in which the Company provides LAN cabling services are highly competitive and many of the competitors in those markets have greater financial resources than the Company. While certain of the companies with which the Company competes are larger than the Company and have greater technical, marketing and financial resources, a large number of its competitors are smaller than the Company. Smaller regional and local competitors may be able to offer lower prices because of lower overhead expenses. Because of the highly competitive bidding environment in recent years for cable service contracts, the price of the cable service contractor's bid has often been the deciding factor in determining whether such contractor was awarded a contract for a cabling project. As the demand for cabling services has increased, the Company believes that contracts are increasingly being awarded based on the combination of a contractor's price, its track record for completing projects, its ability to dedicate management and production personnel to the project, and its financial and operational resources to complete the contract. See "Risk Factors -- Competition." 28 PERSONNEL As of March 30, 1997, the Company had 487 employees, of which 51 are employees at the Corporate Office in Columbus, Ohio and 436 are employed in the Company's field offices. The Company believes that its relationship with its employees is good. The Company provides most of its cabling services through the use of independent contractors which are either sole proprietorships or small business entities. Independent contractors are engaged and compensated on a project-by-project basis to perform local work. They generally provide their own vehicles, tools and insurance coverage. Independent contractors are paid in accordance with a schedule of unit rates for the performance of specific services. See "Risk Factors -- Use of Independent Contractors and Potential Impact of Reclassification as Employees by Governmental Authorities." PROPERTIES The Company does not own any real property. The Company's corporate headquarters are located in Columbus, Ohio. The Company's regional field offices service the following metropolitan areas: Atlanta, Chicago, Cincinnati, Cleveland, Columbus, Detroit, Houston, Indianapolis, Los Angeles, Louisville, New York, Omaha, Phoenix, Richmond, San Antonio, San Francisco, St. Louis and Tampa Bay. A typical regional office consists of an office with an attached warehouse for the storage of materials, tools and equipment and an adjacent secure outside storage area. The Company leases its corporate headquarters and all of its regional and satellite offices from unaffiliated lessors. The lease terms, including options exercisable by the Company, range from one month to five years. The Company believes that its present facilities are sufficient for its needs for the foreseeable future. LEGAL PROCEEDINGS The Company is involved in various legal proceedings, most of which arise in the ordinary course of business and many of which are covered by insurance. In the opinion of the Company's management, none of the claims relating to such proceedings will have a material adverse effect on the financial condition or results of operations of the Company. 29 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The following table and biographies set forth information as of September 29, 1997, concerning the executive officers and directors of the Company:
JOINED THE NAME AGE COMPANY IN POSITION ---- --- ---------- -------- Larry R. Linhart................. 51 1984 Chairman of the Board of Directors, President and Chief Executive Officer Joseph L. Govern................. 39 1985 Vice President -- Operations James W. Brittan................. 38 1986 Treasurer and Vice President -- Finance Robert B. Horn................... 48 1997 Vice President -- Human Resources E. Len Gibson.................... 48 1978 Director Robert L. Powelson............... 55 1978 Secretary and Director William H. Largent............... 42 1994 Director George R. Manser................. 66 1994 Director Richard W. Rubenstein............ 53 1997 Director
- ------------------ Larry R. Linhart is the Chairman of the Board of Directors, President and Chief Executive Officer of the Company. Mr. Linhart has been the President and Chief Executive Officer of the Company since 1986 and a director of the Company since 1984. From 1984 to 1986, Mr. Linhart served as Executive Vice President, Treasurer and General Counsel of the Company. Mr. Linhart was previously a partner in the Columbus law firm of Murphey, Young and Smith (currently, Squire, Sanders & Dempsey L.L.P.) which he joined in 1971. Joseph L. Govern is the Vice President -- Operations of the Company. Mr. Govern has been Vice President -- Operations of the Company since 1992. From 1991 to 1992, Mr. Govern served as the Company's Vice President -- Finance and Director of Operations. From 1986 to 1991, Mr. Govern was the Vice President -- Finance and Administration for the Company. He is a certified public accountant and from 1980 through mid-1985 was employed by Coopers & Lybrand. James W. Brittan is the Treasurer and Vice President -- Finance of the Company. Mr. Brittan has been Treasurer and Vice President -- Finance of the Company since May 1994. Mr. Brittan served as the Company's Controller from 1986 to May 1994. From 1984 to 1986, Mr. Brittan was employed by The Limited, Inc., a national fashion retailer, as Senior Accountant. Mr. Brittan is a certified public accountant and from 1981 through 1984 was employed by Coopers & Lybrand. Robert B. Horn is the Vice President -- Human Resources of the Company. Mr. Horn has been Vice President -- Human Resources of the Company since February 1997. From 1993 to 1997, Mr. Horn was the Vice President of Human Resources of Damon's International, Inc., a 110 unit casual dining restaurant chain. From 1985 to 1993, Mr. Horn owned and operated five restaurants, co-owned and operated an international meeting planning firm and served as a management consultant to various small companies and trade associations. From 1974 to 1985, Mr. Horn was employed by RAX Restaurants, Inc. and served as Executive Vice President -- Operations. E. Len Gibson is a director of the Company. Mr. Gibson has been a director of the Company since 1981. Mr. Gibson and Robert L. Powelson founded the Company in 1978 as a joint venture between their respective cable television installation companies. From 1987 through 1994, Mr. Gibson served as a consultant for the Company. 30 Robert L. Powelson is a director of the Company. Mr. Powelson has been a director of the Company since 1981 and was a co-founder of the Company with E. Len Gibson. Since 1987, Mr. Powelson has served as a consultant for the Company. William H. Largent has been a director of the Company since the completion of its initial public offering in 1994. Since May 1997, Mr. Largent has been Senior Vice President of Operations and Chief Financial Officer of Applied Innovation, Inc., a provider of electronic data monitoring network equipment to Telcos, including all seven RBOCs. From 1993 to 1997, Mr. Largent was the Chief Financial Officer of Metatec Corporation, a leading provider of CD-ROM products and services and was a director of that corporation from 1990 to 1997. From 1990 to 1993, Mr. Largent was President of Liebert Capital Management Corporation, an affiliate of a major shareholder of Metatec Corporation. From 1981 to 1988, Mr. Largent served in various capacities for Liebert Corporation including Chief Financial Officer upon his departure in 1988. Mr. Largent is a Certified Public Accountant and co-founded his own accounting firm in 1988, the interest in which he sold in 1990. From 1976 to 1981, Mr. Largent was employed by Touche Ross & Co. George R. Manser has been a director of the Company since the completion of its initial public offering in 1994. Mr. Manser is Chairman of Uniglobe Travel (Capital Cities) Inc. and Director of Corporate Finance for Uniglobe Travel USA (LLC). Mr. Manser has served as Chairman and a director of North American National Corporation, a life insurance holding company, since 1984 and as its President from 1969 to 1984. In addition, Mr. Manser currently is serving as a director of Cardinal Health, Inc., State Auto Financial Corp., Checkfree Corporation, Hallmark Financial Services, Inc. and Advisory Director to J.C. Bradford & Co. Richard W. Rubenstein has been a director of the Company since his election at the Annual Shareholders' Meeting held on August 19, 1997. Since 1994, Mr. Rubenstein has been a partner of the law firm of Squire, Sanders & Dempsey L.L.P. From 1980 until 1994, Mr. Rubenstein was a partner of the law firm of Schwartz, Kelm, Warren & Rubenstein. 31 SELLING SHAREHOLDERS The following table sets forth the name of each Selling Shareholder, the number of Common Shares to be sold by each such person in this offering as of September 29, 1997 and the number of Common Shares which will be beneficially owned by each such person as of completion of this offering:
COMMON SHARES COMMON SHARES COMMON SHARES TO BE BENEFICIALLY OWNED TO BE SOLD BENEFICIALLY OWNED PRIOR TO OFFERING (1) IN OFFERING (2) AFTER OFFERING (1)2) ----------------------- --------------- ----------------------- NAME NUMBER PERCENT NUMBER PERCENT ---- --------- ------- --------- ------- Larry R. Linhart ............ 748,728(3) 19.3% 80,000 668,728(4) 14.9% E. Len Gibson (5)............ 803,855 22.8% 160,000 643,855 15.3% Robert L. Powelson .......... 948,855 26.9% 160,000 788,855 18.7%
- ------------------ (1) Unless otherwise indicated, the beneficial owner has sole voting and dispositive power over these shares subject to spousal rights, if any. (2) If the Underwriters' over-allotment option is exercised in full, Messrs. Linhart, Gibson and Powelson would sell in this offering an additional 30,000 shares, 60,000 shares and 60,000 shares, respectively, and, as of completion of this offering, would own beneficially 638,728 shares, or 14.3% (assuming Mr. Linhart exercises outstanding options to purchase an additional 30,000 shares immediately prior to the sale of such shares), 583,855 shares, or 13.8%, and 728,855 shares, or 17.2%, respectively. (3) Includes exercisable options to purchase 350,000 Common Shares. (4) Assumes that Larry R. Linhart will exercise outstanding options to purchase 80,000 Common Shares immediately prior to the sale of the Common Shares pursuant to this offering and includes exercisable options to purchase 270,000 Common Shares after giving effect to such exercise by Mr. Linhart. (5) Mr. Gibson's shares are held in trust for the benefit of Mr. Gibson. SHAREHOLDERS' AGREEMENT Messrs. Gibson, Powelson and Linhart (the "Principal Shareholders") and the Company are parties to a Shareholders' Agreement (the "Shareholders' Agreement"). The Shareholders' Agreement provides that the Principal Shareholders each (for so long as he owns at least 100,000 Common Shares) shall vote all Common Shares owned by him in favor of the election or removal of directors such that, among other things: (i) the Board of Directors of the Company shall initially consist of the Principal Shareholders and three persons, who are not affiliates (as defined in the Shareholders' Agreement) of any of the Principal Shareholders, named by the Nominating Committee of the Board of Directors and approved by the Board of Directors ("Public Directors"); (ii) until August 19, 2004, the Principal Shareholders shall nominate or cause the Board of Directors to nominate and recommend to the shareholders as proposed members of the Board of Directors, each of the Principal Shareholders and such number of Public Directors as are necessary to fill any vacancies on the Board of Directors; and (iii) until August 19, 2004, the number of directors constituting the board of directors of each subsidiary of the Company shall be fixed at three and such directors shall include Messrs. Linhart and Powelson and a third individual selected by them. Pursuant to the Shareholders' Agreement, each of the Principal Shareholders has the right ("Demand Registration Right") on one occasion to require the Company to prepare and file a registration statement under the Securities Act of 1933, as amended (the "Securities Act") with respect to a public offering of Common Shares that he holds ("Demand Registration"). The effective date of any registration statement filed pursuant to the exercise of Demand Registration Rights by one of the Principal Shareholders shall not be within six months after the date of this Prospectus. The Company is required to bear the expenses (except for underwriting discounts and underwriting commissions and fees and expenses of counsel to the selling shareholders) of Demand Registrations. Further, under the terms of the Shareholders' Agreement, in the event that the Company proposes to register any of its securities under the Securities Act for its own account (subject to certain exceptions), 32 or pursuant to the exercise of a Demand Registration Right or any registration rights of any person not a Principal Shareholder, the other Principal Shareholders are entitled to include shares in such registration, subject to the right of the underwriters of any such offering to limit the number of shares included in such registration. Each of the Principal Shareholders has agreed with the Representatives (defined below) not to sell or dispose of any shares owned by them (other than those Common Shares sold hereby) without the consent of the Representatives for a period of 120 days after the date of this Prospectus. Pursuant to the Shareholders' Agreement, the Principal Shareholders have agreed that they will not sell or transfer any of their Common Shares except (i) pursuant to a Demand Registration Right, (ii) to the Company, (iii) pursuant to Rule 144 promulgated under the Securities Act, (iv) to heirs or family members who agree to be bound by the Shareholders' Agreement, (v) by bona fide gift to a charity or (vi) by pledge to secure indebtedness to a financial institution. The Shareholders' Agreement contains certain non-competition and non-solicitation provisions which prohibit each of the Principal Shareholders from engaging in certain conduct during certain restricted periods and for three years thereafter. The restricted period applicable to Mr. Linhart is the term of his employment with the Company and the restricted period applicable to each of Messrs. Gibson and Powelson is the period during which each is a director or the owner of Common Shares possessing not less than 10% of the combined voting power of all voting securities of the Company. CAPITAL SHARES AUTHORIZED CAPITAL STOCK The authorized capital stock of the Company consists of 10,000,000 Common Shares, without par value, and 1,000,000 Preferred Shares, without par value, consisting of 500,000 Class A Voting Preferred Shares ("Class A Preferred Shares") and 500,000 Class B Nonvoting Preferred Shares ("Class B Preferred Shares" and together with the Class A Preferred Shares the "Preferred Shares"). COMMON SHARES When the Common Shares sold in this offering are fully paid for, they will be validly issued, fully paid and nonassessable. Holders of Common Shares are entitled to one vote per share on all matters that properly come before the shareholders, including the election of directors. The Common Shares do not have cumulative voting rights and, therefore, a simple majority of the Common Shares present and voting at a meeting of shareholders will be able to elect all of the directors to be elected at such meeting. Holders of Common Shares are entitled to receive dividends when, as and if declared by the Board of Directors of the Company out of funds legally available therefor. The Company presently intends to retain its earnings to finance the future growth and development of its business and, therefore, does not expect to pay cash dividends in the foreseeable future. See "Risk Factors -- Dividend Policy." In the event of the liquidation, dissolution or winding up of the affairs of the Company, holders of Common Shares are entitled to receive ratably the net assets of the Company available for distribution after the Company's creditors are paid. Holders of Common Shares have no preemptive, redemption or conversion rights. TRANSFER AGENT The transfer agent for the Common Shares is American Stock Transfer and Trust Company. PREFERRED SHARES No Preferred Shares are outstanding. The Class A Preferred Shares and the Class B Preferred Shares are identical except that Class A Preferred Shares have voting rights and Class B Preferred Shares generally do not have voting rights. However, holders of Class A Preferred Shares and Class B Preferred Shares, voting as a single class, have the right to elect two additional directors during any period in which dividends on either Class A Preferred Shares or Class B Preferred Shares are cumulatively in arrears in the amount of six or more full quarterly dividends. No other terms of any Preferred Shares have been established. The Board of Directors has the authority, without shareholder 33 approval, to issue Preferred Shares and to determine their terms (except voting rights) including the dividend or distribution rate, the dates of payment of dividends or distributions and the dates from which they are cumulative, liquidation price, redemption rights and price, conversion rights and other rights to the extent permitted by law from time to time. Class A Preferred Shares may be issued with voting or conversion rights which may adversely affect the voting power of holders of Common Shares. The issuance of a series or class of Preferred Shares could be used to hinder or delay a takeover bid for the Company which might have the effect of inhibiting such bids and decreasing the chance of the shareholders realizing a premium over market price for their Common Shares as a result of such a takeover bid. The Company does not have any current plan, arrangement or understanding to issue any Preferred Shares. CERTAIN CHARTER PROVISIONS Certain provisions of the Company's Articles of Incorporation and Code of Regulations may have the effect of deterring companies or other persons from making takeover bids for control of the Company or may be used to hinder or delay a takeover bid thereby decreasing the chance of the shareholders of realizing a premium over market price for their Common Shares as a result of such bids. The relevant provisions of the Company's Articles of Incorporation are (a) a provision that requires the approval of holders of 75% of the Company's voting shares and holders of a majority of the voting shares held by disinterested persons for certain business combinations involving shareholders who beneficially own more than 20% of the Company's outstanding shares and (b) a provision authorizing the Company to purchase its capital shares by action of the Board of Directors. The relevant provisions of the Code of Regulations are (i) a provision that divides the Board of Directors into two classes with staggered two year terms if the size of the Board of Directors is six or more but less than nine persons, and that will divide the Board into three classes with staggered terms of three years each if the size of the Board is increased to nine or more, which may be done by the Board of Directors, (ii) a provision that restricts the right of shareholders to nominate directors from the floor at the annual meeting, (iii) a provision that requires a vote of holders of 75% of the voting shares to remove a director which removal must be for cause, (iv) a provision that requires the approval of an amendment to certain provisions of the Code of Regulations by holders of 75% of the voting shares if it is not approved by at least three-fourths of the directors, (v) a provision that restricts the right of shareholders to call a special meeting of shareholders unless holders of 50% of the voting shares join in the request for a call, and (vi) a provision that requires a vote of holders of 75% of the voting shares to change the number of directors although such number may be changed within the range of 3 to 15 by the Board of Directors without shareholder approval. CERTAIN LAWS The Company is subject to the Ohio Control Share Acquisition Law, which requires that, subject to certain exemptions, any acquisition of shares having one-fifth to one-third, one-third to one-half or a majority or more of the Company's voting power be made only with the prior authorization of the holders of a majority of the voting shares present at the meeting held to obtain such authorization and a majority of the holders of shares who are disinterested. The Company is also subject to Chapter 1704 of the Ohio Revised Code. Under Chapter 1704, the Company may not engage in a Chapter 1704 transaction (a term that broadly includes mergers, asset and stock sales and other financing transactions) with an interested shareholder (a person or entity that controls 10% or more of the Company's voting power) for three years after the interested shareholder became such unless the directors of the Company approved the transaction or the purchase of shares by the interested shareholder in advance. The Company has exempted the Principal Shareholders from Chapter 1704. Chapter 1704 transactions between an interested shareholder who has held such shares for three years and the Company that were not approved by the directors in advance are subject to additional shareholder approval requirements or fairness criteria. The provisions of Chapter 1704 may deter or prevent takeover bids that have not been approved in advance by the directors and may decrease the chances of shareholders realizing a premium over market price for their Common Shares as the result of such a takeover bid. 34 UNDERWRITING The Underwriters named below, acting through their representatives, Legg Mason Wood Walker, Incorporated and J.C. Bradford & Co. (the "Representatives"), have severally agreed, subject to the terms and conditions of the Underwriting Agreement, to purchase 600,000 Common Shares from the Company and 400,000 Common Shares from the Selling Shareholders. The Underwriters are committed to purchase all of such shares if any are purchased. Under certain circumstances the commitments of non-defaulting Underwriters may be increased. The names of the several Underwriters and the respective number of Common Shares to be purchased by each of them are as follows: NUMBER NAME OF SHARES ---- ---------- Legg Mason Wood Walker, Incorporated........................ J.C. Bradford & Co.......................................... --------- Total..................................................... 1,000,000 ========= The Underwriters propose to offer the Common Shares to the public initially at the offering price per share set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not in excess of $ per share, and the Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share on sales to other dealers. After the commencement of the public offering of the Common Shares, the offering price and concession may be changed. The Company and the Selling Shareholders have agreed to indemnify the several Underwriters against certain liabilities which may be incurred in connection with this offering, including liabilities under the Securities Act. The Selling Shareholders have granted an option to the Underwriters, exercisable during the 30-day period after the date of this Prospectus, to purchase up to an aggregate of 150,000 Common Shares from the Company at the same price per share as the public offering price. The Underwriters may exercise such option only to cover over-allotments in the sale of the Common Shares that the Underwriters have agreed to purchase. To the extent the Underwriters exercise this option, each of the Underwriters has a firm commitment, subject to certain conditions, to purchase the same percentage of the option shares as the number of shares to be purchased and offered by that Underwriter as shown in the above table bears to the 1,000,000 Common Shares initially offered hereby. All of the directors and executive officers of the Company have agreed with the Representatives not to offer to sell, sell, transfer or otherwise dispose of any shares owned by them or for their benefit without the consent of the Representatives for a period of 120 days after the date of this Prospectus. See "Risk Factors -- Shares Eligible for Future Sale." In connection with this offering, certain Underwriters may engage in passive market making transactions in the Common Shares in accordance with Regulation M under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), during the two business day period before the 35 commencement of offers of sales of the Common Shares. Passive market makers must comply with applicable volume and price limitations and must be identified as such. In general, a passive market maker must display its bid at a price not in excess of the highest independent bid for such security; if all independent bids are lowered below the passive market maker's bid, however, such bid must then be lowered when certain purchase limits are exceeded. Until the distribution of the Common Shares is completed, rules of the SEC Commission may limit the ability of the Underwriters and certain Selling Shareholders, if any, to bid for and purchase the Common Shares. As an exception to these rules, the Representatives are permitted to engage in certain transactions that stabilize the price of the Common Shares. Such transactions may consist of bids or purchases for the purpose of pegging, fixing or maintaining the price of the Common Shares. If the Underwriters create a short position in the Common Shares in connection with the offering thereof (i.e., if they sell more Common Shares than are set forth on the cover page of the Prospectus), the Representatives may reduce that short position by purchasing Common Shares in the open market. The Representatives also may elect to reduce any short position by exercising all or part of the over-allotment option described in the Prospectus. The Representatives also may impose a penalty bid on certain Underwriters and selling group members. This means that if the Representatives purchase Common Shares in the open market to reduce the Underwriters' short position or to stabilize the price of the Common Shares, they may reclaim the amount of the selling concession from the Underwriters and selling group members who sold those shares as part of this offering. In general, purchases of Common Shares for the purpose of stabilization or to reduce a syndicate short position could cause the price of the Common Shares to be higher than it might otherwise be in the absence of such purchases. The imposition of a penalty bid might have an effect on the price of the Common Shares to the extent that it were to discourage resales of the Common Shares by purchasers in this offering. Neither the Company nor the Underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the Common Shares. In addition, neither the Company nor the Underwriters make any representation that the Representatives will engage in such transactions or that such transactions, once commenced, will not be discontinued without notice. LEGAL MATTERS The validity of the issuance of Common Shares in the Offering will be passed upon by counsel for the Company, Squire, Sanders & Dempsey L.L.P., Columbus, Ohio. Attorneys of Squire, Sanders & Dempsey L.L.P. participating in the preparation of this Prospectus own an aggregate of 200 Common Shares. Richard W. Rubenstein, a partner of Squire, Sanders & Dempsey L.L.P., is a member of the Board of Directors of the Company. Certain legal matters will be passed upon for the Underwriters by Wolf, Block, Schorr and Solis-Cohen LLP, Philadelphia, Pennsylvania. EXPERTS The consolidated Financial Statements of AmeriLink Corporation at March 31, 1996 and March 30, 1997, and for each of the three fiscal years in the period ended March 30, 1997, appearing in this Prospectus and Registration Statement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. 36 AVAILABLE INFORMATION The Company is subject to the informational requirements of the Exchange Act and, in accordance therewith, files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information are available for inspection without charge at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549-1004, as well as the Regional Offices of the Commission at Seven World Trade Center, 13th Floor, New York, New York 10048, and Northwestern Atrium Center, 500 West Madison Street, 14th Floor, Chicago, Illinois 60661-2511. Copies of such materials may be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web site, located at http://www.sec.gov, that contains reports, proxy and information statements and other information regarding registrants, including the Company, that file electronically with the Commission. The Common Shares are quoted on the Nasdaq National Market, and reports, proxy statements and other information concerning the Company may also be inspected at the offices of the Nasdaq National Market, 1735 K Street, N.W. Washington, D.C. 20006-1506. The Company has filed a Registration Statement on Form S-2 (the "Registration Statement," which term shall include any amendments thereto) under the Securities Act, with the Commission with respect to the Common Shares offered hereby. This Prospectus does not contain all the information set forth in the Registration Statement and the exhibits and schedules thereto, certain parts of which are omitted in accordance with the rules and regulations of the Commission, and to which reference is hereby made. For further information, reference is made to the Registration Statement and the exhibits and schedules thereto. Statements contained in this Prospectus as to contents of any contract or other document referred to herein are not necessarily complete and, where such contract or other document is an exhibit to the Registration Statement, each such statement is qualified in all respects by the provisions of such exhibit, to which reference is hereby made. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed with the Commission by the Company (File No. 000-24334) are incorporated in this Prospectus by reference: (1) The Company's Annual Report on Form 10-K for the fiscal year ended March 30, 1997. (2) The Company's Quarterly Report on Form 10-Q for the quarter ended June 29, 1997. The Company will provide without charge to each person to whom a copy of this Prospectus is delivered, upon the written or oral request of such person, a copy of any and all of the foregoing documents, other than the exhibits to such documents (unless such exhibits are specifically incorporated by reference in such documents). Requests should be directed to AmeriLink Corporation, 1900 E. Dublin-Granville Road, Columbus, Ohio 43229, Attention: Investor Relations, (614) 895-1313, Extension 4545. 37 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE ---- Report of Independent Auditors.............................. F-2 Consolidated Balance Sheets as of March 31, 1996 March 30, 1997 and June 29, 1997 (unaudited).............. F-3 Consolidated Statements of Income for the years ended April 2, 1995, March 31, 1996 and March 30, 1997 and the thirteen weeks ended June 30, 1996 and June 29, 1997 (unaudited)............................................... F-4 Consolidated Statements of Changes in Shareholders' Equity for the years ended April 2, 1995, March 31, 1996 and March 30, 1997 and the thirteen weeks ended June 29, 1997 (unaudited)............................................... F-5 Consolidated Statements of Cash Flows for the years ended April 2, 1995, March 31, 1996 and March 30, 1997 and the thirteen weeks ended June 30, 1996 and June 29, 1997 (unaudited)............................................... F-6 Notes to Consolidated Financial Statements.................. F-7 F-1 REPORT OF INDEPENDENT AUDITORS Board of Directors and Shareholders AmeriLink Corporation We have audited the accompanying consolidated balance sheets of AmeriLink Corporation and Subsidiary (the "Company") as of March 31, 1996 and March 30, 1997, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended March 30, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of AmeriLink Corporation and Subsidiary at March 31, 1996 and March 30, 1997, and the consolidated results of its operations and its cash flows for each of the three years in the period ended March 30, 1997, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Columbus, Ohio May 16, 1997 F-2 AMERILINK CORPORATION CONSOLIDATED BALANCE SHEETS
MARCH 31, MARCH 30, JUNE 29, 1996 1997 1997 ----------- ----------- ----------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents.................... $ 78,680 $ 120,395 $ 101,062 Accounts receivable-trade, net of allowance for doubtful accounts of $95,000 in 1996; $171,000 in 1997; $252,000 at June 29, 1997...................................... 8,899,443 13,558,789 12,795,095 Work-in-process.............................. 2,902,617 4,294,802 6,551,560 Materials and supply inventories............. 1,710,084 1,509,840 1,345,345 Other receivables............................ 221,659 308,217 251,942 Deferred income taxes........................ 127,286 142,593 142,593 Other........................................ 510,263 153,125 189,252 ----------- ----------- ----------- Total current assets...................... 14,450,032 20,087,761 21,376,849 Property and equipment -- net.................. 6,032,551 5,928,062 6,111,356 Deposits and other assets...................... 71,217 183,578 175,689 Deferred income taxes.......................... -- 11,710 11,710 ----------- ----------- ----------- Total assets................................... $20,553,800 $26,211,111 $27,675,604 =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Trade accounts payable....................... $ 1,802,121 $ 2,318,675 $ 2,416,782 Liability to subcontractors.................. 1,083,186 1,960,754 2,369,386 Accrued compensation and related expenses.... 1,078,935 1,435,672 1,803,228 Accrued insurance............................ 536,872 368,257 429,894 Income taxes................................. -- 173,270 785,292 Other........................................ 160,952 82,881 137,782 Current maturities of long-term debt......... 720,000 69,190 -- ----------- ----------- ----------- Total current liabilities................. 5,382,066 6,408,699 7,942,364 Long-term debt, less current maturities........ 5,843,227 9,000,000 7,750,000 Deferred income taxes.......................... 117,839 -- -- ----------- ----------- ----------- Total liabilities......................... 11,343,132 15,408,699 15,692,364 Shareholders' equity: Preferred stock, without par; 1,000,000 shares authorized; none issued or outstanding............................... -- -- -- Common Stock, without par; 10,000,000 shares authorized; 3,478,580 in 1996 and 3,481,580 in 1997 and at June 29, 1997 shares issued and outstanding............. 8,061,395 8,084,645 8,084,645 Retained earnings............................ 1,149,273 2,717,767 3,898,595 ----------- ----------- ----------- Total shareholders' equity................ 9,210,668 10,802,412 11,983,240 ----------- ----------- ----------- Total liabilities and shareholders' equity... $20,553,800 $26,211,111 $27,675,604 =========== =========== ===========
See notes to financial statements. F-3 AMERILINK CORPORATION CONSOLIDATED STATEMENTS OF INCOME
FIFTY-TWO WEEKS ENDED THIRTEEN WEEKS ENDED --------------------------------------- ------------------------- APRIL 2, MARCH 31, MARCH 30, JUNE 30, JUNE 29, 1995 1996 1997 1996 1997 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) Revenues.............................. $47,541,021 $56,055,416 $63,035,814 $13,521,020 $21,651,070 Cost of sales......................... 31,866,085 38,950,759 41,297,467 9,021,244 13,349,028 ----------- ----------- ----------- ----------- ----------- Gross profit.......................... 15,674,936 17,104,657 21,738,347 4,499,776 8,302,042 Selling, general and administrative expenses............................ 12,895,108 15,935,087 18,436,896 4,004,152 6,136,163 ----------- ----------- ----------- ----------- ----------- Income from operations................ 2,779,828 1,169,570 3,301,451 495,624 2,165,879 Interest expense...................... (342,891) (512,214) (617,004) (127,632) (165,051) Other income.......................... 7,825 28,688 7,047 622 -- ----------- ----------- ----------- ----------- ----------- Income before income taxes............ 2,444,762 686,044 2,691,494 368,614 2,000,828 Provision for income taxes............ 994,988 229,000 1,123,000 147,000 820,000 ----------- ----------- ----------- ----------- ----------- Net income............................ $ 1,449,774 $ 457,044 $ 1,568,494 $ 221,614 $ 1,180,828 =========== =========== =========== =========== =========== Net income per common share........... $ 0.13 $ 0.44 $ 0.06 $ 0.33 =========== =========== =========== =========== Weighted average common shares outstanding......................... 3,350,521 3,625,510 3,589,131 3,639,952 3,596,027 UNAUDITED PRO FORMA INFORMATION (NOTE 7) Pro forma income before income taxes............................... $ 2,487,221 Pro forma provision for income taxes............................... 994,888 ----------- Pro forma net income.................. $ 1,492,333 =========== Pro forma net income per common share............................... $ 0.45 ===========
See notes to financial statements. F-4 AMERILINK CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
COMMON STOCK ---------------------- RETAINED NOTE RECEIVABLE SHARES AMOUNT EARNINGS NACOM CORP. TOTAL --------- ---------- ---------- --------------- ----------- Balance at April 3, 1994................ 2,588,580 $ 191,963 $4,386,689 $(1,264,038) $ 3,314,614 Net income............................ -- -- 1,449,774 -- 1,449,774 Dividends paid........................ -- -- (3,200,000) -- (3,200,000) Proceeds from note receivable -- NaCom Corp.......................... -- -- -- 1,264,038 1,264,038 Net proceeds from sale of common stock, less issuance expenses of $678,602............................ 890,000 5,925,198 -- -- 5,925,198 Reclassification of undistributed S Corporation retained earnings....... -- 1,944,234 (1,944,234) -- -- --------- ---------- ---------- ----------- ----------- Balance at April 2, 1995................ 3,478,580 8,061,395 692,229 -- 8,753,624 Net income............................ -- -- 457,044 -- 457,044 --------- ---------- ---------- ----------- ----------- Balance at March 31, 1996............... 3,478,580 8,061,395 1,149,273 -- 9,210,668 Net income............................ -- -- 1,568,494 -- 1,568,494 Issuance of restricted stock.......... 3,000 23,250 -- -- 23,250 --------- ---------- ---------- ----------- ----------- Balance at March 30, 1997............... 3,481,580 8,084,645 2,717,767 -- 10,802,412 Net income (unaudited)................ -- -- 1,180,828 -- 1,180,828 --------- ---------- ---------- ----------- ----------- Balance at June 29, 1997 (unaudited).... 3,481,580 $8,084,645 $3,898,595 $ -- $11,983,240 ========= ========== ========== =========== ===========
See notes to financial statements. F-5 AMERILINK CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
FIFTY-TWO WEEKS ENDED THIRTEEN WEEKS ENDED --------------------------------------- ------------------------- APRIL 2, MARCH 31, MARCH 30, JUNE 30, JUNE 29, 1995 1996 1997 1996 1997 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) OPERATING ACTIVITIES Net income.............................. $ 1,449,774 $ 457,044 $ 1,568,494 $ 221,614 $1,180,828 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization......... 1,458,698 1,950,215 2,242,312 534,322 651,147 Net loss (gain) on disposal of fixed assets.............................. 34,737 9,667 (14,950) (4,745) 3,120 Gain on investments................... (1,534) (23,534) (6,199) -- -- Deferred income taxes................. 86,000 (169,500) (145,000) -- -- Changes in operating assets and liabilities: Accounts receivable and work-in-process................... (4,634,586) (1,169,784) (6,051,531) (701,768) (1,493,064) Materials and supply inventories.... (592,802) (470,529) 200,244 (348,070) 164,495 Other receivables................... 19,517 (1,742) (86,558) 42,578 56,275 Other current assets................ 9,898 13,027 24,409 32,518 (36,127) Trade accounts payable.............. 674,812 493,369 516,554 437,650 98,107 Liability to subcontractors......... 180,677 65,404 877,568 152,773 408,632 Accrued compensation and related expenses.......................... 256,271 74,024 356,737 13,066 367,556 Accrued insurance................... 222,357 (111,023) (168,615) (257,546) 61,637 Income taxes........................ (184,459) (215,770) 505,999 105,395 612,023 Other current liabilities........... 94,935 10,930 (78,071) 6,816 54,900 ----------- ----------- ----------- ---------- ---------- Net cash provided by (used in) operating activities................ (925,705) 911,798 (258,607) 234,603 2,129,529 INVESTING ACTIVITIES Purchase of property and equipment.... (2,894,798) (4,206,245) (2,752,254) (609,169) (1,004,126) Proceeds from sale of property and equipment........................... 56,212 500,801 629,525 85,065 166,565 Deposits and other assets............. 20,755 246,345 (82,912) (45,752) 7,889 Proceeds from note receivable -- NaCom Corp.......................... 1,264,038 -- -- -- -- ----------- ----------- ----------- ---------- ---------- Net cash used in investing activities... (1,553,793) (3,459,099) (2,205,641) (569,856) (829,672) FINANCING ACTIVITIES Principal payments on long-term debt................................ (18,997,065) (18,645,963) (20,400,000) (4,430,000) (8,394,190) Proceeds from borrowings on long-term debt................................ 18,800,000 21,200,000 22,905,963 4,825,963 7,075,000 Proceeds from issuance of common stock............................... 5,925,198 -- -- -- -- Dividends paid........................ (3,200,000) -- -- -- -- ----------- ----------- ----------- ---------- ---------- Net cash provided by (used in) financing activities............................ 2,528,133 2,554,037 2,505,963 395,963 (1,319,190) ----------- ----------- ----------- ---------- ---------- Increase (decrease) in cash and cash equivalents......................... 48,635 6,736 41,715 60,710 (19,333) Cash and cash equivalents at beginning of period............................. 23,309 71,944 78,680 78,680 120,395 ----------- ----------- ----------- ---------- ---------- Cash and cash equivalents at end of period................................ $ 71,944 $ 78,680 $ 120,395 $ 139,390 $ 101,062 =========== =========== =========== ========== ========== SUPPLEMENTAL CASH FLOW DISCLOSURES Interest paid......................... $ 364,794 $ 508,587 $ 619,192 $ 129,633 $ 166,454 Income taxes paid..................... $ 1,023,094 $ 604,192 $ 762,048 $ 41,605 $ 210,188
See notes to financial statements. F-6 AMERILINK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (AMOUNTS AND DISCLOSURE AT AND FOR THE THIRTEEN WEEKS ENDED JUNE 30, 1996 AND JUNE 29, 1997 ARE UNAUDITED) 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS AmeriLink Corporation (the "Company") is a nationwide provider of cabling systems for the transmission of video, voice and data. The Company offers its services on a national basis to providers of telecommunications services, including: cable television multiple system operators ("MSO"s); traditional telephone service providers, including local exchange carriers ("LEC"s) and long distance carriers; competitive local exchange carriers ("CLECs"); Direct Broadcast Satellite ("DBS") providers; and users of Local Area Network ("LAN") systems. The Company's cabling services include the designing, constructing, installing and maintaining of fiber optic, copper and coaxial cabling systems. The Company provides these services predominately through the use of independent contractors via its national network of regional and satellite field offices. As of June 29, 1997, the Company had 18 regional offices that serviced the following metropolitan areas: Los Angeles, San Francisco, Phoenix, Houston, San Antonio, Louisville, Chicago, St. Louis, Columbus, Cincinnati, Omaha, New York, Richmond, Tampa Bay, Atlanta, Indianapolis, Cleveland, and Detroit. PRINCIPLES OF CONSOLIDATION AND RECAPITALIZATION These financial statements include the accounts of both AmeriLink Corporation (the holding company) and its wholly owned subsidiary AmeriLink Corp. (the operating company). Prior to consummation of the Company's initial public offering in August, 1994, the business of the Company was conducted solely under AmeriLink Corp. In conjunction with the public offering, the shareholders of AmeriLink Corp. received 13,500 shares of AmeriLink Corporation stock for each share of AmeriLink Corp. stock held. As a result of the recapitalization, AmeriLink Corporation is the sole shareholder of AmeriLink Corp. (See note 5). INTERIM UNAUDITED FINANCIAL INFORMATION The accompanying interim unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. The information reflects all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the results for interim periods. The results for the thirteen weeks ended June 29, 1997 are not necessarily indicative of the results to be expected for the full year. FISCAL YEAR Fiscal years are designated in the financial statements and notes by the year in which the fiscal year ends. Accordingly, results for the fiscal years 1995, 1996 and 1997 represent the 52 weeks ended April 2, 1995, March 31, 1996 and March 30, 1997, respectively. REVENUES AND COST RECOGNITION The Company recognizes revenues from its fixed and unit price contracts in process on the percentage of completion method of accounting. Anticipated losses on these contracts are recorded when identified. Contract costs include all direct labor, material, subcontract and other direct project costs related to contract performance. Work-in-process typically represents amounts earned under the Company's contracts but not billed due to timing or not billable to clients according to contract terms, which usually consider passage of time, achievement of certain milestones or completion of the project. F-7 AMERILINK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS AND DISCLOSURE AT AND FOR THE THIRTEEN WEEKS ENDED JUNE 30, 1996 AND JUNE 29, 1997 ARE UNAUDITED) 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) MAJOR CUSTOMERS Customers comprising 10% or greater of the Company's fiscal year net sales are summarized as follows: 1995 1996 1997 ---- ---- ---- Time Warner Cable.............................. 16% 26% 19% Cox Cable Communications....................... 13% 13% 2% As of June 29, 1997, GTE Media Ventures (a part of GTE Corporation) and Ameritech Corporation became major customers of the Company. For the thirteen weeks ended June 29, 1997, GTE Media Ventures and Ameritech Corporation comprised 17% and 11%, respectively, of the Company's net sales. CONCENTRATIONS OF CREDIT RISK Financial instruments, which potentially subject the Company to concentration of credit risk, consist principally of uncollateralized trade receivables and unbilled work-in-process. The Company performs ongoing credit evaluations of its customers' financial conditions but does not require collateral to support customer receivables. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. MATERIALS AND SUPPLY INVENTORIES Materials and supply inventories are comprised primarily of cabling materials and are stated at cost. Cost is determined using the first-in, first-out (FIFO) method. PROPERTY AND EQUIPMENT Property and equipment is recorded at cost. Depreciation and amortization for financial reporting purposes is computed using the straight-line method over the estimated useful lives of the assets. Generally, the useful lives for all major classes of assets are three to seven years. Recovery of capital costs for income tax reporting purposes is primarily provided by the use of accelerated methods over the statutory recovery periods. The costs of assets sold or retired and the related accumulated depreciation are removed from the accounts in the year of disposal, and any gain or loss is included in net income. Maintenance and repairs are charged to expense as incurred. CASH AND CASH EQUIVALENTS For purposes of the statements of cash flows, the Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. INCOME TAXES Income taxes are calculated in accordance with Statement of Financial Accounting Standards (SFAS No. 109), "Accounting for Income Taxes." Deferred tax assets and liabilities are recognized based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. COMMON STOCK AND EARNINGS PER SHARE Net income per common share and pro forma net income per common share are based on weighted average common and common equivalent shares outstanding during the respective years. All common shares and per share data have been adjusted to give effect to the recapitalization. F-8 AMERILINK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS AND DISCLOSURE AT AND FOR THE THIRTEEN WEEKS ENDED JUNE 30, 1996 AND JUNE 29, 1997 ARE UNAUDITED) 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management believes those estimates and assumptions utilized in preparing the financial statements are reasonable. Actual results could differ from those estimates. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings per Share", which is required to be adopted on December 15, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. The impact is not expected to have a significant effect on previously reported earnings per share. RECLASSIFICATIONS Certain reclassifications have been made to the fiscal 1995, 1996 and 1997 consolidated financial statements to conform to the fiscal 1998 presentation. 2. PROPERTY AND EQUIPMENT Property and equipment consists of the following for the periods ended March 31, 1996 and March 30, 1997: 1996 1997 ---------- ---------- Leasehold improvements............................ $ 168,295 $ 181,486 Transportation equipment.......................... 4,987,939 5,371,718 Machinery and equipment........................... 4,552,090 4,469,496 Computer equipment and related software........... 1,115,039 1,430,884 Furniture and fixtures............................ 812,189 906,593 ---------- ---------- Total........................................... 11,635,552 12,360,177 Less accumulated depreciation..................... (5,603,001) (6,432,115) ---------- ---------- Net property and equipment........................ $6,032,551 $5,928,062 ========== ========== 3. EMPLOYEE BENEFIT PLANS The Company has a Profit Sharing and 401(k) Plan covering substantially all of its employees. Profit sharing contributions are at the discretion of the Board of Directors, although limited to the maximum amount permitted under the Internal Revenue Code. The Company did not make a profit sharing contribution for the years ended April 2, 1995, March 31, 1996, and March 30, 1997. The 401(k) Plan allows eligible employees to contribute a portion of their compensation to the Plan. The employer may make an additional contribution subject to the terms of the Plan. The contribution expense for the Company to the 401(k) Plan for the years ended April 2, 1995, March 31, 1996, and March 30, 1997 was $30,377, $42,901, and $66,109, respectively. F-9 AMERILINK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS AND DISCLOSURE AT AND FOR THE THIRTEEN WEEKS ENDED JUNE 30, 1996 AND JUNE 29, 1997 ARE UNAUDITED) 4. NOTES PAYABLE AND LONG-TERM DEBT On September 27, 1996, the Company amended its existing loan agreement with its commercial bank. Under terms of the new agreement, the Company increased available borrowings under its unsecured revolving credit note (the "credit facility") from $10,000,000 to $12,000,000. Interest is payable at a rate of prime minus 1% (7.50% at March 30, 1997). The revolving credit note matures September 30, 1998 and includes a commitment fee of 1/4% on any unused portion of the note. The Company also has an unsecured term note in the amount of $1,629,190 which matures May 31, 1997. Principal payments of $60,000 and interest at a rate of prime (8.50% at March 30, 1997) are paid monthly on the term note. The balance of this note at March 30, 1997 was $69,190. As of June 29, 1997, this note has been paid in full. The new loan agreement contains certain restrictive covenants which, among others, require the Company to maintain certain financial ratios. Borrowings under the loan agreement as of March 31, 1996, March 30, 1997 and June 29, 1997 consist of the following: 1996 1997 1998 ---------- ---------- ---------- Credit facility........................... $5,774,037 $9,000,000 $7,750,000 Term note................................. 789,190 69,190 -- ---------- ---------- ---------- 6,563,227 9,069,190 7,750,000 Less current portion...................... 720,000 69,190 -- ---------- ---------- ---------- Net long-term debt........................ $5,843,227 $9,000,000 $7,750,000 ========== ========== ========== The amount of long-term debt maturing in each of the next two years is $69,190 in 1998 and $9,000,000 in 1999. 5. INITIAL PUBLIC OFFERING On August 12, 1994, the Company's initial public offering was declared effective by the SEC and its stock began trading on the NASDAQ national market. Pursuant to the terms of the offering, the Company issued 850,000 shares which were sold at $8.00 per share. On September 22, 1994, the over-allotment option with the offering was exercised, pursuant to which the Company issued an additional 40,000 shares at $8.00 per share. The net proceeds from the offering were $5,925,198. Upon completion of the public offering, AmeriLink Corporation terminated its S Corporation election, and paid $2,700,000 in dividends from the proceeds of the offering to the former shareholders for undistributed earnings associated with its S Corporation status. These shareholders, who are also the shareholders of N.C. Utility Services, Inc. (formerly NaCom Corp.), used a portion of these dividends to repay the outstanding balance of the Company's note receivable from N.C. Utility Services, Inc. 6. INCOME TAXES Prior to the initial public offering, the income of the Company was taxed under the provisions of Subchapter S of the Internal Revenue Code, which provides that in lieu of corporate income taxes, the shareholders of the S Corporation are taxed on their proportionate share of the Company's taxable income. Therefore, no provision or liability for federal income tax has been included in historical financial statements prior to August 12, 1994, the date of the offering. To the extent certain states and localities did not recognize the S Corporation election, taxes were provided. F-10 AMERILINK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS AND DISCLOSURE AT AND FOR THE THIRTEEN WEEKS ENDED JUNE 30, 1996 AND JUNE 29, 1997 ARE UNAUDITED) 6. INCOME TAXES -- (CONTINUED) Effective March 29, 1993 the Company converted from the cash method to the accrual method of accounting for income tax purposes. This conversion created an adjustment of taxable income of approximately $3,473,000 that the Company elected to recognize in six equal installments ("Cash to accrual adjustment"). The unpaid portion of the related liability is recorded as a temporary difference in deferred tax liabilities. The provision for income taxes consists of the following for the fifty-two weeks ended April 2, 1995, March 31, 1996 and March 30, 1997:
1995 1996 1997 -------- -------- ---------- Current: Federal................................. $652,647 $315,200 $1,013,000 State and local......................... 256,341 83,300 255,000 -------- -------- ---------- 908,988 398,500 1,268,000 Tax adjustment due to change in tax status.................................. 376,000 Deferred: Federal................................. (246,500) (144,000) (123,000) State and local......................... (43,500) (25,500) (22,000) -------- -------- ---------- (290,000) (169,500) (145,000) -------- -------- ---------- $994,988 $229,000 $1,123,000 ======== ======== ==========
Deferred tax assets and liabilities recorded in the consolidated balance sheets at March 31, 1996 and March 30, 1997 consist of the following: 1996 1997 -------- -------- Deferred tax assets: Depreciation..................................... $ 95,909 $ -- Accrued compensation............................. 149,250 164,170 Accrued insurance................................ 147,402 90,128 Allowance for doubtful accounts.................. 38,000 68,400 Other............................................ 47,903 73,173 -------- -------- Total deferred tax assets........................ 478,464 395,871 -------- -------- Deferred tax liabilities: Cash to accrual adjustment.......................... (469,017) (234,509) Depreciation........................................ -- (7,059) -------- -------- Total deferred tax liabilities...................... (469,017) (241,568) -------- -------- Net deferred tax assets............................... $ 9,447 $154,303 ======== ======== F-11 AMERILINK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS AND DISCLOSURE AT AND FOR THE THIRTEEN WEEKS ENDED JUNE 30, 1996 AND JUNE 29, 1997 ARE UNAUDITED) 6. INCOME TAXES -- (CONTINUED) A reconciliation of the federal corporate income tax rate and the effective tax rate on income taxes is summarized below for the periods ended March 31, 1996 and March 30, 1997. 1996 1997 ----- ---- Statutory income tax rate.................................. 34.0% 34.0% State and local taxes, net of Federal benefit.............. 5.2% 5.2% Permanent differences...................................... 5.6% 2.5% Adjustment due to change in accounting estimate............ (11.4%) -- ----- ---- Effective income tax rate.................................. 33.4% 41.7% ===== ==== 7. PRO FORMA NET INCOME PER SHARE (UNAUDITED) Pro forma net income per share is calculated by dividing pro forma net income by the weighted average number of shares outstanding during the period, including, when their effect is dilutive, common stock equivalents consisting of shares subject to stock options. Pro forma income taxes represent the estimated taxes that would have been reported had the Company been subject to federal, state, and local taxes for each period presented. Pro forma income before taxes for the fifty-two weeks ended April 2, 1995 includes a foreign tax credit of approximately $42,000 from its operations in Mexico that the Company would have recognized had it operated as a C Corporation for the entire fiscal year. 8. OPERATING LEASES The Company is committed under noncancellable operating leases for offices and warehouse space which will require future minimum rental commitments in the amount of $369,834 in 1998, $201,923 in 1999 and $101,842 in 2000. Rental expense under all operating leases amounted to $603,471, $769,779 and $923,752 for the years ended April 2, 1995, March 31, 1996 and March 30, 1997, respectively. 9. STOCK OPTIONS AND STOCK INCENTIVE PLAN Prior to the Company's initial public offering, key officers were granted options to purchase outstanding shares of common stock from the majority shareholders of the Company, and in connection with the recapitalization agreed to restated option agreements. The Chief Executive Officer was granted options to purchase 135,000 shares at $4.00 per share and 225,000 shares at $6.35 per share. The 135,000 options shall remain effective throughout employment with the Company, and the 225,000 options shall remain effective until the later of termination of employment or, in the event employment is terminated by death, one year after death. All options are currently exercisable and no options had been exercised as of the fiscal year ended March 30, 1997. The Company's Vice President of Operations was granted options to purchase 81,000 shares at $4.69 per share. These options shall remain effective until the earlier of May 1, 2004 or the termination of employment (if employment is terminated by death, then one year after death). Options to purchase fifty percent of the shares will become exercisable on April 1, 1997 and the remaining options will become exercisable, on a cumulative basis, at the rate of 10% per year commencing on April 1, 1998. There have been no options exercised as of March 30, 1997. F-12 AMERILINK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS AND DISCLOSURE AT AND FOR THE THIRTEEN WEEKS ENDED JUNE 30, 1996 AND JUNE 29, 1997 ARE UNAUDITED) 9. STOCK OPTIONS AND STOCK INCENTIVE PLAN -- (CONTINUED) Effective August 1994, the Company adopted a stock incentive plan (the "Plan") for key employees and directors of the Company. The Plan is administered by the Compensation Committee of the Board of Directors, and provides for grants of stock options, stock appreciation rights, restricted stock awards and phantom stock. The maximum aggregate number of common shares which may be granted under the Plan is 350,000 shares, and the maximum number of shares that may be awarded during any calendar year may not exceed 10% of the total number of issued and outstanding common shares of the Company. Any awards that lapse or are canceled are available for re-grant under the terms of the Plan. Stock option grants may be in the form of incentive stock options or non-qualified options. As of March 30, 1997, all options granted have been non-qualified options. Key employee options awarded under the plan vest 20% annually from the date of the grant, and non-employee Director option awards vest 25% annually from the date of the grant. Stock options awarded under the plan are at exercise prices that equal or exceed the fair market value at the date of the grant, and any shares not exercised lapse on the earliest of ten years from the grant date or 90 days after termination with the Company. In February, 1997, an initial grant of 3,000 shares of restricted stock was issued to non-employee Directors of the Company. One-third of the shares become exercisable on each of the next three anniversaries of the date of the award. The following table summarizes all stock option transactions under the Stock Incentive Plan for the fiscal years ended April 2, 1995, March 31, 1996, and March 30, 1997.
1995 1996 1997 ------------------ ------------------ ------------------ WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE ------- -------- ------- -------- ------- -------- Outstanding -- beginning of year............ -- 124,875 142,450 Granted................................... 134,125 $8.75 26,375 $8.00 48,425 $7.75 Forfeited................................. (9,250) $8.00 (8,800) $8.00 (13,385) $7.95 ------- ------- ------- Outstanding -- end of year.................. 124,875 $8.80 142,450 $8.70 177,490 $8.50 ======= ======= ======= Exercisable at end of year.................. -- 23,684 $8.84 49,125 $8.81 ======= ======= =======
The following table summarizes information about stock options outstanding at March 30, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE -------------------------------- -------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE CONTRACTUAL EXERCISE EXERCISE RANGE OF EXERCISE PRICES OPTIONS LIFE PRICE OPTIONS PRICE - ------------------------ ------- ----------- -------- -------- --------- $7.75 -- $8.00...................................... 127,490 8.3 $ 7.91 29,125 $ 8.00 $10.00.............................................. 50,000 7.4 $10.00 20,000 $10.00 ------- ------ Exercisable at end of year.......................... 177,490 49,125 ======= ======
The Company adopted the disclosure requirements of Statement of Financial Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation", but has elected to continue to measure compensation expense in accordance with Accounting Principles Board Opinion No. 25, ("APB 25") "Accounting for Stock Issued to Employees". Under APB 25, no compensation expense for stock options has been recognized because the exercise price equals or exceeds the market price of the F-13 AMERILINK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (AMOUNTS AND DISCLOSURE AT AND FOR THE THIRTEEN WEEKS ENDED JUNE 30, 1996 AND JUNE 29, 1997 ARE UNAUDITED) 9. STOCK OPTIONS AND STOCK INCENTIVE PLAN -- (CONTINUED) underlying stock on the date of grant. If compensation expense had been determined based on the estimated fair value of options granted in fiscal 1996 and 1997, consistent with the methodology in SFAS 123, the pro-forma effects on the Company's net income and net income per share would have been immaterial, and therefore, have not been provided. 10. QUARTERLY FINANCIAL DATA (UNAUDITED) The following is a summary of the unaudited quarterly results from operations for the 52 weeks ended March 31, 1996 and March 30, 1997 (in thousands, except per share amounts).
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- Revenues: Fiscal 1996.................................... $11,044 $16,415 $15,661 $12,936 Fiscal 1997.................................... 13,521 15,663 16,731 17,121 Gross profit: Fiscal 1996.................................... 3,185 4,955 4,866 4,099 Fiscal 1997.................................... 4,500 5,181 5,850 6,207 Income (loss) before income taxes: Fiscal 1996.................................... (344) 890 341 (201) Fiscal 1997.................................... 369 514 830 978 Net income (loss): Fiscal 1996.................................... (206) 534 245 (116) Fiscal 1997.................................... 222 308 498 540 Income (loss) per share: Fiscal 1996.................................... $ (0.06) $ 0.15 $ 0.07 $ (0.03) Fiscal 1997.................................... $ 0.06 $ 0.09 $ 0.14 $ 0.15
F-14 AmeriLink NaCom [In the printed version appears a photo of a technician standing.] [In the printed version appears a photo of office personnel.] [In the printed version appears a photo of a technician working on an antenna.] [In the printed version appears a photo of a kneeling technician.] [In the printed version appears a graphic from the AmeriLink Coporation web page.] ================================================================================ NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH THIS PROSPECTUS RELATES OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS. ------------------ TABLE OF CONTENTS PAGE ---- Prospectus Summary.................... 3 Risk Factors.......................... 7 Use of Proceeds....................... 11 Price Range of Common Shares and Dividend Policy..................... 11 Capitalization........................ 12 Selected Financial Data............... 13 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 14 Business.............................. 21 Management............................ 30 Selling Shareholders.................. 32 Capital Shares........................ 33 Underwriting.......................... 35 Legal Matters......................... 36 Experts............................... 36 Available Information................. 37 Incorporation of Certain Documents by Reference........................... 37 Index to Financial Statements......... F-1 1,000,000 SHARES AMERILINK CORPORATION COMMON SHARES ------------------- PROSPECTUS ------------------- LEGG MASON WOOD WALKER INCORPORATED J.C. BRADFORD & CO. , 1997 ================================================================================ PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table presents an itemized estimate of all expenses in connection with the issuance and distribution of the Common Shares, other than underwriting discounts and commissions. All such expenses, except for the fees of the SEC, NASD and Nasdaq National Market are estimated. NATURE OF EXPENSE AMOUNT ----------------- -------- SEC Registration Fee........................................ $ 9,779 NASD Fee.................................................... 3,277 Nasdaq National Market Listing and Entry Fee................ 13,600 Printing and Engraving Costs................................ 110,000 Registrant's Counsel Fees and Expenses...................... 90,000 Accounting Fees and Expenses................................ 85,000 Blue Sky Expenses and Counsel Fees.......................... 15,000 Transfer Agent and Registrar Fees........................... 3,000 Miscellaneous............................................... 20,344 -------- Total.................................................. $350,000 ======== ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS. As authorized by Section 1701.13(E) of the Ohio Revised Code, Article V of the Company's Code of Regulations ("Article V") provides that directors and officers of the Company may, under certain circumstances, be indemnified against expenses (including attorneys' fees) and other liabilities actually and reasonably incurred by them as a result of any suit brought against them in their capacity as a director or officer, if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, if they had no reasonable cause to believe their conduct was unlawful. Article V also provides that directors and officers may also be indemnified against expenses (including attorneys' fees) incurred by them in connection with a derivative suit if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification may be made without court approval if such person was adjudged liable to the corporation. The Underwriting Agreement provides for indemnification by the Underwriters of directors, officers and controlling persons of the Company for certain liabilities, including certain liabilities under the Securities Act, under certain circumstances. II-1 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (A) EXHIBITS. The following Exhibits are filed as part of this Registration Statement:
EXHIBITS DESCRIPTION - -------- ----------- 1.1 -- Form of Underwriting Agreement. 2.1 -- Form of Recapitalization Agreement and Plan of Merger.* 4.1 -- Specimen Certificate for Common Shares.* 4.2 -- Bank Loan Agreement, dated December 29, 1994, between AmeriLink Corp. dba NaCom and Bank One, Columbus, N.A. (incorporated by reference to Exhibit 4.1 to the registrant's quarterly report on Form 10-Q for the quarter ended January 1, 1995). 4.3 -- Bank Loan Agreement Amendment dated September 29, 1995 between AmeriLink Corp. dba NaCom and Bank One, Columbus, N.A. (incorporated by reference to Exhibit 4.2 to the registrant's quarterly report on form 10-Q for the quarter ended October 1, 1995). 4.4 -- Bank Loan Agreement Amendment dated September 27, 1996 between AmeriLink Corp. dba NaCom and Bank One, Columbus, N.A. (incorporated by reference to Exhibit 4.2 to the registrant's quarterly report on form 10-Q for the quarter ended September 29, 1996). 5.1 -- Opinion of Squire, Sanders & Dempsey L.L.P. as to the legality of the Common Shares being registered (including consent). 10.1 -- Form of 1994 Stock Incentive Plan.* 10.2 -- Form of Executive Employment Agreement between Larry R. Linhart and Registrant.* 10.3 -- Employment Agreement between Joseph L. Govern and Amerilink Corp., dated October 1, 1991.* 10.4 -- Form of Joseph L. Govern Stock Option Agreement.* 10.5 -- Form of Shareholders' Agreement among the Principal Shareholders and Registrant.* 10.6 -- Form of Unconditional Guaranty Agreement between Principal Shareholders and Amerilink Corp.* 10.7 -- Form of Demand Promissory Note from NaCom Corp. to the Company.* 10.8 -- Construction Agreement dated January 20, 1994 between the Company and Cox Cable San Diego, Inc.* (without exhibits). 10.9 -- Stock Purchase and Close Corporation Agreement, as amended among the Principal Shareholders and the Company (without exhibits).* 10.10 -- Restricted Stock Award Agreement between AmeriLink Corporation and William H. Largent and George Manser (incorporated by reference to exhibit 10.10 to the registrant's Annual Report on Form 10-K for the fiscal year ended March 30, 1997).
II-2
EXHIBITS DESCRIPTION - -------- ----------- 11.1 -- Statement Re Computation of Pro Forma Per Share Earnings (incorporated by reference to Exhibit 11.1 to the registrant's Annual Report on Form 10-K for the fiscal year ended March 30, 1997). 23.1 -- Consent of Ernst & Young LLP. 23.2 -- Consent of Squire, Sanders & Dempsey L.L.P. (see Exhibit 5.1) 24.1 -- Power of Attorney (contained on the signature page of this Registration Statement).
- ------------------ * Incorporated by reference from the Registrant's Registration Statement on Form S-1, file No. 33-79832. ITEM 17. UNDERTAKINGS. (h) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions referred to in Item 14 of the Registration Statement, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (i) The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the Offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 SIGNATURES Pursuant to the requirements of the Securities Act, the registrant certifies that it has reasonable grounds to believe that it meets all requirements for filing on Form S-2 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Columbus, State of Ohio, on September 29, 1997. AMERILINK CORPORATION By: ------------------------------------ Larry R. Linhart Chairman of the Board, President and Chief Executive Officer POWER OF ATTORNEY We, the undersigned officers and directors of AMERILINK CORPORATION, hereby severally constitute and appoint Larry R. Linhart our lawful attorney-in-fact and agent, for us and in our stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement and all documents relating thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing necessary or advisable to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent may lawfully do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities indicated and on September 29, 1997. SIGNATURE TITLE --------- ----- Chairman of the Board of Directors, - ------------------------------ President and Chief Executive Larry R. Linhart Officer (principal executive officer) Treasurer and Vice President -- - ------------------------------ Finance (principal financial and James W. Brittan accounting officer) Director - ------------------------------ Robert L. Powelson Director - ------------------------------ E. Len Gibson Director - ------------------------------ William H. Largent Director - ------------------------------ George Manser Director - ------------------------------ Richard W. Rubenstein II-4 EXHIBIT INDEX
EXHIBITS DESCRIPTION - -------- ----------- 1.1 -- Form of Underwriting Agreement. 2.1 -- Form of Recapitalization Agreement and Plan of Merger.* 4.1 -- Specimen Certificate for Common Shares.* 4.2 -- Bank Loan Agreement, dated December 29, 1994, between AmeriLink Corp. dba NaCom and Bank One, Columbus, N.A. (incorporated by reference to Exhibit 4.1 to the registrant's quarterly report on Form 10-Q for the quarter ended January 1, 1995). 4.3 -- Bank Loan Agreement Amendment dated September 29, 1995 between AmeriLink Corp. dba NaCom and Bank One, Columbus, N.A. (incorporated by reference to Exhibit 4.2 to the registrant's quarterly report on form 10-Q for the quarter ended October 1, 1995). 4.4 -- Bank Loan Agreement Amendment dated September 27, 1996 between AmeriLink Corp. dba NaCom and Bank One, Columbus, N.A. (incorporated by reference to Exhibit 4.2 to the registrant's quarterly report on form 10-Q for the quarter ended September 29, 1996). 5.1 -- Opinion of Squire, Sanders & Dempsey L.L.P. as to the legality of the Common Shares being registered (including consent). 10.1 -- Form of 1994 Stock Incentive Plan.* 10.2 -- Form of Executive Employment Agreement between Larry R. Linhart and Registrant.* 10.3 -- Employment Agreement between Joseph L. Govern and Amerilink Corp., dated October 1, 1991.* 10.4 -- Form of Joseph L. Govern Stock Option Agreement.* 10.5 -- Form of Shareholders' Agreement among the Principal Shareholders and Registrant.* 10.6 -- Form of Unconditional Guaranty Agreement between Principal Shareholders and Amerilink Corp.* 10.7 -- Form of Demand Promissory Note from NaCom Corp. to the Company.* 10.8 -- Construction Agreement dated January 20, 1994 between the Company and Cox Cable San Diego, Inc.* (without exhibits). 10.9 -- Stock Purchase and Close Corporation Agreement, as amended among the Principal Shareholders and the Company (without exhibits).* 10.10 -- Restricted Stock Award Agreement between AmeriLink Corporation and William H. Largent and George Manser (incorporated by reference to exhibit 10.10 to the registrant's Annual Report on Form 10-K for the fiscal year ended March 30, 1997). 11.1 -- Statement Re Computation of Pro Forma Per Share Earnings (incorporated by reference to Exhibit 11.1 to the registrant's Annual Report on Form 10-K for the fiscal year ended March 30, 1997). 23.1 -- Consent of Ernst & Young LLP. 23.2 -- Consent of Squire, Sanders & Dempsey L.L.P. (see Exhibit 5.1) 24.1 -- Power of Attorney (contained on the signature page of this Registration Statement).
- ------------------ * Incorporated by reference from the Registrant's Registration Statement on Form S-1, file No. 33-79832. EX-1.1 2 UNDERWRITING AGREEMENT 1,000,000 Common Shares AMERILINK CORPORATION UNDERWRITING AGREEMENT Baltimore, Maryland , 1997 -------- -- LEGG MASON WOOD WALKER, INCORPORATED J.C. BRADFORD & CO. As Representatives of the Several Underwriters Named in Schedule I Hereto c/o Legg Mason Wood Walker, Incorporated Legg Mason Tower 111 South Calvert Street 20th Floor Baltimore, Maryland 21202 Gentlemen/Ladies: AmeriLink Corporation, an Ohio corporation (the "Company"), proposes to issue and sell to Legg Mason Wood Walker, Incorporated and J.C. Bradford & Co. (the "Representatives") and the several underwriters named in Schedule I hereto (collectively with the Representatives, the "Underwriters" and, individually, an "Underwriter," which terms shall include any Underwriter substituted as provided in Section 10 of this Agreement) 600,000 of the Company's Common Shares, without par value (the "Common Shares"), and the selling shareholders of the Company named in Schedule II hereto (the "Selling Shareholders") propose severally to sell an aggregate of 400,000 outstanding Common Shares as set forth opposite their respective names in Schedule II hereto. The aforementioned aggregate of 1,000,000 Common Shares to be sold to the several Underwriters by the Company and the Selling Shareholders are referred to herein as the "Firm Shares." The respective amounts of the Firm Shares to be so purchased by the several Underwriters are set forth opposite their names in Schedule I hereto. In addition, the Selling Shareholders propose severally to grant to the Underwriters, solely for the purpose of covering over-allotments, the option described in Section 3(b) of this Agreement to purchase up to an aggregate of 150,000 additional Common Shares (the "Option Shares") as set forth below. The Firm Shares and the Option Shares (to the extent the aforementioned option is exercised) are referred to herein collectively as the "Shares." As the Representatives, you have advised the Company (a) that you shall execute this Agreement on behalf of the several Underwriters and (b) that the several Underwriters are willing, acting severally and not jointly, to purchase the numbers of Firm Shares set forth opposite their respective names in Schedule I hereto, plus their respective pro rata portions of the Option Shares -1- if you elect to exercise the over-allotment option in whole or in part for the respective accounts of the several Underwriters. In consideration of the mutual agreements contained herein and of the interests of the parties in the transactions contemplated hereby, the parties hereto agree as follows: 1. Representations and Warranties of the Company. The Company represents, warrants, covenants and agrees with Underwriters as follows: (a) Registration Statement and Prospectus. A registration statement on Form S-2 (File No. 333-[ ]) with respect to the Shares has been prepared by the Company in conformity with the requirements of the Securities Act of 1933, as amended (the "Securities Act"), and the rules and regulations (the "Rules and Regulations") of the Securities and Exchange Commission (the "Commission") thereunder and has been duly filed with the Commission under the Securities Act. Copies of such registration statement, including any amendments thereto, the preliminary prospectuses (meeting the requirements of Rule 430A of the Rules and Regulations under the Securities Act) contained therein and the exhibits, financial statements and schedules, as finally amended and revised, have heretofore been delivered by the Company to the Representatives (and to such of the Underwriters which have requested the foregoing from the Company). Such registration statement, herein referred to as the "Registration Statement," which shall be deemed to include all information, if any, omitted therefrom in reliance upon Rule 430A of the Rules and Regulations under the Securities Act and contained in the Prospectus referred to below, has been declared effective by the Commission under the Securities Act and no post-effective amendment to the Registration Statement has been filed as of the date of this Agreement. The form of prospectus first filed by the Company with the Commission pursuant to Rule 424(b) and Rule 430A of the Rules and Regulations under the Securities Act is herein referred to as the "Prospectus." Each preliminary prospectus included in the Registration Statement prior to the time it became or becomes effective and each form of prospectus that pursuant to Rule 430A of the Rules and Regulations under the Securities Act omits certain information is herein referred to as a "Preliminary Prospectus." Any reference herein to the Prospectus shall be deemed to include any supplements or amendments thereto filed with the Commission after the date of filing of the Prospectus under said Rules 424(b) and 430A, and prior to the termination of the offering of the Shares by the Underwriters. Each of the terms "Preliminary Prospectus," "Prospectus" and "Registration Statement," as used herein, shall include all documents and other information incorporated by reference therein including (without limitation) exhibits to such documents. (b) Compliance with the Securities Act. At the effective time of the Registration Statement and at all times subsequent thereto, up to and including the Closing Date and each Option Closing Date (as such terms are herein defined), if any, and during such longer period until any post-effective amendment to the Registration Statement shall become effective, the Registration Statement (and any post-effective amendment to the Registration Statement) will contain all statements which are required to be stated therein in accordance with the Securities Act and the Rules and Regulations under the Securities Act, will fully comply with the applicable provisions of the Securities Act and the Rules and Regulations under the Securities Act, and neither the Registration Statement nor any post-effective amendment to the Registration Statement will -2- contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; and the Prospectus and any amendment or supplement thereto will at all times up to any including the Closing Date and any Option Closing Date, and during such longer period as the Prospectus may be required to be delivered in connection with sales of Firm Shares or Option Shares by the Underwriters or any dealer, fully comply with the provisions of the Securities Act and the Rules and Regulations thereunder, and will not contain any untrue statement of a material fact and will not omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the foregoing representations or warranties do not apply to the information contained in or omitted from the Registration Statement or the Prospectus or any amendment of, or supplement to, either of them in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of any Underwriter through the Representatives expressly for use in the Registration Statement or the Prospectus. It is understood that the statements set forth on the inside cover page of the Prospectus with respect to stabilization and passive market-making activities, in the table beneath the first paragraph of the section of the Prospectus entitled "Underwriting," the amounts of the concession to certain dealers and the concession that such dealers may allow to certain other dealers in the second paragraph following such table and the five paragraphs preceding the last paragraph of such section and the identity of counsel for the Underwriters under the section of the Prospectus entitled "Legal Matters" constitute the only information furnished in writing by or on behalf of any Underwriter for inclusion in the Registration Statement or the Prospectus, as the case may be. (c) Organization and Qualification. The Company has been duly organized and is validly existing as a corporation in good standing under the law of the State of Ohio, with the corporate power and authority to own, lease and operate its properties and conduct its business as described in the Registration Statement. The Company is duly qualified to transact business and is in good standing in all jurisdictions in which the conduct of its business requires such qualification except where the failure to so qualify or be in good standing would not have a materially adverse effect upon the business of the Company and its Subsidiaries (as defined herein), taken as a whole. (d) Subsidiaries. Schedule III hereto lists all of the subsidiaries of the Company (collectively, the "Subsidiaries" and, individually, a "Subsidiary"). All of the outstanding shares of capital stock of each Subsidiary have been duly authorized and validly issued and are fully paid and non-assessable, and are owned by the Company, free and clear of any pledge, lien, security interest, claim, equitable interest or encumbrance of any kind. Each Subsidiary has been duly organized and is validly existing as a corporation in good standing under the law of its state of incorporation, with the corporate power and authority to own, lease and operate is properties and conduct its business as described in the Registration Statement. Each Subsidiary is duly qualified to transact business and is in good standing in all jurisdictions in which the conduct of its business requires such qualification except where the failure to so qualify or be in good standing would not have a materially adverse effect upon the business of the Company and its Subsidiaries, taken as a whole. None of the outstanding shares of capital stock of any Subsidiary was issued in violation of, or subject to, any preemptive rights or other rights to subscribe for or purchase securities, that were not -3- provided or waived. None of such shares has been issued in violation of any federal or state securities laws or regulations. (e) Capitalization; Description of Securities. All issued and outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable, have been issued in compliance with all federal and state securities laws, and were not issued in violation of, or subject to, any preemptive rights or other rights to subscribe for or purchase securities that were not provided or waived. The authorized and outstanding capital stock of the Company conforms, and the authorized and outstanding capital stock of the Company will conform as of the Closing Date and any Option Closing Date to the statements relating thereto contained in the Registration Statement and the Prospectus (and such statements correctly state the substance of the instruments defining the capitalization of the Company). The Company had, at the date indicated, the duly authorized and outstanding capitalization as set forth in the Prospectus in the "Actual" column under the caption "Capitalization." The Firm Shares to be purchased from the Company hereunder have been duly authorized for issuance and sale, and the Firm Shares and the Option Shares (if and to the extent the Underwriters' over-allotment option is exercised) to be purchased from the Selling Shareholders hereunder have been duly authorized for sale, to the Underwriters pursuant to this Agreement and, when issued and delivered by the Company and delivered by the Selling Shareholders, as the case may be, against payment therefor in accordance with the terms of this Agreement, will be duly and validly issued and fully paid and nonassessable; no holder thereof will be subject to personal liability by reason of being such holder; and no preemptive right, co-sale right, registration right, right of first refusal or other similar right of shareholders exists with respect to any of the Firm Shares or Option Shares or the issuance and sale thereof. No further approval or authorization of any shareholder, the Board of Directors of the Company or others is required for the issuance and sale or transfer of the Shares in the manner set forth in this Agreement except as may be required under the Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or under state or other securities or Blue Sky laws. Except as described in the Prospectus, neither the Company nor any Subsidiary has outstanding any options to purchase, any warrants or other rights calling for the issuance of or any preemptive rights or other rights to subscribe for or to purchase, any securities or obligations convertible into, or any contracts or commitments to issue or sell, shares of its capital stock or any such options, warrants, rights, convertible securities or obligations. The descriptions of the Company's stock option, stock bonus and other stock or stock-based plans or arrangements, and the options or other rights granted and exercised thereunder, included in the Prospectus accurately and fairly present the information required to be shown with respect to such plans, arrangements, options and rights. The only outstanding shares of capital stock of the Company are 3,525,580 Common Shares. (f) No Stop Order. Neither the Commission nor any state securities commission in a jurisdiction designated by the Representatives pursuant to Section 5(c) hereof has issued an order preventing or suspending the use of any Preliminary Prospectus relating to the proposed offering of the Shares nor instituted proceedings for that purpose. (g) Financial Statements. The audited consolidated financial statements of the Company and its Subsidiaries, together with related notes and schedules, and the unaudited consolidated financial statements of the Company and its Subsidiaries, together with any related -4- notes and schedules (the "Unaudited Financial Statements"), as included in any Preliminary Prospectus, the Prospectus and the Registration Statement (collectively, the "Company Financial Statements"), present fairly the financial position, the results of operations and changes in cash flows of the Company and its Subsidiaries, on a consolidated basis, at the indicated dates and for the indicated periods and comply with the requirements of the Securities Act and the Rules and Regulations thereunder. The Company Financial Statements have been prepared in accordance with generally accepted accounting principles, consistently applied throughout the periods involved, and all adjustments necessary for a fair presentation of the results for such periods have been made, none of which, individually or in the aggregate, will be material. The financial statement schedules and the summary, selected and statistical financial information and data, and related notes thereto, included in any Preliminary Prospectus, the Prospectus and the Registration Statement present fairly the information and data shown therein, have been compiled on a basis consistent with the Company Financial Statements included therein and comply with the requirements of the Securities Act and the Rules and Regulations thereunder. The pro forma financial information included in any Preliminary Prospectus, the Prospectus and the Registration Statement has been prepared in accordance with the Rules and Regulations relating to pro forma financial information, has been properly compiled on the pro forma bases described therein, and the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions or circumstances referred to therein. No other financial statements or schedules are required to be included in the Registration Statement. (h) Litigation. Except as described in the Prospectus, there is no action, suit, claim or proceeding pending or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries or any of their respective directors or officers or any of their properties, assets or rights, before any court or administrative agency or body or otherwise which (i) might result in any materially adverse change in the business, condition (financial or otherwise), operations, earnings or business prospects of the Company or any of its Subsidiaries or might adversely affect their properties, assets or rights, (ii) if determined adversely to the Company or any of its Subsidiaries would prevent consummation of the transactions contemplated hereby or (iii) is required to be disclosed in the Registration Statement or the Prospectus. There are no contracts or documents of the Company or any of its Subsidiaries that are required to be described in the Prospectus or to be filed as an exhibit to the Registration Statement by the Securities Act or by the Rules and Regulations thereunder which have not been accurately described in the Prospectus and filed as exhibits to the Registration Statement. The contracts so described in the Prospectus are in full force and effect on the date hereof or the Closing Date or any Option Closing Date, as the case may be, and neither the Company nor any of its Subsidiaries, nor to the best knowledge of the Company, any other party, is in breach or default under any of such contracts. (i) Title to Assets. The Company and its Subsidiaries have good and marketable title to all of the properties and assets reflected in the Company Financial Statements (or as described in the Registration Statement as owned by such party) subject to no lien, mortgage, pledge, charge or encumbrance of any kind, except those reflected in the Company Financial Statements (or as referred to in the Registration Statement). Except as set forth in the Prospectus, neither the Company nor any of its Subsidiaries owns any real property. All of the deeds, leases or documents of title under which the Company or its Subsidiaries holds properties or assets are as described in the -5- Prospectus and are valid and in full force and effect and enforceable as to the Company or its Subsidiaries, as the case may be, in accordance with their respective terms, and no claim has been asserted by anyone adverse to rights of the Company or any of its Subsidiaries as owner or lessee, as the case may be, under any of the deeds, leases or documents of title mentioned above, or affecting or questioning the right of the Company or any Subsidiary to continued possession of the owned or leased premises or assets under any such deed, lease or document of title. (j) Taxes. All federal, state, local and other income tax returns with respect to the Company and its Subsidiaries which have been required to be filed have been filed and all taxes indicated by said returns and all assessments received with respect to said returns, to the extent that such taxes have become due, have been paid. There is no tax deficiency against the Company or any of its Subsidiaries and there is no reasonable basis for the assertion of any such deficiency that, if determined adversely, would have a material adverse effect on the condition (financial or otherwise), earnings, operations, business or business prospects of the Company or any of its Subsidiaries and all tax liabilities are adequately provided for on the books of the Company and its Subsidiaries. (k) No Material Adverse Change. Since the date as of which information is given in the Registration Statement and the Prospectus, (i) there has not been any materially adverse development in or affecting the condition (financial or otherwise) of the Company or any of its Subsidiaries or the condition (financial or otherwise), earnings, operations, business, or business prospects of the Company or any of its Subsidiaries, whether or not occurring in the ordinary course of business, (ii) there has not been any material transaction entered into by the Company or any of its Subsidiaries, other than transactions in the ordinary course of business and changes and transactions disclosed in the Registration Statement, as it may be amended or supplemented, (iii) there has not been any obligation that is material to the Company or any of its Subsidiaries, direct or contingent, incurred by the Company or any of its Subsidiaries, except obligations incurred in the ordinary course of business, (iv) there has not been any change in the capital stock or outstanding indebtedness of the Company or any of its Subsidiaries that is material to the Company or any of its Subsidiaries and (v) the Company has not declared, paid or made any dividend or other distribution on or with respect to its capital stock. Neither the Company nor any of its Subsidiaries has any material contingent obligations which are not disclosed in the Prospectus. (l) No Violation. Neither the Company nor any of its Subsidiaries is in violation of its Articles of Incorporation or Code of Regulations or is in default under any agreement, lease, contract, indenture or other instrument or obligation to which it is a party or by which it or any of its properties is bound. The consummation of the transactions contemplated by this Agreement and the Registration Statement and the execution and performance of this Agreement and the fulfillment of the terms hereof or thereof will not conflict with, or result in a breach of, any of the terms or provisions of, or constitute a default or require any payment by the Company or any of its Subsidiaries under (i) any indenture, mortgage, deed of trust or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound, or of the Articles of Incorporation or Code of Regulations of the Company or any of its Subsidiaries or (ii) any law, rule or regulation, or any judgment, order or decree of any court or of any regulatory body or administrative agency or other governmental body having jurisdiction over the Company or any of its Subsidiaries or any of their properties. -6- (m) Authorizations. Each approval, consent, order, authorization, designation, declaration or filing by or with any regulatory, administrative or other governmental body necessary in connection with the execution and delivery by the Company of this Agreement and the consummation of the transactions herein contemplated or that may be necessary to qualify the Shares for public offering by the Underwriters under state securities or Blue Sky laws has been obtained or made and is in full force and effect. (n) Permits, Licenses, Etc. The Company and its Subsidiaries are in possession of, and are operating in compliance with, all authorizations, licenses, certificates, consents, orders and permits from governmental authorities (collectively, the "Governmental Licenses") which are necessary to the conduct of their business, all of which are valid and in full force and effect. Neither the Company nor any of its Subsidiaries has received any notice of proceedings relating to the revocation, suspension or modification of any of the Governmental Licenses. The Company and its Subsidiaries own or possess all patents, trade names, trademarks, service marks, copyrights, know-how (including trade secrets and other unpatented or unpatentable proprietary information) and other intellectual property, and rights thereto, described or referred to in the Prospectus or which are necessary for the conduct of their business as described in the Prospectus. Neither the Company nor any of its Subsidiaries has infringed, or received any notice of infringement of, any patents or asserted patents, trade names, trademarks, service marks, copyrights or other intellectual property of other persons, or rights thereto. (o) Accountants. Ernst & Young LLP have audited the Company Financial Statements (except for the Unaudited Financial Statements) filed as part of the Registration Statement and included in any Preliminary Prospectus or the Prospectus, to the extent set forth in its reports contained in the Registration Statement, any Preliminary Prospectus and the Prospectus. Ernst & Young LLP are independent public accountants as required by the Securities Act and the Rules and Regulations thereunder. The Company and its Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general and specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformance with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorizations; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (p) Authority. The Company has the full legal right, power and authority to enter into this Agreement and perform the transactions contemplated hereby. This Agreement and the documents contemplated hereby have been duly authorized, executed and delivered by the Company, and constitute its valid and binding obligation, enforceable in accordance with their respective terms, except (i) as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights generally and general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity) and (ii) as rights to indemnity and contribution may be limited by federal or state securities laws or principles of public policy. -7- (q) No Stabilization or Manipulation of Price. The Company has not taken and will not take, directly or indirectly, any action designed to, or which has constituted, or which might reasonably be expected to, cause or result in stabilization or manipulation of the price of the Common Shares of the Company. (r) Affiliations. To the Company's knowledge after due investigation, none of the officers, directors (other than George R. Manser who is an sdvisory director of J.C. Bradford & Co.) or five percent or greater shareholders of the Company have any affiliation with the National Association of Securities Dealers, Inc. (the "NASD") or any firm which is a member of the NASD. (s) Insurance. The Company and its Subsidiaries maintain insurance of the types and in the amounts generally deemed adequate for their respective business, including but not limited to, insurance covering real and personal property owned or leased by the Company or its Subsidiaries against theft, damages, destruction, acts of vandalism and all other risks customarily insured against, all of which insurance is in full force and effect. (t) Labor Matters. No labor disturbance by the employees of, or any independent contractors engaged by, the Company or any of its Subsidiaries exists or is imminent and the Company is not aware of any existing or imminent labor disturbance by the employees of any of its principal suppliers, subassemblers, value added suppliers, subcontractors, independent contractors, original equipment manufacturers, authorized dealers or distributors that might reasonably be expected to result in any material adverse change in the condition (financial or otherwise), earnings, operations, business or business prospects of the Company or its Subsidiaries. No collective bargaining agreement exists with any of the Company's or its Subsidiaries' employees and no such agreement is imminent. (u) Compliance with Laws. The Company and its Subsidiaries are conducting their business in all material respects in compliance with all of the laws, rules and regulations of each jurisdiction in which they are conducting business. (v) Distribution of Materials. The Company has not distributed and will not distribute prior to the Closing Date or any date on which Option Shares are to be purchased, as the case may be, any material in connection with the offering and sale of the Shares other than a Preliminary Prospectus or the Prospectus. (w) Illegal Contributions. Neither the Company nor any of its Subsidiaries has at any time during the last five years (i) made any unlawful contribution to any candidate for foreign office, or failed to disclose fully any contribution in violation of law, or (ii) made any payment to any federal or state governmental officer or official, or other person charged with similar public or quasi-public duties, other than payments required or permitted by the laws of the United States or of any jurisdiction thereof. (x) Lock-Up Agreements. The Company, each member of the Board of Directors of the Company, each officer (as such term is defined in Rule 16a-1(f) under the Exchange Act) of the Company and each other holder listed on Schedule IV hereto of the Common Shares, has -8- agreed that such person will not, for a period of 120 days after the later of the Closing Date or the latest Option Closing Date (the "Restricted Period"), directly or indirectly sell, offer to sell, contract to sell, grant any option for the sale of, or otherwise dispose of, by any means, any Common Shares or announce an intent to sell any Common Shares without the prior written consent of the Representatives. (y) No Registration Rights. Except as described in the Prospectus, there are no holders of securities (debt or equity) of the Company, or holders of rights (including, without limitation, preemptive rights), warrants or options to obtain securities of the Company who have the right to request the Company to register securities held by them under the Securities Act. (z) Company Not an Investment Company. The Company is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (aa) Listing of Shares. The Firm Shares and the Option Shares, if any, have been approved for inclusion in Nasdaq National Market of the NASD (the "Nasdaq National Market"), subject to official notice of issuance. (bb) Related Transactions. Except as described in the Prospectus, there are no business relationships or related-party transactions of the nature described in Item 404 of Regulation S-K of the Rules and Regulations under the Securities Act, involving the Company and any other persons referred to in said Item 404 that are required to be described in the Prospectus and which have not been so disclosed. (cc) Environmental Liabilities. The Company and the Subsidiaries have been in compliance with all Environmental Laws (as defined below). Neither the Company nor any of its Subsidiaries (i) is the subject of any pending or, to the knowledge of the Company, threatened federal, state or local investigation evaluating whether any remedial action is needed to respond to a release of any Hazardous Materials (as defined below) into the environment, resulting from the business operations of the Company or any of its Subsidiaries or the ownership or possession of any of their respective properties or assets or (ii) is in contravention of any Environmental Law that could reasonably be expected to have a materially adverse effect on the condition (financial or otherwise), earnings, business affairs or business prospects of the Company or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries has received any notice or claim, nor are there pending or, to the knowledge of the Company, threatened lawsuits against them, with respect to violations of any Environmental Law or in connection with any release of any Hazardous Material into the environment that, individually or in the aggregate, if the subject of any unfavorable decision, ruling or finding, might reasonably be expected to have a materially adverse effect on the condition (financial or otherwise), earnings, business affairs or business prospects of the Company or any of its Subsidiaries. As used herein, "Environmental Laws" means any federal, state or local law or regulation applicable to the Company's or any of its Subsidiaries' business operations or ownership or possession of any of their respective properties or assets relating to environmental matters, and "Hazardous Materials" means those substances that are regulated by or form the basis of liability under any Environmental Laws. -9- 2. Representations and Warranties of the Selling Shareholders. Each Selling Shareholder represents, warrants, covenants and agrees with Underwriters as follows: (a) Compliance with the Securities Act. At the effective time of the Registration Statement and at all times subsequent thereto, up to and including the Closing Date and any Option Closing Date, and during such longer period until any post-effective amendment to the Registration Statement shall become effective, the Registration Statement (and any post-effective amendment to the Registration Statement) will contain all statements which are required to be stated therein in accordance with the Securities Act and the Rules and Regulations thereunder, will fully comply with the applicable provisions of the Securities Act and the Rules and Regulations thereunder, and neither the Registration Statement (nor any post-effective amendment to the Registration Statement) will contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; and the Prospectus and any amendment or supplement thereto will at all times up to and including the Closing Date and, if the Option Shares are purchased, the Option Closing Date, and during such longer period as the Prospectus may be required to be delivered in connection with sales of Firm Shares or Option Shares by the Underwriters or any dealer, fully comply with the provisions of the Securities Act and the Rules and Regulations thereunder, and will not contain any untrue statement of a material fact and will not omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the foregoing representations or warranties do not apply to the information contained in or omitted from the Registration Statement or the Prospectus or any amendment of, or supplement to, either of them in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of any Underwriter through the Representatives expressly for use in the Registration Statement or of the Prospectus. It is understood that the statements set forth on the inside cover page of the Prospectus with respect to stabilization and passive market-making activities, in the table beneath the first paragraph of the section of the Prospectus entitled "Underwriting," the amounts of the concession to certain dealers and the concession that such dealers may allow to certain other dealers in the second paragraph following such table and the five paragraphs preceding the last paragraph of such section and the identity of counsel for the Underwriters under the section of the Prospectus entitled "Legal Matters" constitute the only information furnished in writing by or on behalf of any Underwriter for inclusion in the Registration Statement or the Prospectus, as the case may be. (b) No Violation. The consummation of the transactions contemplated in this Agreement and the Registration Statement and the execution and performance of this Agreement and the fulfillment of the terms hereof or thereof will not conflict with, or result in a breach of, any of the terms or provisions of, or constitute a default or require any payment by any Selling Shareholder under (i) any indenture, mortgage, deed of trust or other agreement or instrument to which any Selling Shareholder is a party or by which any Selling Shareholder is bound, or of the organizational documents of any Selling Shareholder that is not a natural person or (ii) any law, rule or regulation, or any judgment, order or decree of any court or of any regulatory body or administrative agency or other governmental body having jurisdiction over any Selling Shareholder or any properties of any Selling Shareholder. -10- (c) Authorizations. Each approval, consent, order, authorization, designation, declaration or filing by or with any regulatory, administrative or other governmental body necessary in connection with the execution and delivery of this Agreement by or on behalf of each Selling Shareholder and the consummation of the transactions herein contemplated or that may be necessary to qualify the Shares for public offering by the Underwriters under state securities or Blue Sky laws) has been obtained or made and is in full force and effect. (d) No Stabilization or Manipulation of Price. No Selling Shareholder has taken and no Selling Shareholder will take, directly or indirectly, any action designed to, or which has constituted, or which might reasonably be expected to, cause or result in stabilization or manipulation of the price of the Common Shares of the Company. (e) Distribution of Materials. No Selling Shareholder has distributed and no Selling Shareholder will distribute prior to the Closing Date or any date on which Option Shares are to be purchased, as the case may be, any offering material in connection with the offering and sale of the Shares other than a Preliminary Prospectus or the Prospectus. (f) Conveyance of Shares. Each Selling Shareholder is or will be on the Closing Date the lawful or beneficial owner of the Shares to be sold by such Selling Shareholder hereunder, and upon the delivery and sale of, and payment for, such Shares, as provided herein, such Selling Shareholder will convey or cause its representative to convey good and marketable title to such Shares, free and clear or all liens, encumbrances, equities and claims whatsoever. 3. Purchase and Delivery of the Shares. (a) On the basis of the representations, warranties and covenants herein contained, and subject to the conditions herein set forth, the Company and each Selling Shareholder, severally and not jointly, agree to sell to the Underwriters and each Underwriter agrees, severally and not jointly, to purchase, at a price of $[ ] per share, the number of Firm Shares set forth opposite the name of each Underwriter in Schedule I hereof, subject to adjustments in accordance with Section 10 hereof. Certificates in negotiable form for the Shares of each Selling Shareholder to be sold hereunder have been placed in custody for delivery under this Agreement under a Power of Attorney and Custody Agreement duly authorized, executed and delivered by each Selling Shareholder, in the form heretofore furnished to the Representatives (the "Custody Agreement") with Squire, Sanders & Dempsey, as custodian (the "Custodian"), and Larry R. Linhart and Richard W. Rubenstein, as Attorneys-in-Fact (each, an "Attorney-in-Fact"). Each Selling Shareholder agrees that the Shares represented by the certificates held in custody for each Selling Shareholder under each of the respective Custody Agreements are subject to the interests of the Underwriters hereunder, that the arrangements made by each Selling Shareholder for such custody are to that extent irrevocable, and that the obligations of each Selling Shareholder hereunder shall not be terminated by operation of law, whether by the death of any such Selling Shareholder or the occurrence of any other event, or in the case of a trust, by the death of any trustee or trustees or the termination of such trust. If any such Selling Shareholder or any such trustee or trustees should die, or if any other such event should -11- occur, or if any of such trusts should terminate, before the delivery of the Shares hereunder, certificates for such Selling Shareholder's Shares shall be delivered by the Custodian in accordance with the terms and conditions of this Agreement and the Custody Agreement as if such death or other event or termination had not occurred, regardless of whether or not the Custodian shall have received notice of such death or other event or termination. Payment for the Firm Shares to be sold hereunder is to be made in Baltimore Clearing House funds (next day funds) by certified or bank cashier's check drawn to the order of the Company for the Shares to be sold by the Company, and each Selling Shareholder for the Shares to be sold by such Selling Shareholder, against delivery of certificates therefor to the Representatives for the several accounts of the Underwriters. Such payment and delivery are to be made at the offices of Legg Mason Wood Walker, Incorporated, Legg Mason Tower, 111 South Calvert Street, 20th Floor, Baltimore, Maryland at 10:00 A.M., Baltimore time, on the third business day after the date of this Agreement or at such other time and date not later than three business days thereafter as the Representatives and the Company shall agree upon, such time and date being herein referred to as the "Closing Date." The certificates for the Firm Shares will be delivered in such denominations and in such registrations as the Representatives request in writing not less than two full business days prior to the Closing Date, and will be made available for inspection by the Representatives at least one business day prior to the Closing Date. At the election of the Company or any Selling Shareholder, as the case may be, settlement for the Shares shall be made in same day funds in accordance with Section 6(a)(xiv) of this Agreement. It is understood that each of you, individually and not as the Representatives of the several Underwriters, may (but shall not be obligated to) make payment of the purchase price on behalf of any Underwriter or Underwriters whose check or checks shall not have been received by either of you prior to the Closing Date for the Firm Shares (or the Option Shares discussed below) to be purchased by such Underwriter or Underwriters. Any such payment by either of you shall not relieve any such Underwriter or Underwriters of any of its or their obligations hereunder. (b) In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Selling Shareholders hereby grant an option to the several Underwriters to purchase up to 150,000 Option Shares at the price per share as set forth in Section 3(a) of this Agreement. The Selling Shareholders shall be obligated to sell Option Shares to the several Underwriters pro rata based on the respective number of Firm Shares to be sold by each of them. The option granted hereby may be exercised in whole or in part at any time and from time to time upon written notice given within 30 days after the date of this Agreement, by you, as Representatives of the several Underwriters, to the Company setting forth the number of Option Shares as to which the several Underwriters are exercising the option, the names and denominations in which the Option Shares are to be registered and the time and date at which such certificates are to be delivered. The time and date at which certificates for Option Shares are to be delivered shall be determined by the Representatives but shall not be earlier than three nor later than 10 full business days after the exercise of such option, nor in any event prior to the Closing Date (such time and date being herein referred to as the "Option Closing Date"). If the date of exercise of the option is two or more days before the Closing Date, the notice of exercise shall set the Closing Date as the Option Closing Date. The number of Option Shares to be purchased by each -12- Underwriter shall be in the same proportion to the total number of Option Shares being purchased as the number of Firm Shares being purchased by such Underwriter bears to 1,000,000, adjusted by the Representatives in such manner as to avoid fractional shares. The option with respect to the Option Shares granted hereunder may be exercised only to cover over-allotments in the sale of the Firm Shares by the Underwriters. To the extent, if any, that the option is exercised, payment for the Option Shares shall be made on the Option Closing Date in Baltimore Clearing House funds (next day funds) by certified or bank cashier's check drawn to the order of the Company for the Option Shares to be sold by the Company against delivery of certificates therefor to the Representatives for the several accounts of the Underwriters at the offices of Legg Mason Wood Walker, Incorporated, Legg Mason Tower, 111 South Calvert Street, 20th Floor, Baltimore, Maryland, Attention: Edmund J. Cashman, Jr. At the election of the Company, settlement for the Option Shares shall be made in same day funds in accordance with Section 6(a)(xiv) of this Agreement. Upon exercise of any option provided for in Section 3(b) hereof, the obligations of the Underwriters to purchase such Option Shares will be subject (as of the date hereof and as of the date of payment for such Option Shares) to the accuracy of and compliance with the representations and warranties of the Company and the Selling Shareholders, to the accuracy of the statements of the Company, officers of the Company and the Selling Shareholders, made pursuant to the provisions hereof, to the performance by the Company and the Selling Shareholders, and to the condition that all proceedings taken at or prior to the payment date in connection with the sale and transfer of such Option Shares shall be satisfactory in form and substance to you and to Underwriters' counsel, and you shall have been furnished with all such documents, certificates and opinions as you may request in order to evidence the accuracy and completeness of any of the representations, warranties or statements, the performance of any of the covenants of the Company and the Selling Shareholders, or compliance by the Company and its officers and directors and the Selling Shareholders, with any of the conditions herein contained. 4. Offering by the Underwriters. It is understood that the several Underwriters are to make a public offering of the Firm Shares as soon as the Representatives deem it advisable to do so. The Firm Shares are to be initially offered to the public at the public offering price set forth in the Prospectus. The Representatives may from time to time thereafter change the public offering price and other selling terms. To the extent, if at all, that any Option Shares are purchased pursuant to Section 3(b) hereof, the Underwriters will offer them to the public on the foregoing terms. It is further understood that you will act as the Representatives for the Underwriters in the offering and sale of the Shares in accordance with an Agreement Among Underwriters entered into by you and the several other Underwriters. 5. Covenants of the Company. The Company covenants and agrees with the several Underwriters that: (a) The Company will use its best efforts to cause the Registration Statement and amendments thereof, if not effective at the time and date that this Agreement is executed and delivered by the parties hereto, to become effective as promptly as possible thereafter; and it will notify you, promptly after it shall receive notice thereof, of the time when the Registration Statement -13- or any subsequent amendment to the Registration Statement has become effective or any supplement to the Prospectus has been filed. The Company will (i) prepare and timely file with the Commission under Rule 424(b) of the Rules and Regulations, a Prospectus containing information previously omitted at the time of effectiveness of the Registration Statement in reliance on Rule 430A of the Rules and Regulations, (ii) not file any amendment to the Registration Statement or supplement to the Prospectus of which the Representatives shall not previously have been advised and furnished with a copy or to which the Representatives shall have reasonably objected in writing or which is not in compliance with the Rules and Regulations, (iii) file on a timely basis all reports and any definitive proxy or information statements required to be filed by the Company with the Commission subsequent to the date of the Prospectus and prior to the termination of the offering of the Shares by the Underwriters. In case any Underwriter is required to deliver a prospectus nine months or more after the effective date of the Registration Statement in connection with the sale of the Shares, it will prepare promptly upon request, but at the expense of such Underwriter, such amendment or amendments to the Registration Statement and such prospectus or prospectuses as may be necessary to permit compliance with the requirements of Section 10(a)(3) of the Securities Act. (b) The Company shall advise the Representatives promptly of any request of the Commission for amendment of the Registration Statement or for supplement to the Prospectus or for any additional information, or of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the use of any Preliminary Prospectus or the Prospectus or of the suspension of the qualification or registration of any Shares for offering in any jurisdiction, or of the institution or threatening of any proceedings for any of the foregoing purposes. The Company shall use its best efforts to prevent the issuance of any such stop order preventing or suspending the effectiveness of the Registration Statement or the use of any Preliminary Prospectus or the Prospectus and to obtain as soon as possible the lifting thereof, if issued. (c) The Company will cooperate with the Representatives in endeavoring to qualify the Shares for sale under the securities laws of such jurisdictions as the Representatives may reasonably have designated in writing and will make such applications, file such documents, and furnish such information as may be reasonably required for that purpose, provided the Company shall not be required to qualify the Shares for sale under the securities laws of any jurisdiction or to file a general consent to service of process in any jurisdiction in which the Company would be required thereby to qualify to do business or in which the Company would thereby become subject to taxation. The Company will, from time to time, prepare and file such statements, reports, and other documents, as are or may be required to continue such qualifications in effect for so long a period as the Representatives may reasonably request. (d) The Company will deliver to the Representatives, or such other entity or person as the Representatives may designate, from time to time, without charge, as many copies of any Preliminary Prospectus as the Representatives may reasonably request. The Company will deliver to the Representatives, or such other entity or person as the Representatives may designate, without charge, during the period when delivery of a Prospectus is required under the Securities Act, as many copies of the Prospectus in final form, or as thereafter amended or supplemented, as the Representatives may reasonably request. The Company will deliver to the Representatives at or before the Closing Date, without charge, four signed copies of the Registration Statement as -14- originally filed and all amendments thereto, including all exhibits filed therewith, and will deliver to the Representatives such number of copies of the Registration Statement, but without exhibits, and of all amendments thereto, without charge, as the Representatives may reasonably request. (e) The Company shall comply with the Securities Act and the Rules and Regulations thereunder and the Exchange Act and the Rules and Regulations thereunder so as to permit the completion of the distribution of the Shares as contemplated in this Agreement and in the Prospectus. If during the period in which a prospectus is required by law to be delivered by an Underwriter or dealer, any event shall occur or condition shall exist as a result of which, in the judgment of the Company or in the opinion of the Representatives, it becomes necessary to amend the Registration Statement or amend or supplement the Prospectus so that the Prospectus will not include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time the Prospectus is delivered, not misleading, or, if it is necessary at any time to amend the Registration Statement or amend or supplement the Prospectus to comply with any law, the Company promptly shall prepare and file with the Commission an appropriate amendment to the Registration Statement or supplement to the Prospectus as may be necessary to correct such untrue statement or omission or so that the Prospectus will comply with such law; provided that the Company shall make such changes in any such document as the Underwriters upon advice of counsel may reasonably request. (f) The Company will make generally available to its shareholders, as soon as it is practicable to do so, but in any event not later than 15 months after the effective date of the Registration Statement, an earnings statement (which need not be audited) in reasonable detail, covering a period of at least 12 consecutive months beginning after the effective date of the Registration Statement, which earnings statement shall satisfy the requirements of Section 11(a) of the Securities Act and Rule 158 of the Rules and Regulations thereunder and will advise the Representatives, and such of the Underwriters which request the foregoing from the Company, in writing when such statement has been so made available. (g) The Company will, for a period of three years from the Closing Date, deliver to the Representatives copies of annual reports and copies of all other documents, reports and information furnished by the Company to its shareholders or filed with any securities exchange or interdealer quotation system pursuant to the requirements of such exchange or system or with the Commission pursuant to the Securities Act or the Exchange Act. The Company will deliver to the Representatives similar information with respect to significant subsidiaries, as that term is defined in the Rules and Regulations, which are not consolidated in the Company's financial statements. (h) No offering, sale or other disposition by the Company of any Common Shares or any other class of securities or warrants or options to purchase any class of securities of the Company will be made during the period beginning on the date of this Agreement and ending 120 days after the later of the Closing Date or the latest Option Closing Date, directly or indirectly, otherwise than hereunder or with the prior written consent of the Representatives. (i) The Company will apply the net proceeds from the sale of the Shares being sold by it in the manner set forth under the caption "Use of Proceeds" in the Prospectus. -15- (j) If at any time during the 90 day period after the Registration Statement becomes effective, any rumor, publication or event relating to or affecting the Company shall occur as a result of which in your opinion the market price of the Common Shares has been or is likely to be materially affected (regardless of whether such rumor, publication or event necessitates a supplement to or amendment of the Prospectus), the Company will, after written notice from you advising the Company to the effect set forth above, forthwith prepare, consult with you concerning the substance of, and disseminate a press release or other public statement, reasonably satisfactory to you, responding to or commenting on such rumor, publication or event. (k) The Company shall cause the Shares to be included in the Nasdaq National Market and shall comply with all applicable rules of the Nasdaq National Market in connection with the transactions contemplated hereby. 6. Costs, Expenses and Fees. (a) Whether or not the transactions contemplated by this Agreement are consummated and regardless of the reason this Agreement is terminated, the Company and the Selling Shareholders will pay or cause to be paid, and bear or cause to be borne, all costs and expenses incident to the performance of the respective obligations of the Company and the Selling Shareholders under this Agreement, including (i) the fees and expenses of the accountants and counsel for the Company and counsel for the Selling Shareholders incurred in the preparation of the Registration Statement and any post-effective amendments thereto (including financial statements and exhibits), Preliminary Prospectuses and the Prospectus and any amendments or supplements thereto; (ii) the printing and mailing expenses associated with the Registration Statement and any post-effective amendments thereto, the Preliminary Prospectuses and the Prospectus, and the duplication and mailing expenses associated with this Agreement, the Agreement Among Underwriters, the Underwriters' Questionnaire, the Power of Attorney, the Selected Dealer Agreement and related documents and the Preliminary Blue Sky Memorandum and any supplement thereto; (iii) the costs incident to the authentication, issuance, sale and delivery of the Shares to the Underwriters; (iv) all taxes, if any, on the issuance, delivery and transfer of the Shares to be sold by the Company and the Selling Shareholders; (v) NASD fees and the fees, expenses and all other costs of qualifying the Shares for sale under the securities or Blue Sky laws of those states in which the Shares are to be offered or sold, including the reasonable fees and disbursements of Underwriters' counsel and such local counsel as may have been reasonably required and retained for such purpose; (vi) the filing fees incident to securing any review or approvals by or from the NASD; (vii) the filing fees of the Commission; (viii) the cost of furnishing to the Underwriters copies of the Registration Statement, the Preliminary Prospectuses and Prospectuses as herein provided; (ix) the Company's travel expenses in connection with meetings with the brokerage community and institutional investors; (x) the fees for including the Shares in the Nasdaq National Market; (xi) the cost of printing certificates for the Shares; (xii) the cost and charges of any transfer agent; (xiii) the cost of preparing and binding closing binders for the Company, the Representatives and their counsel; (xiv) the cost of obtaining settlement in same day funds, if desired by the Company or the Selling Shareholders; (xv) the cost of any required due diligence with respect to any patent positions of the Company; and (xvi) all other costs and expenses reasonably incident to the performance of their respective obligations hereunder which are not otherwise specifically provided for in this Section. -16- Subject to the reimbursement provided for in Section 6(c) below, the Underwriters agree to pay all fees and expenses of their legal counsel, other than counsel fees and expenses relating to the "Blue Sky" matters referred to in clause (v) above, and all advertising, telephone, travel, clerical or other office costs incurred or to be incurred by the Underwriters or by their sales personnel in connection with the offering of the Shares. (b) The Company shall pay as due any state registration, qualification and filing fees and any accountable out-of-pocket disbursements in connection with such registration, qualification or filing in the jurisdictions in which the Representatives determine, after consultation with the Company, to offer or sell the Shares. (c) In the event that the transactions contemplated by this Agreement are not consummated for any reason, other than as a result of the Underwriters' intentional refusal to proceed without cause, or if the Representatives terminate this Agreement pursuant to Section 11(b) hereof, then the Company shall reimburse the Representatives for their accountable reasonable out-of-pocket expenses associated with the offering contemplated hereby, including, without limitation, reasonable fees and disbursements of counsel for the Underwriters, in an amount not to exceed $135,000. If the offering contemplated hereby is not consummated as a result of the Underwriters' intentional refusal to proceed without cause, the Representatives shall not be entitled to any expense reimbursement pursuant to the preceding sentence. For purposes of this paragraph, "cause" shall not include the Underwriters' inability to market the offering contemplated hereby where there have not been any events materially adverse to the Company or the financial markets in general. This amount shall be in addition to reimbursement of fees of counsel for the Underwriters incurred in qualifying the Shares under state securities or Blue Sky laws to be paid by the Company to the Representatives pursuant to Section 6(a)(v) above. 7. Conditions of Obligations of the Underwriters. The obligation of any of the Underwriters to purchase the Firm Shares on the Closing Date and the Option Shares, if any, on the Option Closing Date are subject to the accuracy, as of the date of this Agreement and the Closing Date and the Option Closing Date, as the case may be, of the representations and warranties of the Company and the Selling Shareholders contained herein, and to the performance of the covenants and obligations of the Company and its officers, directors and shareholders hereunder and to the following additional conditions: (a) The Registration Statement shall have become effective not later than 5:30 P.M., Washington, D.C. time, on the date of this Agreement. All filings, if any, required by Rules 424 and 430A under the Securities Act shall have been timely made; no stop order suspending the effectiveness of the Registration Statement, as amended from time to time, shall have been issued and no proceedings for that purpose shall have been taken or, to your knowledge or to the knowledge of the Company, shall be contemplated by the Commission; and any request for additional information (to be included in the Registration Statement or the Prospectus or otherwise) shall have been complied with to the satisfaction of the Underwriters' counsel. (b) All corporate proceedings and other legal matters in connection with this Agreement, the form of Registration Statement, the Preliminary Prospectuses and the Prospectus, -17- and the registration, authorization, issuance, sale and delivery of the Shares, shall have been taken to the satisfaction of Underwriters' counsel, and such counsel shall have been furnished with such papers and information as they may reasonably have requested to enable them to pass upon the matters referred to in this subsection. (c) The Representatives shall have received on the Closing Date and the Option Closing Date, as the case may be, the opinion of Squire, Sanders & Dempsey LLP, counsel for the Company, dated the Closing Date or the Option Closing Date, as the case may be, addressed to the Underwriters to the effect that: (i) Each of the Company and its Subsidiaries has been duly organized and is validly existing as a corporation in good standing under the law of its state of incorporation, with corporate power and authority to own its properties and conduct its business as described in the Prospectus; the Company and its Subsidiaries are duly qualified to transact business in all jurisdictions in which the conduct of their business as described in the Prospectus requires such qualification except where the failure to qualify would not have a materially adverse effect upon the business of the Company or its Subsidiaries. (ii) The Company has authorized and outstanding capital stock as set forth in the Prospectus under the heading "Capitalization." The Company's outstanding Common Shares have been duly authorized and validly issued and are fully paid and nonassessable and none of the outstanding shares of the capital stock of the Company was issued in violation of statutory or contractual preemptive rights. All of the Shares conform to the description thereof contained in the Prospectus. The certificates for the Shares are in due and proper form under the Ohio General Corporation Law; the Firm Shares and the Option Shares, if any, to be sold by the Company pursuant to this Agreement have been duly authorized and will be validly issued, fully paid and nonassessable when issued and paid for as contemplated by this Agreement; and no preemptive rights of shareholders exist under applicable law or, by agreement or otherwise, with respect to any of the Shares or the issue and sale thereof. The record ownership of the outstanding stock of the Company is as set forth in the Prospectus in the table under the heading "Principal and Selling Shareholders." (iii) Any outstanding stock options relating to the Common Shares have been duly authorized and validly issued and the description thereof contained in the Registration Statement and the Prospectus is accurate in all material respects. (iv) Each Subsidiary has authorized and outstanding capital stock as set forth in Schedule III to this Agreement. The outstanding shares of each Subsidiary's capital stock have been duly authorized and validly issued and are fully paid and nonassessable and none of the outstanding shares of the capital stock of any Subsidiary was issued in violation of statutory or contractual preemptive rights. All of the shares of each Subsidiary's capital stock are owned by the Company. (v) The Registration Statement has become effective under the Securities Act and no stop order proceedings with respect thereto have been instituted or are pending or, to the knowledge of such counsel, threatened under the Securities Act; any required filing of the Prospectus -18- or any supplement thereto pursuant to Rule 424(b) of the Rules and Regulations under the Securities Act has been made in the manner and within the time period required by said Rule 424(b). (vi) The Registration Statement, each Preliminary Prospectus, the Prospectus and each amendment or supplement thereto comply as to form in all material respects with the requirements of the Act and the applicable Rules and Regulations thereunder and the Exchange Act and the rules and regulations promulgated thereunder (except that such counsel need express no opinion as to the financial statements, schedules and other financial information included therein). (vii) The documents incorporated by reference in the Prospectus (except for any financial statements and schedules and other financial and statistical data included in such documents as to which such counsel need express no opinion), when they were filed with the Commission, complied as to form in all material respects with the requirements of the Exchange Act and the rules and regulations of the commission thereunder; and such counsel has no reason to believe that any of such documents (except for any financial statements and schedules and other financial and statistical data included in such documents as to which such counsel need express no opinion), when they were so filed, contained an untrue statement of a material fact or omitted to a state a material fact necessary in order to make the statements, in light of the circumstances under which they were made when such documents were so filed, not misleading; (viii) The statements in the Prospectus, insofar as such statements constitute a summary of documents referred to therein or matters of law, are accurate summaries and fairly and correctly present the information required to be set forth therein with respect to such documents and matters. (ix) There are no contracts or documents known to such counsel required to be filed as exhibits to the Registration Statement or described in the Registration Statement or the Prospectus which are not so filed or described as required, and such contracts and documents as are summarized in the Registration Statement or the Prospectus are fairly summarized therein. (x) To the knowledge of such counsel, after due inquiry, there are no legal proceedings pending or threatened against the Company or any of its Subsidiaries of a character which are required to be disclosed in the Registration Statement or the Prospectus, by the Securities Act or the Rules and Regulations thereunder, except as described in the Prospectus. (xi) The performance of this Agreement and the consummation of the transactions herein contemplated (other than performance of the Company's indemnification, contribution or related or similar obligations hereunder, as to which no opinion need be expressed) and the application of the net proceeds of the offering contemplated by this Agreement as described in the Prospectus under the caption "Use of Proceeds" will not (A) result in any violation of the Company's or any of its Subsidiaries' Articles of Incorporation or Code of Regulations, or (B) result in the breach or violation of any of the terms and provisions, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement, bond, debenture, note agreement or other evidence of indebtedness, or any lease, contract or other agreement or instrument, known to such counsel, to which the Company or any of its Subsidiaries is a party or by which any of their -19- respective properties is bound, or any applicable statute, rule or regulation or any order, writ or decree of any court or governmental agency or body having jurisdiction over the Company or any of its Subsidiaries or over any of their properties or operations. (xii) Neither the Company nor any of its Subsidiaries is an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (xiii) The Company has the power and authority to enter into this Agreement and to issue, sell and deliver to the Underwriters the Firm Shares or the Option Shares, as the case may be. This Agreement has been duly authorized by all necessary corporate action by the Company, and has been duly executed and delivered by the Company and, assuming the due authorization, execution and delivery by the other parties hereto, constitutes its valid and binding obligation, enforceable in accordance with its terms, except (A) as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights generally and general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity) and (B) as enforceability of rights to indemnity and contribution hereunder may be limited by federal or state securities laws or principles of public policy. (xiv) No approval, consent, order, authorization, designation, declaration or filing by or with any regulatory, administrative or other governmental body is necessary in connection with the execution and delivery of this Agreement and the consummation of the transactions herein contemplated (other than as may be required by the NASD or as required by state securities and Blue Sky laws as to which such counsel need express no opinion) except such as have been obtained or made, specifying the same. (xv) Neither the Company nor any of its Subsidiaries is presently in breach of, or in default under, any bond, debenture, note or other evidence of indebtedness or any contract, indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument, known to such counsel, to which the Company or any of its Subsidiaries is a party or by which any of their property is bound. (xvi) Except as provided in the Shareholders' Agreement filed as an exhibit to the Registration Statement, no holders of Common Shares or other securities of the Company have registration rights with respect to securities of the Company because of the filing of the Registration Statement by the Company. In addition to the matters set forth above, such opinion shall also include a statement to the effect that nothing has come to the attention of such counsel which leads them to believe that (A) the Registration Statement, as of the time it became effective under the Securities Act, (B) the Prospectus or any amendment or supplement thereto, on the date it was filed pursuant to Rule 424(b), or (C) the Registration Statement, or the Prospectus, or any amendment or supplement thereto, as of the Closing Date or the Option Closing Date, as the case may be, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or -20- necessary to make the statements therein not misleading (except that such counsel need express no view as to financial statements, schedules and other financial information included therein). In giving such opinion such counsel may rely, as to all matters governed by the laws of jurisdictions other than the law of the State of Ohio and the federal law of the United States, upon the opinions of counsel satisfactory to you. Such counsel may also state that, insofar as such opinion involves factual matters, they have relied, to the extent they deem proper, upon certificates of officers of the Company and certificates of public officials. (d) The Representatives shall have received on the Closing Date and the Option Closing Date, as the case may be, the opinion of Squire, Sanders & Dempsey LLP, counsel for the Selling Shareholders, dated the Closing Date or the Option Closing Date, as the case may be, addressed to the Underwriters in form and substance reasonably satisfactory to the Representatives, to the effect that: (i) The performance of this Agreement and the Custody Agreements by the Selling Shareholders and the consummation by the Selling Shareholders of the transactions herein and therein contemplated (other than performance of the Selling Shareholders' indemnification, contribution or related or similar obligations hereunder, as to which no opinion need be expressed) will not result in the material breach or violation of any of the terms and provisions, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement, bond, debenture, note agreement or other evidence of indebtedness, or any lease, contract or other agreement or instrument, known to such counsel, to which any Selling Shareholder is a party or by which any of their respective properties is bound, or any applicable statute, rule or regulation, or any order, writ or decree of any court or governmental agency or body having jurisdiction over any Selling Shareholder or over any of their respective properties. (ii) This Agreement and the Custody Agreements have been duly authorized, executed and delivered by the Selling Shareholders and, assuming the due authorization, execution and delivery by the other parties hereto and thereto, constitute their valid and binding obligations, enforceable in accordance with their respective terms, except (A) as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights generally and general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity) and (B) as enforceability of rights to indemnify and contribution hereunder may be limited by federal or state securities laws or principles of public policy. (iii) No approval, consent, order, authorization, designation, declaration or filing by or with any regulatory, administrative or other governmental body is necessary in connection with the execution and delivery by the Selling Shareholders of this Agreement or the Custody Agreements and the consummation by the Selling Shareholders of the transactions herein or therein contemplated except such as have been obtained or made, specifying the same. (iv) The delivery by each Selling Shareholder to the several Underwriters of certificates for the Shares being sold hereunder by such Selling Shareholder against payment therefor -21- as provided herein, will pass good and marketable title to such Shares to the several Underwriters, free and clear of all liens, encumbrances, equities and claims whatsoever. In giving such opinion such counsel may rely, as to all matters governed by the laws of jurisdictions other than the law of the State of Ohio and the federal law of the United States, upon the opinions of counsel satisfactory to you. Such counsel may also state that, insofar as such opinion involves factual matters, they have relied, to the extent they deem proper, upon certificates of officers of the Company and certificates of public officials. (e) The Representatives shall have received from Wolf, Block, Schorr and Solis-Cohen LLP, counsel for the Underwriters, an opinion dated the Closing Date or the Option Closing Date, as the case may be, addressed to the Underwriters to the effect that: (i) The Company is a corporation validly existing and in good standing under the laws of the State of Ohio. (ii) The issuance and sale of the Shares by the Company pursuant to this Agreement have been duly authorized by all necessary corporate action and the Shares, upon delivery thereof against payment as provided for in this Agreement, will be validly issued, fully paid and nonassessable. (iii) The Underwriting Agreement has been duly authorized, executed and delivered by the Company. (iv) To the knowledge of such counsel, no stop order suspending effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or threatened by the Commission. (v) The Registration Statement and the Prospectus (except for the financial and statistical information referred to above, as to which such counsel need not express any opinion) as of the effective date of the Registration Statement, comply as to form in all material respects with the Securities Act and the Rules and Regulations thereunder relating to registration statements and prospectuses. In addition to the matters set forth above, such opinion shall also include a statement to the effect that nothing has come to the attention of such counsel which leads them to believe that (A) the Registration Statement as of the time it became effective under the Securities Act, (B) the Prospectus or any amendment or supplement thereto, on the date it was filed pursuant to Rule 424(b) of the Rules and Regulations under the Securities Act, or (C) the Registration Statement or the Prospectus, or any amendment or supplement thereto, as of the Closing Date or the Option Closing Date, as the case may be, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading (except that such counsel need express no view as to financial statements, schedules and other financial information included therein). -22- In giving such opinion such counsel may rely, as to all matters governed by the laws of jurisdictions other than the law of the Commonwealth of Pennsylvania and the federal law of the United States, upon the opinions of counsel satisfactory to you. Such counsel may also state that, insofar as such opinion involves factual matters, they have relied, to the extent they deem proper, upon certificates of officers of the Company and certificates of public officials. (f) The Representatives shall have received at or prior to the Closing Date from Wolf, Block, Schorr and Solis-Cohen LLP a memorandum or summary, in form and substance satisfactory to the Representatives, with respect to the qualification for offering and sale by the Underwriters of the Shares under the state securities or Blue Sky laws of such jurisdictions as the Representatives may reasonably have designated to the Company. (g) At the time this Agreement is executed and at the Closing Date and the Option Closing Date, as the case may be, the Representatives shall have received a letter addressed to each of them individually and as Representatives of the several Underwriters in form and substance satisfactory to Representatives in all respects (including the nonmaterial nature of the changes or decreases, if any, referred to in clause (iii) below) from Ernst & Young LLP dated as of the date of this Agreement, the Closing Date and any Option Closing Date, as the case may be: (i) confirming that they are independent public accountants within the meaning of the Securities Act and the Rules and Regulations thereunder and stating that the section of the Registration Statement under the caption "Experts" is correct insofar as it relates to them; (ii) stating that, in their opinion, the Company Financial Statements, together with the related notes and schedules as set forth in each Preliminary Prospectus, the Prospectus and the Registration Statement, examined by them and the summary, selected, and statistical financial information and data, and related notes thereto, to the extent derived from the financial statements examined by them and included in any Preliminary Prospectus, the Prospectus and the Registration Statement, comply in form in all material respects with the applicable accounting requirements of the Securities Act and the Rules and Regulations thereunder; (iii) stating that, on the basis of specified procedures which included a reading of the latest available unaudited interim consolidated financial statements of the Company (with an indication of the date of such statements), a reading of the fiscal 1995, 1996, 1997 and 1998 (through the date of such letter) minutes of the meetings of the shareholders and the Board of Directors of the Company and audit and compensation committees of such Board, if any, and inquiries to certain officers and other employees of the Company responsible for financial and accounting matters and other specified procedures and inquiries, nothing has come to their attention that would cause them to believe that (1) at a specified date, not more than three business days prior to the date of such letter, there was any change in the capital stock or consolidated short-term or long-term debt or any decrease in consolidated net current assets, total assets or shareholders' equity as compared with the amounts shown in the June 30, 1997 audited consolidated balance sheet of the Company, other than as set forth in or contemplated by the Registration Statement and Prospectus, or, if there was any change or decrease, setting forth the amount of such change or decrease, and (2) during the period from June 30, 1997 to a specified date not more than three business days prior to the date of -23- such letter, there has been any decrease in revenues or any decrease in income from continuing operations or in total or per share net income of the Company as compared with the corresponding period of the prior year other than as set forth in the Registration Statement, or, if there was any such decrease or increase, setting forth the amount thereof; and (iv) stating that they have compared specific dollar amounts, numbers of shares and other information pertaining to the Company set forth in the Registration Statement and Prospectus, which have been specified by the Representatives prior to the date of this Agreement, to the extent that such amounts, numbers, percentages and information may be derived from the general accounting or other records of the Company, with the results obtained from the application of specified readings, inquiries and other appropriate procedures (which procedures do not constitute an examination in accordance with generally accepted auditing standards) set forth in the letter, and found them to be in agreement. (h) The Representatives shall have received on the Closing Date and the Option Closing Date, as the case may be, a certificate or certificates of the Chief Executive Officer and the Chief Financial Officer of the Company to the effect that, as of the Closing Date or the Option Closing Date, as the case may be, each of them severally represents as follows: (i) The representations and warranties of the Company in this Agreement are true and correct as if made on and as of the Closing Date or any later date on which Option Shares are to be purchased and the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the Closing Date or any later date on which Option Shares are to be purchased, as the case may be. (ii) The Registration Statement has become effective under the Act, no stop order suspending the effectiveness of the Registration Statement has been issued, and no proceedings for such purpose have been taken or, to his knowledge, are contemplated by the Commission. (iii) No litigation has been instituted or threatened against the Company or any of its Subsidiaries of a character required to be disclosed in the Registration Statement which is not so disclosed; no contract is required to be filed as an exhibit to the Registration Statement which is not so filed; and, the representations and warranties of the Company contained in Section 1 hereof are true and correct on and as of the Closing Date or the Option Closing Date, as the case may be, and as if made on such date. -24- (iv) He has carefully examined the Registration Statement and the Prospectus and in his opinion, as of the effective date of the Registration Statement, the Registration Statement and the Prospectus did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading and, in his opinion, since the effective date of the Registration Statement, no event has occurred which should have been set forth in a supplement to or an amendment of the Prospectus which has not been so set forth in such supplement or amendment. (v) Except as described in the Registration Statement or Prospectus, subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, there has not been (A) any material adverse change in the properties or assets described or referred to in the Registration Statement and the Prospectus or in the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its Subsidiaries, whether or not occurring in the ordinary course of business; (B) any transaction which is material to the Company and its Subsidiaries, except transactions entered into in the ordinary course of business; (C) any obligation, direct or contingent, incurred by the Company or any of its Subsidiaries which is material to the Company or its Subsidiaries, except obligations incurred in the ordinary course of business; (D) any change in the capital stock or outstanding indebtedness of the Company or any of its Subsidiaries which is material to the Company or any of its Subsidiaries; or (E) any dividend or distribution of any kind declared, paid or made on the capital stock of the Company or any of its Subsidiaries. (i) The Company shall have furnished to the Representatives such further certificates and documents confirming the representations and warranties contained herein and related matters as the Representatives or Wolf, Block, Schorr and Solis-Cohen LLP, counsel for the Underwriters, may reasonably have requested. (j) The Firm Shares, and Option Shares, if any, shall have been approved by all requisite corporate action by the Company and shall have been approved for inclusion upon official notice of issuance in the Nasdaq National Market. (k) The Company shall have obtained and delivered to the Representatives an agreement from each member of the Board of Directors of the Company, each officer (as such term is defined in Rule 16a-1(f) under the Exchange Act) of the Company and each holder listed on Schedule IV hereto of Common Shares in writing prior to the date hereof, that such person will not, during the Restricted Period, offer to sell, sell, contract to sell or otherwise sell or dispose of, any Common Shares, any options or warrants to purchase any Common Shares or any securities convertible into or exchangeable for Common Shares owned by such person or entity or with respect to which such person has the power of disposition. Each such person shall also agree and consent to the entry of stop transfer instructions with the Company's transfer agent against the transfer of Common Shares held by such person except in compliance with the foregoing restrictions. (l) The NASD shall have indicated that it had no objection to the underwriting arrangements pertaining to the sale of the Shares and the participation by the Underwriters in the sale of the Firm Shares and the Option Shares. The opinions and certificates mentioned in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in all material respects satisfactory to the Representatives and to Wolf, Block, Schorr and Solis-Cohen LLP, counsel for the Underwriters. If any of the conditions hereinabove provided for in this Section 7 shall not have been fulfilled when and as required by this Agreement to be fulfilled, the obligations of the Underwriters hereunder may be terminated by the Representatives by notifying the Company of such termination -25- in writing or by telegram or by facsimile at or prior to the Closing Date or the Option Closing Date, as the case may be, and any such termination shall be without liability of any party to any other party, except to the extent provided in Sections 6 and 9 of this Agreement, which Sections shall survive such termination. 8. Conditions of the Obligations of the Company. The obligations of the Company to sell and deliver the portion of the Shares required to be delivered as and when specified in this Agreement are subject to the conditions that at the Closing Date or the Option Closing Date, as the case may be, no stop order suspending the effectiveness of the Registration Statement shall have been issued and in effect or proceedings therefor initiated or threatened. 9. Indemnification and Contribution. (a) The Company and the Selling Shareholders, jointly and severally, agree to indemnify and hold harmless each Underwriter and their respective officers, directors, employees and agents, and each person, if any, who controls any Underwriter within the meaning of the Securities Act (each Underwriter and each such other person or entity previously described in this Paragraph 9(a) is hereinafter sometimes referred to as an "Indemnified Underwriter Person" and collectively as the "Indemnified Underwriter Persons") from and against all claims, liabilities, losses or damages (or actions or proceedings in respect thereof) to which any such Indemnified Underwriter Person may become subject under the Securities Act or otherwise, insofar as such claims, liabilities, losses or damages (or actions or proceedings in respect thereof) arise out of, are related to or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made, (iii) any enforcement of any of the Underwriters' rights hereunder, (iv) any misrepresentation with respect to or breach or violation of the representations, warranties and covenants of the Company set forth in this Agreement or any certificate delivered pursuant to this Agreement or (v) any material written misrepresentations of the Company, its officers, directors, employees or agents (other than any Indemnified Underwriter Person) or the Company or any Selling Shareholder in connection with the offering and sale of the Shares, and will reimburse each Indemnified Underwriter Person for any legal or other expenses incurred by such Indemnified Underwriter Person in connection with investigating or defending any such claim, liability, loss, damage, action or proceeding; provided, however, that neither the Company nor the Selling Shareholders will be liable in any such case to the extent that any such claim, liability, loss or damage arises out of or is based upon an untrue statement or alleged untrue statement, or omission or alleged omission made in the Registration Statement, any Preliminary Prospectus, the Prospectus, or such amendment or supplement, in reliance upon and in conformity with written information furnished to the Company by or through the Representatives and specifically approved in writing by the Representatives for use in the preparation thereof. It is understood that the statements set forth on the inside cover page of the Prospectus with respect to stabilization and passive market-making activities, in the table beneath the first paragraph of the section of the Prospectus entitled "Underwriting," the amounts of the concession to certain dealers and the concession that such dealers may allow to certain other dealers in the second paragraph following such table and the five -26- paragraphs preceding the last paragraph of such section and the identity of counsel for the Underwriters under the section of the Prospectus entitled "Legal Matters" constitute the only information furnished in writing by or on behalf of any Underwriter for inclusion in the Registration Statement or the Prospectus, as the case may be. This indemnity agreement will be in addition to any liability which the Company or the Selling Shareholders, as the case may be, may otherwise have. (b) Each Underwriter will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the Registration Statement, and each person, if any, who controls the Company within the meaning of the Securities Act (each of the Company and each such other person or entity previously described in this Paragraph 9(b) is hereinafter sometimes individually referred to as an "Indemnified Company Person" and collectively as the "Indemnified Company Persons") and each Selling Shareholder, from and against all claims, liabilities, losses or damages (or actions or proceedings in respect thereof) to which any such Indemnified Company Person or Selling Shareholder may become subject under the Securities Act or otherwise, insofar as such claims, liabilities, losses or damages (or actions or proceedings in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact made in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made, and will reimburse each Indemnified Company Person and Selling Shareholder for any legal or other expenses reasonably incurred by such Indemnified Company Person or Selling Shareholder in connection with investigating or defending any such claim, liability, loss, damage, action or proceeding; provided, however, that each Underwriter will be liable in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission has been made in the Registration Statement, any Preliminary Prospectus, the Prospectus or such amendment or supplement, in reliance upon and in conformity with written information furnished to the Company by or through the Representatives and specifically approved in writing by the Representatives for use in the preparation thereof. It is understood that the statements set forth on the inside cover page of the Prospectus with respect to stabilization and passive market-making activities, in the table beneath the first paragraph of the section of the Prospectus entitled "Underwriting," the amounts of the concession to certain dealers and the concession that such dealers may allow to certain other dealers in the second paragraph following such table and the five paragraphs preceding the last paragraph of such section and the identity of counsel for the Underwriters under the section of the Prospectus entitled "Legal Matters" constitute the only information furnished in writing by or on behalf of any Underwriter for inclusion in the Registration Statement or the Prospectus, as the case may be. This indemnity agreement will be in addition to any liability which such Underwiter may otherwise have. (c) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to this Section 9, such person (the "indemnified party") shall promptly notify the person against whom such indemnity may be sought (the "indemnifying party") in writing and the indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party -27- to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay as incurred the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel at its own expense; provided, however, that the indemnifying party shall pay as incurred the fees and expenses of the counsel retained by the indemnified party in the event (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the indemnifying party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate firm (in addition to counsel for the indemnifying party) for all such indemnified parties. Such firm shall be designated in writing by the Representatives in the case of parties indemnified pursuant to Section 9(a) and by the Company in the case of parties indemnified pursuant to Section 9(b). The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. (d) If the indemnification provided for in this Section 9 is unavailable to or insufficient to hold harmless an indemnified party under Section 9(a) or (b) above in respect of any claims, liabilities, losses or damages (or actions or proceedings in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such claims, liabilities, losses or damages (or actions or proceedings in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Selling Shareholders on the one hand and the Underwriters on the other from the offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only the relative benefits but also the relative fault of the Company and the Selling Shareholders on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such claims, liabilities, losses or damages (or actions or proceedings in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Shareholders on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company [and the Selling Shareholders] bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company and the Selling Shareholders on the one hand or the Underwriters on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Selling Shareholders and the Underwriters agree that it would not be just and equitable if contributions pursuant to this Section 9(d) were determined by pro rata -28- allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the order and method of the equitable considerations referred to above in this Section 9(d). The amount paid or payable by an indemnified party as a result of the claims, liabilities, losses or damages (or actions or proceedings in respect thereof) referred to above in this Section 9(d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), (i) no Underwriter shall be required to contribute any amount in excess of the underwriting discounts and commissions applicable to the Shares purchased by such Underwriter and (ii) no person guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this Section 9(d) to contribute are several in proportion to their respective underwriting obligations and not joint. (e) In any proceeding relating to the Registration Statement, any Preliminary Prospectus, the Prospectus or any supplement or amendment thereto, each party against whom contribution may be sought under this Section 9 hereby consents to the jurisdiction of any court having jurisdiction over any other contributing party, agrees that process issuing from such court may be served upon him or it by any other contributing party and consents to the service of such process and agrees that any other contributing party may join him or it as an additional defendant in any such proceeding in which such other contributing party is a party. (f) Each of the Company and the Selling Shareholders agrees that it will not settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding in respect of which indemnification may be sought from the Company or the Selling Shareholders by an Indemnified Underwriter Person (whether any Indemnified Underwriter Person is an actual or potential party to such claim, action, suit or proceeding) unless such settlement, compromise or consent includes an unconditional release of each Indemnified Underwriter Person hereunder from all liability arising out of such claim; action, suit or proceeding. (g) If any personnel of any Indemnified Underwriter Person appear as witnesses, are deposed or are otherwise involved in any action (except to the extent that it is finally judicially determined that such action resulted from such Indemnified Underwriter Person's gross negligence or willful misconduct) against any Indemnified Underwriter Person or any Indemnified Company Person, the Company and the Selling Shareholders, jointly and severally, agree to reimburse such Indemnified Underwriter Person for all expenses (including fees and expenses of counsel) incurred by it by reason of any of its personnel being involved in any such action and will compensate the Indemnified Underwriter Person for time spent by its employees preparing for and testifying as witnesses in any deposition or proceeding at the Indemnified Underwriter Person's customary rates. -29- 10. Default by Underwriters. If on the Closing Date or the Option Closing Date, as the case may be, any Underwriter shall fail to purchase and pay for the portion of the Shares which such Underwriter has agreed to purchase and pay for on such date (otherwise than by reason of any default on the part of the Company or any Selling Shareholder), you, as Representatives of the Underwriters, shall use your best efforts to procure within 24 hours thereafter one or more of the other Underwriters, or any others, to purchase from the Company and, if applicable, the Selling Shareholders such amounts as may be agreed upon and upon the terms set forth herein, the Firm Shares or Option Shares, as the case may be, which the defaulting Underwriter or Underwriters failed to purchase. If during such 24 hours you, as such Representatives, shall not have procured such other Underwriters, or any others, to purchase the Firm Shares or Option Shares, as the case may be, agreed to be purchased by the defaulting Underwriter or Underwriters, then (a) if the aggregate number of shares with respect to which such default shall occur does not exceed 10% of the Firm Shares or Option Shares, as the case may be, covered hereby, the other Underwriters shall be obligated, severally, in proportion to the respective numbers of Firm Shares or Option Shares, as the case may be, which they are obligated to purchase hereunder, to purchase the Firm Shares or Option Shares, as the case may be, which such defaulting Underwriter or Underwriters failed to purchase, or (b) if the aggregate number of shares of Firm Shares or Option Shares, as the case may be, with respect to which such default shall occur exceeds 10% of the Firm Shares or Option Shares, as the case may be, covered hereby, the Company or you as the Representatives of the Underwriters will have the right, by written notice given within the next 24-hour period to the parties to this Agreement, to terminate this Agreement without liability on the part of the non-defaulting Underwriters or of the Company or the Selling Shareholders except to the extent provided in Sections 6 and 9 hereof. In the event of a default by any Underwriter or Underwriters, as set forth in this Section 10, the Closing Date or Option Closing Date, as the case may be, may be postponed for such period, not exceeding seven days, as you, as Representatives, may determine in order that the required changes in the Registration Statement or in the Prospectus or in any other documents or arrangements may be effected. The term "Underwriter" includes any person substituted for a defaulting Underwriter. Any action taken under this Section 10 shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement. 11. Termination. This Agreement may be terminated by the Representatives by notice to the Company as follows: (a) at any time prior to the earlier of (i) the time the Shares are released by the Representatives for sale by notice to the Underwriters, or (ii) 11:30 A.M., Baltimore time, on the first business day following the date of this Agreement; (b) at any time prior to the Closing Date if any of the following has occurred: (i) since the respective dates as of which information is given in the Registration Statement and the Prospectus, any materially adverse change or any development involving a prospective materially adverse change in or affecting the condition, financial or otherwise, of the Company or any of its Subsidiaries or the earnings, operations, management, business or business prospects of the Company or any of its Subsidiaries, whether or not arising in the ordinary course of business, (ii) any outbreak of hostilities or other national or international calamity or crisis or change in economic or political conditions if the effect of such outbreak, calamity, crisis or change on the financial -30- markets of the United States would, in the Representatives' reasonable judgment, make the offering or delivery of the Shares impracticable, (iii) suspension of trading in securities on the New York Stock Exchange or the American Stock Exchange or limitation on prices (other than limitations on hours or numbers of days of trading) for securities on either such Exchange, (iv) the enactment, publication, decree or other promulgation of any federal or state statute, regulation, rule or order of any court or other governmental authority which in the Representatives' reasonable opinion materially and adversely affects or will materially or adversely affect the business or operations of the Company or any of its Subsidiaries, (v) declaration of a banking moratorium by either federal or New York State authorities, or (vi) the taking of any action by any federal, state or local government or agency in respect of its monetary or fiscal affairs which in the Representatives' reasonable opinion has a material adverse effect on the securities markets in the United States; or (c) as provided in Sections 7 and 10 of this Agreement. This Agreement also may be terminated by the Representatives, by notice to the Company, as to any obligation of the Underwriters to purchase the Option Shares, upon the occurrence at any time prior to the Option Closing Date of any of the events descried in subparagraph (b) above or as provided in Sections 7 and 10 of this Agreement. 12. Notices. All communications hereunder shall be in writing and, except as otherwise provided herein, will be mailed, delivered or telegraphed or sent by facsimile and confirmed (postage and costs prepaid) as follows: if to the Underwriters, to Legg Mason Wood Walker, Incorporated, Legg Mason Tower, 111 South Calvert Street, 20th Floor, Baltimore, Maryland 21202, Attention: Edmund J. Cashman, Jr., Facsimile (410) 539-4508, with a copy to Wolf, Block, Schorr and Solis-Cohen LLP, Twelfth Floor Packard Building, 111 South 15th Street, Philadelphia, Pennsylvania 19102-2678, Attention: Richard A. Silfen, Esquire, Facsimile (215) 977-2740, if to the Company, to AmeriLink Corporation, 1900 East Dublin-Granville Road, Columbus, Ohio 43229, Attention: Larry R. Linhart, President, Facsimile (614) 895-8942, with a copy to Squire, Sanders & Dempsey, 1300 Huntington Center, 41 South High Street, Columbus, Ohio 43215, Facsimile (614) 365-2499, Attention: Richard W. Rubenstein, Esquire, if to the Selling Shareholders, to Squire, Sanders & Dempsey, 1300 Huntington Center, 41 South High Street, Columbus, Ohio 43215, Facsimile (614) 365-2499, Attention: Richard W. Rubenstein, Esquire. 13. Governing Law: Waiver of Trial by Jury: Severability. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the Commonwealth of Pennsylvania, without giving effect to the principles of conflicts of law thereof. For the purpose of expediting the resolution of any controversy, claim or dispute arising out of or related to this Agreement or the transactions or agreements contemplated hereby, the Company, the Selling Shareholders and the Underwriters hereby waive trial by jury. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be deemed severable from the remainder of this Agreement, and the remaining terms and provisions contained in this Agreement shall be construed to preserve to the maximum permissible extent the intent and purposes of this Agreement. Any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such term or provision in any other jurisdiction. -31- 14. Successors. This Agreement has been and is made solely for the benefit of the Underwriters, the Company and the Selling Shareholders and their respective successors, executors, administrators, heirs and assigns, and the officers, directors and controlling persons referred to herein, and no other person will have any right or obligation hereunder. The term "successors" shall not include any purchaser of the Shares merely because of such purchase. 15. Miscellaneous. The reimbursement, indemnification and contribution agreements contained in this Agreement and the representations, warranties and covenants in this Agreement shall remain in full force and effect regardless of (a) any termination of this Agreement, (b) any investigation made by or on behalf of any Underwriter or controlling person thereof, or by or on behalf of the Company or its directors or officers or the Selling Shareholders and (c) delivery of and payment for the Shares under this Agreement. This Agreement contains the entire agreement among the parties hereto with respect to the matters governed hereby. All section headings used herein are for convenience and ease of reference only and do not constitute part of this Agreement and shall not be referred to for the purpose of defining, interpreting, construing or enforcing any of the provisions of this Agreement. 16. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. One or more counterparts of this Agreement may be delivered by facsimile, with the intention that they shall have the same effect as an original counterpart hereof. -32- If the foregoing is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicates hereof, whereupon it will become a binding agreement among the Company, the Selling Shareholders and the several Underwriters in accordance with its terms. Very truly yours, AMERILINK CORPORATION By: (SEAL) ------------------------ Larry R. Linhart President SELLING SHAREHOLDERS E. LEN GIBSON ROBERT L. POWELSON LARRY R. LINHART By: ------------------------ Attorney-in-Fact for each of the Selling Shareholders The foregoing Underwriting Agreement is hereby confirmed and accepted as of the date first above written. LEGG MASON WOOD WALKER, INCORPORATED J.C. BRADFORD & CO. As Representatives of the Several Underwriters Listed in Schedule I Hereto By: LEGG MASON WOOD WALKER, INCORPORATED By: (SEAL) ------------------------- Authorized Officer By: J.C. BRADFORD & CO. By: (SEAL) ------------------------ Authorized Officer -33- SCHEDULE I Underwriters Number of Firm Shares Underwriter to be Purchased ----------- --------------- Legg Mason Wood Walker, Incorporated J.C. Bradford & Co. Total SCHEDULE II Selling Shareholders E. Len Gibson 160,000 shares Robert L. Powelson 160,000 shares Larry R. Linhart 80,000 shares SCHEDULE III Subsidiaries
Name Class of Capital Stock Shares Authorized Shares Outstanding ---- ---------------------- ----------------- ------------------ AmeriLink Corp. Common Shares, 200 shares 200 shares without par value
SCHEDULE IV Directors and Certain Officers of the Company and Owners of Two Percent of Common Shares Larry R. Linhart E. Len Gibson Robert L. Powelson William H. Largent George R. Manser Joseph L. Govern James W. Brittan Richard W. Rubenstein EX-5.1 3 OPINION EXHIBIT 5.1 [Squire, Sanders & Dempsey Letterhead] September 29, 1997 AmeriLink Corporation 1900 East Dublin-Granville Road Columbus, Ohio 43229 Re: Common Shares, Without Par Value Gentlemen: We have acted as counsel to AmeriLink Corporation (the "Company") in connection with the Registration Statement on Form S-2 to be filed by the Company with the Securities and Exchange Commission ("SEC") on September 29, 1997 (the "Registration Statement"). The Registration Statement relates to the public offering of not more than 1,150,000 Common Shares, without par value, of Company (the "Shares") which are being offered by the Company and certain selling shareholders. The Shares will be sold to the underwriters to be identified in the final prospectus filed with the SEC pursuant to Rule 430A and Rule 424(b) under the Securities Act of 1933. In connection with the transactions described herein, we have examined such corporate records and other documents and certificates of public officials as we have deemed necessary in order for us to render the opinion set forth below. Based upon the foregoing, it is our opinion that the Shares, when delivered to the underwriters against payment therefor pursuant to the underwriting agreement described in the Registration Statement, will be validly issued, fully paid and non-assessable. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement. Very truly yours, Squire, Sanders & Dempsey L.L.P. -----END PRIVACY-ENHANCED MESSAGE-----