ADVANCED COMMUNICATIONS GROUP INC/DE/
424B3, 1998-02-13
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)
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<PAGE>
                                               Filed Pursuant to Rule 424(b)(3)
                                               Registration File No.: 333-37671


                                8,000,000 SHARES

                  [ADVANCED COMMUNICATIONS GROUP, INC. LOGO]

                                 COMMON STOCK 

                                --------------

       All of the shares of Common Stock offered hereby are being sold by 
Advanced Communications Group, Inc. ("ACG" or the "Company"). 

       Prior to this offering (the "Offering"), there has been no public 
market for the Common Stock. See "Underwriting" for a discussion of the 
factors considered in determining the initial public offering price. The 
Common Stock has been approved for listing on the New York Stock Exchange 
under the symbol "ADG." 

   SEE "RISK FACTORS" BEGINNING ON PAGE 11 OF THIS PROSPECTUS FOR A 
DISCUSSION OF CERTAIN RISK FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE 
INVESTORS. 

                                --------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND 
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES 
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE 
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY 
                            IS A CRIMINAL OFFENSE. 
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------- 
                                                 UNDERWRITING 
                                   PRICE TO      DISCOUNTS AND    PROCEEDS TO 
                                    PUBLIC      COMMISSIONS (1)   COMPANY (2) 
- ----------------------------------------------------------------------------- 
<S>                              <C>              <C>            <C>
Per Share......................  $      14.00     $     0.98     $      13.02 
- ----------------------------------------------------------------------------- 
Total..........................  $112,000,000     $7,840,000     $104,160,000 
- ----------------------------------------------------------------------------- 
Total Assuming Full Exercise 
 of Over-Allotment Option (3)..  $128,800,000     $9,016,000     $119,784,000 
- ----------------------------------------------------------------------------- 
</TABLE>

(1)     See "Underwriting." 
(2)     Before deducting expenses estimated at $4,075,000, which are payable 
        by the Company. 
(3)     Assuming exercise in full of the 30-day option granted by the Company 
        to the Underwriters to purchase up to 1,200,000 additional shares, on 
        the same terms, solely to cover over-allotments. See "Underwriting." 

                                --------------

       The shares of Common Stock are offered by the Underwriters, subject to 
prior sale, when, as and if delivered to and accepted by the Underwriters, 
and subject to their right to reject orders in whole or in part. It is 
expected that delivery of the Common Stock will be made in New York City on 
or about February 18, 1998. 

                                --------------

PAINEWEBBER INCORPORATED                                      CIBC OPPENHEIMER 

                                --------------

              THE DATE OF THIS PROSPECTUS IS FEBRUARY 12, 1998. 
<PAGE>

INSIDE COVER GATEFOLD GRAPHIC: 

[Map of United States delineating ACG's current and planned service area 
along with corporate headquarters, operating companies' headquarters, home 
sales offices, telecom sales offices and switch locations. Further blowout of 
map details KINNET's fiber optic network (existing and future fiber routes 
owned and the location of Tandem switches).] 

<PAGE>










                  [ADVANCED COMMUNICATIONS GROUP, INC. LOGO]










   CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS 
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, 
INCLUDING OVERALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE 
COVERING TRANSACTIONS, AND IMPOSING PENALTY BIDS. FOR DESCRIPTION OF THESE 
ACTIVITIES, SEE "UNDERWRITING." 

                                       2
<PAGE>


                  [ADVANCED COMMUNICATIONS GROUP, INC. LOGO]



[THE NARRATIVE AND/OR TABULAR INFORMATION BELOW IS A FAIR AND ACCURATE
DESCRIPTION OF GRAPHIC OR IMAGE MATERIAL OMITTED FOR THE PURPOSE OF EDGAR
FILING.]



                              AREA OF OPERATIONS


           A map of the United States showing the Area of Operations

<PAGE>

                              PROSPECTUS SUMMARY 

   Concurrently with the closing of the Offering made hereby (the 
"Offering"), ACG plans to acquire, in related transactions, six 
telecommunications service providers, one yellow page publisher, two 
telephone equipment sales and maintenance companies, a predecessor organized 
in 1996 under the same name, and a 49% interest in a company owning a fiber 
optic network (collectively, the "Acquisitions"). See "The Company." Unless 
otherwise indicated by the context, references herein to (i) "ACG" refer 
collectively to Advanced Communications Group, Inc. and its predecessor, and 
(ii) the "Company" refer collectively to the entities acquired in the 
Acquisitions other than the interest in the fiber optic network company 
(collectively, the "Acquired Companies"), ACG and its predecessor company. 

   The following summary is qualified in its entirety by the more detailed 
information and financial statements, including the notes thereto, which 
appear elsewhere in this Prospectus. Prospective investors should carefully 
consider the factors set forth herein under the caption "Risk Factors" and 
are urged to read this Prospectus in its entirety. This Prospectus contains 
certain forward-looking statements with respect to the Company's expectations 
regarding its business after it has consummated the Acquisitions. These 
forward-looking statements are subject to certain risks and uncertainties 
which may cause actual results to differ significantly from such 
forward-looking statements. See "Risk Factors." Unless otherwise indicated, 
the information and share and per share data in this Prospectus (i) give 
effect to the Acquisitions, (ii) assume the Underwriters' over-allotment 
option is not exercised and (iii) give effect to a reverse stock split of 
approximately one-for-2.645 of the outstanding capital stock of ACG's 
predecessor prior to the closing of the Offering. 

                                 THE COMPANY 

   The Company was founded to create a regional competitive local exchange 
carrier ("CLEC") that provides an integrated portfolio of telecommunications 
services principally to business customers in selected service areas of 
Southwestern Bell Telephone Company and U S WEST Communications, Inc. (the 
"Region"). The Company offers long distance, local, Internet access and 
cellular service primarily in Kansas, Minnesota, Nebraska, North Dakota, 
Oklahoma, South Dakota and Texas and publishes yellow page directories 
covering certain markets in Oklahoma and Texas. The Company seeks to offer a 
bundle of "one stop" integrated telecommunications services tailored to its 
customers' specific requirements and billed on a single monthly invoice. As 
of November 30, 1997, the Company provided telecommunications services to 
almost 35,000 business customers and over 10,000 residential customers in 
small to mid-sized markets. The Company has recently experienced substantial 
growth in its base of local customers. The Company's local customer access 
lines in service grew from approximately 1,000 at June 30, 1997 to 
approximately 11,000 at September 30, 1997, and approximately 17,500 at 
November 30, 1997. In the fiscal year ended December 31, 1996, the Company 
had pro forma combined revenues of $85.4 million and EBITDA of $11.5 million. 
For the nine months ended September 30, 1997, the Company had pro forma 
combined revenues of $69.1 million and EBITDA of $8.5 million. 

   The Company owns and operates six digital tandem switches in Kansas, 
Oklahoma, South Dakota and Texas. It also owns a 49% interest in KIN Network 
Inc. ("KINNET"), the owner or operator of an approximately 880-route mile 
fiber optic network and a Northern Telecom DMS 500 switch in Kansas. KINNET 
currently has one of the largest fiber optic networks in the state of Kansas. 
As part of the KINNET transaction, the Company made a $10.0 million direct 
cash investment in KINNET, $5.0 million of which KINNET has agreed to apply 
to the buildout in 1998 and 1999 of a 537-mile, $21.5 million network 
extension from Wichita, Kansas to the greater Kansas City metropolitan area, 
with a leg to Tulsa, Oklahoma, that will provide self-healing redundancy to 
its fiber optic network. KINNET has advised the Company that it expects to 
finance the balance of the expansion with loan proceeds from the Rural 
Telephone Finance Cooperative. 

   The Company is also an independent publisher of yellow page directories, 
and in the twelve months ended November 30, 1997 published approximately 3.1 
million copies of its yellow page directories covering 20 markets in Oklahoma 
and Texas. These directories contained advertisements for approximately 
46,000 business customers. The Company anticipates expanding its yellow page 
operations into additional markets in the Region. The Company believes that 
the advertisers in its yellow page directories provide a significant 
opportunity to cross-sell its bundle of telecommunications services through 
the Company's direct sales force of approximately 255 persons, including 
approximately 40 telemarketers, as 

                                3           
<PAGE>
of November 30, 1997. Through a strategic relationship with Feist 
Publications, Inc., an affiliate of one of the Acquired Companies, the 
Company also has the opportunity to cross-sell its telecommunications 
services to an additional 29,000 yellow page advertising customers. 

   ACG is pursuing a growth strategy that it believes will enable it to 
minimize its initial capital expenditures relative to many other CLECs that 
constructed facilities-based networks at a very early stage in their 
development. The Company currently utilizes its own network facilities 
combined with the leased network facilities of several long distance 
providers and incumbent local exchange carriers ("ILECs") within the Region, 
including Southwestern Bell Telephone Company ("Southwestern Bell") and U S 
WEST Communications, Inc. ("U S WEST"). By reselling the local service of 
Southwestern Bell and U S WEST, the Company has achieved a rapid penetration 
of the local telephone markets in Wichita, Kansas and Sioux Falls, South 
Dakota, although the Company's local service revenues to date have not been 
material. Ultimately, the Company will only construct significant local 
network infrastructure in those markets where a critical mass of customers 
makes it economically justifiable to do so. 

   The Company has executed comprehensive local exchange resale agreements 
with Southwestern Bell, U S WEST and affiliates of Sprint Corporation 
("Sprint") and GTE Corporation ("GTE") covering eight states within the 
Region. Additionally, the Company has entered into agreements with several 
interexchange carriers to provide "off-net" switching and network 
transmission services for its long distance traffic. The Company has also 
entered into agreements to resell cellular service in selected areas in the 
Region. These agreements allow the Company initially to offer a bundle of 
telecommunications services without the necessity of substantial expenditures 
for the construction of network facilities. 

   The Telecommunications Act of 1996 has created significant opportunities 
for telecommunications service providers, particularly regional CLECs. 
According to publicly available estimates, in 1996 total revenues from local 
and long distance telecommunications services in the United States were 
approximately $192.0 billion, of which approximately $107.0 billion were 
derived from local exchange services and approximately $85.0 billion from 
long distance services. In recent years, these telecommunications service 
revenues have grown approximately 6% per year. Although the U.S. long 
distance and local exchange industries are dominated by a few companies, 
including AT&T Corp. ("AT&T"), MCI Communications Corporation ("MCI") (which 
has entered into a merger agreement to be acquired by WorldCom, Inc.), 
Sprint, WorldCom, Inc. ("WorldCom") and the Regional Bell Operating Companies 
("RBOCs"), there are over 5,000 additional providers of long distance, local 
and other telecommunications-related services. In many of the small to 
mid-sized cities that are the Company's primary target markets, there are 
independent telecommunications companies which have significant market 
penetration, many of which the Company believes represent attractive 
acquisition candidates. 

   The Company believes that it has significant opportunities to increase its 
revenues and reduce elements of its cost structure that were not available to 
the Acquired Companies prior to the Acquisitions and the Offering. The 
Company's new senior management team brings extensive prior CLEC, ILEC and 
public company experience, and its members have held senior operational, 
strategic planning, financial and sales positions with their prior employers. 
The Company intends to leverage this extensive management experience in the 
centralizing of selected areas of operations where it can benefit from its 
larger size such as the purchasing of minutes over its leased network and 
consolidating its management information, selling and other administrative 
functions. The Company also intends to permit the strong management teams of 
the Acquired Companies to conduct the customer sensitive aspects of their 
operations on a decentralized basis. In order to increase the revenues 
provided by its existing customer base, the Company plans to train its sales 
force to cross-sell all of the Company's services, with an increased emphasis 
on selling local services. The Company believes that a personalized approach 
to sales and customer service will enhance its ability to attract and retain 
customers who desire the convenience of a fully integrated product offering. 
To further enhance its marketing efforts, the Company intends to establish 
the "ACG" brand name through co-branding with the established names of the 
Acquired Companies. 

                                4           
<PAGE>
                              BUSINESS STRATEGY 

   The Company's objective is to become a leading provider of integrated 
telecommunications services primarily to businesses in Kansas, Minnesota, 
Nebraska, North Dakota, Oklahoma, South Dakota and Texas and a significant 
provider of such services in Arkansas, Colorado and Montana. The Company 
believes that it can achieve its goal of becoming a leading 
telecommunications service provider in its target markets by adhering to the 
following five-fold strategy: 

o  Plan Smart -- Focus on small and medium-sized businesses and residential 
   customers and select vertical market segments in small to mid-sized cities 
   in the Region. The Company believes that competition from other CLECs and 
   ILECs is less intense in these areas because, in many cases, the ILECs 
   have reduced their efforts to serve and defend these territories in 
   response to the competitive threat in their major market cities. In 
   addition, by focusing its sales efforts in territories served by ILEC 
   central offices where collocation is a viable economic alternative, the 
   Company can build a loyal customer base through the resale of local 
   services prior to committing to build the infrastructure necessary to 
   support facilities-based local service. 

o  Sell Smart -- 

   - Sell into established customer relationships by marketing local 
     telephone services to the Company's existing yellow page and long 
     distance customers. Because the Company only recently began to offer 
     additional telecommunications services to its long distance customers, 
     only a small portion of these customers has been targeted to subscribe 
     to the Company's local, Internet access or cellular services. In 
     addition, the Company has not yet offered its bundle of 
     telecommunications services to the approximately 75,000 yellow page 
     customers to which it has access. The Company therefore believes that it 
     has a substantial reservoir of prospective business customers that is 
     already familiar with some aspects of the Company's services. 

   - Bundle services to bring value to the Company's customers, increase 
     total revenue per customer, reduce selling costs and minimize customer 
     churn. The Company currently bundles and bills local, long distance, and 
     cellular services and believes it can enhance its overall margins by 
     combining its yellow page and Internet services with these traditional 
     telecommunications services. 

   - Offer enhanced services that have less competition and higher margin 
     potential, such as high speed data transport, Internet access, Web Page 
     design and support, and integrated voice, data and video communications 
     services. 

o  Build Smart -- Predicate growth strategies on the recognition that network 
   capacity is increasingly becoming a commodity. By first focusing on 
   acquiring customers through resale of local, long distance, cellular and 
   Internet services, the Company believes that it can secure customer 
   relationships, produce a consistent revenue stream, and evolve an economic 
   strategy for serving customers. The Company's serving strategy includes 
   not only developing network facilities to directly serve customers, but 
   also enhancing its operational support system ("OSS") to provide network 
   monitoring and control, flow through provisioning, customer care, and 
   enhanced billing functionality. During 1998, the Company will resell the 
   network facilities of ILECs to provide local service to its customers. 
   During 1999 and thereafter, the Company will continue to focus on 
   reselling local service, while at the same time implementing a substantial 
   effort to acquire unbundled loops and local fiber. By interconnecting with 
   the ILEC in the central office and acquiring unbundled loops, the Company 
   should be able to reduce its cost of providing service and capture the 
   additional revenue paid by interexchange carriers ("IXCs") for local 
   access. The Company should also be able to further reduce its local and 
   long distance costs by acquiring rights to local and intercity fiber and 
   other high bandwidth capacity within the Region. By adding its own circuit 
   and packet switches to this bandwidth, the Company can add value, offer 
   new products, and better control the quality of service. Finally, where 
   economically advantageous, the Company intends to construct fiber and 
   other network facilities. 

o  Grow Smart -- 

   - Increase the Company's sales force to rapidly market the Company's 
     services in all targeted service areas and thereafter to expand into 
     other areas within the Region. The Company recognizes it has an 
     opportunity to expand its yellow page base into other market areas as 
     well as to expand its 

                                5           
<PAGE>
     service offering with World Pages, a specialized Web site development 
     and hosting service to which ACG has the exclusive marketing rights in 
     its service area. 

   - Evaluate attractive acquisition candidates in the Region. The Company 
     initially intends to target leading local companies whose customers can 
     be added to the Company's existing network without significant 
     expenditures for infrastructure additions. By aggregating the traffic of 
     several companies onto its existing network, the Company expects to 
     increase the utilization of equipment, consolidate its buying power and 
     increase its ability to negotiate more attractive contracts with 
     third-party suppliers of network services. 

   - Pursue the formation of additional strategic alliances with other yellow 
     page publishers, utility companies, cooperatives and others in order to 
     create marketing alliances that give the Company access to large, stable 
     customer bases in its market areas to which it can sell its bundle of 
     telecommunications services. The Company currently has a five-year 
     strategic relationship with Feist Publications, Inc. ("FPI"), a 20-year 
     publisher of yellow page directories in 15 markets in the Region. The 
     Company's telecommunications sales force will have access to FPI's 
     29,000 yellow page advertisers in the Region. Through one of the 
     Acquired Companies' purchase of PAM COMM, a division of PAM Oil, Inc., 
     the Company has another strategic relationship that will allow it to 
     solicit PAM Oil, Inc.'s approximately 15,000 business customers 
     primarily in Idaho, Minnesota, Montana, North Dakota and South Dakota. 
     Finally, the Company and Northwestern Public Service Company 
     ("Northwestern") have entered into an agreement regarding the possible 
     creation of a strategic alliance that would permit ACG to market its 
     telecommunications services to that utility's approximately 100,000 
     electric and natural gas business and residential customers in South 
     Dakota and Nebraska. Under the terms of this agreement, which will be 
     consummated contemporaneously with the closing of the Offering, ACG will 
     issue 142,857 shares of its Series A Redeemable Convertible Preferred 
     Stock with an aggregate liquidation preference of $2 million to a 
     subsidiary of Northwestern in exchange for, among other things, 
     Northwestern's commitment to negotiate in good faith a strategic 
     alliance upon commercially reasonable terms. See "The Company -- 
     Strategic Relationships" and "Description of Capital Stock." 

o  Serve Smart -- Provide not only the highest quality customer service but 
   also become an industry leader in the deployment of innovative technology 
   and services. The Company believes that by prudently using new technology 
   and by offering new services, especially enhanced data applications, it 
   can become a low cost provider, maintain high value for its customers and 
   differentiate itself from other commodity providers. These services will 
   include data transport services such as frame relay, transparent LAN, 
   Internet content, and other packet-based integrated multimedia services. 
   Certain members of the Company's senior management team have considerable 
   experience in developing and deploying these services. 

   See the "Glossary" elsewhere in this Prospectus for the definition of 
certain technical and other terms generally associated with the 
telecommunications industry or the Offering. 

                                6           
<PAGE>
                                 THE OFFERING 

Common Stock Offered by the 
 Company ......................  8,000,000 

Common Stock to be Outstanding 
 after the Offering(1) ........  19,624,920 

Use of Proceeds ...............  To pay the cash portion of the purchase 
                                 price for the Acquired Companies ($73.3 
                                 million), to make a direct cash investment 
                                 in KINNET, a fiber optic network company 
                                 ($10.0 million), to repay indebtedness of 
                                 ACG and the Acquired Companies ($5.5 
                                 million), to make a one-time payment to the 
                                 founder of ACG for entering into a five-year 
                                 non-competition agreement ($1.75 million), 
                                 and for general corporate purposes, 
                                 including capital expenditures, 
                                 infrastructure buildout and acquisitions. 
                                 Shareholders of the Acquired Companies who 
                                 will become executive officers or directors 
                                 of the Company upon consummation of the 
                                 Acquisitions will receive approximately 
                                 $35.6 million of the cash purchase price 
                                 paid in the Acquisitions. See "Use of 
                                 Proceeds." 

New York Stock Exchange 
 Symbol .......................  ADG 

- ------------ 
(1) The number of shares to be outstanding on completion of the Offering 
    consists of (i) 8,232,276 shares issued to the founders and consultants 
    of the Company, (ii) 3,392,644 shares to be issued in the Acquisitions 
    and (iii) the 8,000,000 shares being offered hereby. Such share number 
    does not include an aggregate of 4,185,775 shares subject to warrants or 
    options having exercise prices ranging from $2.50 to the initial public 
    offering price granted or to be granted under the Company's 1997 Stock 
    Awards Plan ("Plan"), the Company's 1997 Nonqualified Stock Option Plan 
    for Non-Employee Directors (the "Directors' Plan") or otherwise issued 
    prior to or contemporaneously with the consummation of the Offering and 
    the Acquisitions or issuable upon the conversion of convertible notes and 
    preferred stock. See "Certain Transactions -- Organization of the 
    Company" and "--The Acquisitions" and "Management -- Option Grants." 

                                 RISK FACTORS 

   An investment in the Common Stock offered hereby involves a high degree of 
risk. See "Risk Factors" beginning immediately after this Prospectus Summary 
for information that should be considered by prospective investors. Such risk 
factors include an absence of combined operating history of ACG and the 
Acquired Companies; risks of integrating numerous separate companies; ability 
to manage growth; capital requirements; recent results and anticipated future 
quarterly losses; dependence on successful cross-selling of existing and new 
customer bases; risks related to local service strategy; dependence on 
development of billing, customer service and management information systems; 
technology risks; limited technical staff; competition; implications of the 
Telecommunications Act and other regulation; recently initiated litigation 
against an Acquired Company; dependence on third-party long distance 
carriers; dependence on incumbent local exchange carriers; dependence on key 
personnel; new management team; control by existing management and 
stockholders; terms of the Acquisitions; certain interests of management in 
the Acquisitions and other transactions; risks of expansion into additional 
yellow page markets; risks related to acquisitions; potential effect of 
shares eligible for future sale on price of Common Stock; no prior market and 
possible volatility of stock price; immediate and substantial dilution; 
anti-takeover effects of certain charter provisions, Delaware law and a 
standstill agreement; and no dividends. 

                                7           
<PAGE>
                       SUMMARY PRO FORMA FINANCIAL DATA 
                   (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 

   ACG will acquire the Acquired Companies, its predecessor and its interest 
in KINNET, a fiber optic network company, concurrently with and as a 
condition to the consummation of the Offering. The following summary of 
unaudited pro forma combined financial data presents certain data for the 
Company, which gives effect to the Acquisitions on an historical basis and 
certain pro forma adjustments to the historical financial statements, as 
adjusted to give effect to the Offering and the application of the proceeds 
therefrom. See "Selected Financial Data" and the Unaudited Pro Forma Combined 
Financial Statements and the notes thereto included elsewhere in this 
Prospectus. 

<TABLE>
<CAPTION>
                                                           PRO FORMA COMBINED(1) 
                                                   ------------------------------------- 
                                                       YEAR ENDED     NINE MONTHS ENDED 
                                                   DECEMBER 31, 1996  SEPTEMBER 30, 1997 
                                                   ----------------- ------------------ 
STATEMENT OF OPERATIONS DATA: 
<S>                                                <C>               <C>
    Revenues 
     Telecommunications services..................    $    41,090        $    33,455 
     Yellow page publishing.......................         44,324             35,624 
                                                   ----------------- ------------------ 
       Total revenues.............................         85,414             69,079 
    Gross profit..................................         32,216             27,103 
    Operating income..............................          5,250              3,931 
    Other income and expense, net(2)..............          4,605               (985) 
    Net income(3).................................          3,703                168 
    Accretion of preferred stock(4)...............            112                 16 
                                                   ----------------- ------------------ 
    Net income available to common stockholders...    $     3,591        $       152 
                                                   ================= ================== 
    Net income per share available to common 
     stockholders.................................    $      0.18        $      0.01 
                                                   ================= ================== 
    Shares used in computing pro forma net income 
     per share(5).................................     20,190,864         20,190,864 
                                                   ================= ================== 
OTHER DATA: 
    Cash provided by operating activities ........    $     9,037        $     5,893 
    Cash used in investing activities ............           (711)              (579) 
    Cash used in financing activities ............         (7,482)            (4,470) 
    EBITDA(6).....................................    $    11,527        $     8,523 

                                                         AS OF SEPTEMBER 30, 1997 
                                                   ------------------------------------- 
                                                          PRO 
                                                         FORMA 
                                                      COMBINED(1)       AS ADJUSTED(7) 
                                                   ----------------- ------------------ 
BALANCE SHEET DATA: 
    Cash and cash equivalents.....................    $       554        $    11,862 
    Working capital (deficit) ....................        (73,532)            25,275 
    Total assets..................................        153,393            166,954 
    Total debt, including current portion.........         21,507             17,350 
    Stockholders' equity..........................    $    36,535        $   138,911 

                                                                            AS OF 
                                                                        SEPTEMBER 30, 
                                                                            1997 
                                                                     ------------------ 
OPERATING DATA: 
  Telecommunications services 
   Number of customers ..............................................       40,749 
   Markets  .........................................................           54 
   Local access lines ...............................................       11,248 
   Route miles (of fiber)(8) ........................................          880 
   Direct sales force, including 23 telemarketers ...................           76 
   Total employees  .................................................          250 
  Yellow page publishing 
   Number of advertising customers(9) ...............................       50,000 
   Markets(9) .......................................................           23 
   Direct sales force, including 19 telemarketers ...................          169 
   Total employees  .................................................          311 
</TABLE>

                                                 (Footnotes on following page) 

                                8           
<PAGE>
- ------------ 
(1)    The pro forma statements of operations data and the pro forma balance 
       sheet data assume that the Acquisitions were closed on January 1, 1996 
       and September 30, 1997, respectively, and are not necessarily 
       indicative of the results the Company would have achieved had these 
       events actually then occurred or of the Company's future results. The 
       pro forma combined financial information (i) is based on preliminary 
       estimates, available information and certain assumptions that 
       management deems appropriate and (ii) should be read in conjunction 
       with the other financial statements and notes thereto included 
       elsewhere in this Prospectus. The pro forma combined revenues are all 
       attributable to the Acquired Companies. 
(2)    Other income for the year ended December 31, 1996, includes a $6.3 
       million litigation settlement received by Great Western Directories, 
       Inc. 
(3)    Assumes that all income is subject to a corporate tax rate of 40% and 
       that all goodwill amortization is non-deductible for income tax 
       purposes. 
(4)    Represents accretion of the excess of the liquidation preference over 
       the carrying value of the Preferred Stock. See Note 3 of Notes to Pro 
       Forma Combined Financial Statements. 
(5)    Includes (i) the 8,232,276 shares outstanding immediately prior to the 
       Offering, (ii) 3,392,644 shares issued in the Acquisitions, (iii) 
       7,230,601 shares sold in the Offering necessary to generate all net 
       proceeds other than those that are unallocated and available for 
       general corporate purposes (see "Use of Proceeds") and (iv) 1,335,343 
       shares representing the incremental effect of options and warrants on 
       shares outstanding. 
(6)    EBITDA as used in this Prospectus consists of earnings (loss) before 
       interest, income taxes, depreciation and amortization and less equity 
       in earnings (loss) of a minority owned affiliate and less the portion 
       of other income and expense (net) attributable to the $6.3 million 
       litigation settlement received by Great Western Directories, Inc. in 
       1996. The Company has included EBITDA data because it is a measure 
       commonly used in the telecommunications industry. EBITDA is not a 
       measure of financial performance determined under generally accepted 
       accounting principles, should not be considered as an alternative to 
       net income as a measure of performance or to cash flows as a measure of 
       liquidity, and is not necessarily comparable to similarly titled 
       measures of other companies. 
(7)    As adjusted to reflect the closing of the Offering and the application 
       of the proceeds of the Offering to pay the consideration for the 
       Acquisitions and to retire $4.2 million of indebtedness. The balance of 
       the net proceeds of the Offering have been recorded as cash. 
(8)    Owned or operated by KINNET, of which the Company owns 49%. 
(9)    For the 12 months ended September 30, 1997, including approximately 
       4,000 customers in three markets in California. 

                                9           
<PAGE>
                  SUMMARY INDIVIDUAL COMPANY FINANCIAL DATA 

   The following table presents historical summary income statement data and 
EBITDA (as previously defined) for the Acquired Companies and KINNET (see 
"The Company") for the three most recent fiscal years as well as the most 
recent interim period and comparative period of the prior year, as 
applicable. See "Management's Discussion and Analysis of Financial Condition 
and Results of Operations of Certain Acquired Companies." 

<TABLE>
<CAPTION>
                                                      FISCAL YEAR ENDED,(1) 
                                                  ----------------------------- 
                                                     1994      1995      1996  
                                                  ---------  --------  --------
                                                    (IN THOUSANDS OF DOLLARS)        
<S>                                               <C>        <C>       <C>       
Great Western Directories, Inc.                                                  
    Revenues.....................................  $29,407    $36,469   $44,324  
    Gross profit.................................   11,402     16,673    22,707  
    EBITDA.......................................      969      4,308     8,037  
Valu-Line of Longview, Inc. and Related                                          
 Companies                                                                        
    Revenues.....................................   13,417     13,330    11,181  
    Gross profit.................................    6,243      5,121     4,326  
    EBITDA.......................................    2,947      2,034     1,646  
FirsTel, Inc.                                                                    
    Revenues.....................................    4,079      7,838    10,355  
    Gross profit.................................      914      2,298     3,041  
    EBITDA.......................................      (81)       820     1,177  
Feist Long Distance Service, Inc.                                                
    Revenues.....................................    5,712      7,923    10,028  
    Gross profit.................................    1,834      2,176     2,937  
    EBITDA.......................................      162        174       702  
Other Acquired Companies(2)                                                      
    Revenues.....................................    3,940      6,997     7,798  
    Gross profit.................................    1,395      2,798     3,021  
    EBITDA.......................................      350        648       591  
KIN Network, Inc.(3)                                                             
    Revenues.....................................    3,550      6,497     8,553  
    Gross profit(4)..............................     (600)     1,578     3,783  
    EBITDA.......................................   (1,407)       514     2,353  
    Net loss.....................................   (2,883)    (2,055)     (792)
</TABLE>                                                               

                    (RESTUBBED TABLE CONTINUED FROM ABOVE) 

<TABLE>
<CAPTION>
                                                   NINE MONTHS ENDED 
                                                    SEPTEMBER 30,(1) 
                                                  -------------------- 
                                                     1996       1997 
                                                  ---------  --------- 

<S>                                                <C>       <C>
Great Western Directories, Inc. 
    Revenues.....................................   $33,463   $35,624 
    Gross profit.................................    18,181    18,766 
    EBITDA.......................................     6,814     6,345 
Valu-Line of Longview, Inc. and Related 
 Companies 
    Revenues.....................................     8,623     9,058 
    Gross profit.................................     3,414     3,589 
    EBITDA.......................................     1,431     1,177 
FirsTel, Inc. 
    Revenues.....................................     7,659     9,488 
    Gross profit.................................     2,308     2,422 
    EBITDA.......................................       960       690 
Feist Long Distance Service, Inc. 
    Revenues.....................................     7,416     8,965 
    Gross profit.................................     2,189     2,779 
    EBITDA.......................................       654       518 
Other Acquired Companies(2) 
    Revenues.....................................     5,950     5,944 
    Gross profit.................................     2,548     2,891 
    EBITDA.......................................       733     1,255 
KIN Network, Inc.(3) 
    Revenues.....................................     6,031     8,796 
    Gross profit(4)..............................     2,655     4,203 
    EBITDA.......................................     1,566     2,408 
    Net loss.....................................      (712)     (297) 
</TABLE>

<PAGE>
- ------------ 
(1)    The historical summary income statement data for (i) all fiscal years 
       for Great Western Directories, Inc., Valu-Line of Longview, Inc., and 
       KIN Network, Inc., (ii) for fiscal years 1995 and 1996 for FirsTel, 
       Inc., and (iii) for fiscal year 1996 for Feist Long Distance, Inc., are 
       derived from the audited financial statements of such companies 
       included elsewhere herein. The historical summary income statement data 
       for the other fiscal years and nine month periods for such Acquired 
       Companies, all information regarding EBITDA and all information for the 
       Other Acquired Companies, is unaudited. The fiscal years of Long 
       Distance Management II, Inc. ended on June 30, 1995, 1996 and 1997, and 
       the fiscal years of Long Distance Management of Kansas, Inc. ended on 
       March 31, 1995, 1996 and 1997. Rather than information for their fiscal 
       years, financial information for these two Other Acquired Companies is 
       included for the twelve months ended December 31, 1994, 1995 and 1996 
       and the nine months ended September 30, 1996 and 1997. The fiscal years 
       of Great Western Directories, Inc. ended on January 31, 1995 and 1996 
       and December 31, 1996. Consequently the data for Great Western for the 
       fiscal years ended January 31, 1996 and December 31, 1996 both include 
       the month of January 1996. Except for those three Acquired Companies, 
       all of the Acquired Companies, KINNET and ACG have fiscal years ending 
       on December 31. 
(2)    Includes Long Distance Management II, Inc., Long Distance Management of 
       Kansas, Inc., The Switchboard of Oklahoma City, Inc., Tele-Systems, 
       Inc. and National Telecom, a proprietorship. 
(3)    The Company will own 49% of the outstanding voting stock of KINNET, and 
       hence KINNET's net income or loss will be included in the Company's 
       financial statements using the equity method of accounting. Such 
       amounts included in the Company's pro forma combined financial 
       statements for the fiscal year ended December 31, 1996 and the nine 
       months ended September 30, 1996 and 1997 were $(388,000), $(349,000) 
       and $(146,000), respectively. 
(4)    KIN Network, Inc. has historically included depreciation and 
       amortization not in gross profit, but as a separate item in the 
       calculation of income (loss) from operations. The Acquired Companies 
       have presented depreciation and amortization expenses as an element of 
       gross profit, and for consistency of presentation, in the text of this 
       Prospectus and the pro forma financial statements, KINNET's 
       depreciation and amortization expense is included in the calculation of 
       gross profit. As presented in its historical financial statements 
       included herein, the gross profit of KINNET for fiscal 1994, 1995 and 
       1996, and for the nine months ended September 30, 1996 and 1997, was 
       (in thousands) $1,100, $3,402, $5,689, $3,976, and $5,800, 
       respectively. 

                               10           
<PAGE>
                                 RISK FACTORS 

   Prospective investors should carefully consider the factors set forth 
herein and are urged to read this Prospectus in its entirety. This Prospectus 
contains certain forward-looking statements with respect to the Company's 
expectations regarding its business after it has consummated the 
Acquisitions. These forward-looking statements are subject to certain risks 
and uncertainties which may cause actual results to differ significantly from 
such forward-looking statements. 

ABSENCE OF COMBINED OPERATING HISTORY OF ACG AND THE ACQUIRED COMPANIES; 
  RISKS OF INTEGRATING NUMEROUS SEPARATE COMPANIES 

   ACG was incorporated in Delaware in September 1997 as a subsidiary of its 
predecessor, which had been incorporated in June 1996. ACG has conducted no 
operations other than in connection with the Offering and the Acquisitions. 
See "The Company." The Acquired Companies have continued to operate 
subsequent to September 30, 1997, and prior to the consummation of the 
Offering as separate, independent businesses. Consequently, the combined and 
pro forma combined financial information herein may not be indicative of what 
the Company's operating results and financial condition would have been for 
the periods presented had the Acquisitions taken place on the dates 
indicated. Until the Company establishes centralized accounting, management 
information and other administrative systems, it will rely on the separate 
systems of the Acquired Companies. The success of the Company will depend, in 
part, on the extent to which it is able to centralize these functions, 
eliminate the unnecessary duplication of other functions and otherwise 
integrate the Acquired Companies and any additional businesses the Company 
may acquire into a cohesive, efficient enterprise. Some or all of the 
Acquired Companies' systems, hardware and software may be incompatible with 
those of other Acquired Companies. The Company's senior management has been 
assembled only recently, and there can be no assurance that it will be able 
to manage successfully the combined entity or implement effectively the 
Company's operating, internal growth or acquisition strategies (including 
acquisitions that may occur after the Offering). In addition, the yellow 
pages business is different from the Company's telecommunication businesses, 
and the Company is not aware of any significant telecommunications company, 
other than the RBOCs and other local exchange carriers and competitive local 
exchange carriers, that has integrated a yellow pages business with a 
telecommunications business. Furthermore, telecommunications providers 
generally experience higher customer and employee turnover during and after 
an acquisition. The integration of the systems of the Acquired Companies will 
entail significant costs and delays can be expected. The failure of the 
Company to integrate the Acquired Companies successfully would have a 
material adverse effect on the Company's business, financial condition, 
results of operations and cash flows and the value of the Common Stock. 

ABILITY TO MANAGE GROWTH 

   The Company's strategy is to expand primarily by internal growth as well 
as by acquisition. Therefore the expansion and development of the Company's 
business will depend not only on the Company's ability to, among other 
things, successfully implement its sales and marketing strategy, evaluate 
markets, install facilities, obtain any required government authorizations, 
initially negotiate arrangements for the resale of local services with 
incumbent local exchange carriers, implement interconnection to, and 
co-location with, facilities owned by incumbent local exchange carriers and 
obtain appropriately priced unbundled network elements and wholesale services 
from the incumbent local exchange carriers, but also on its ability to 
identify, evaluate, negotiate and consummate acquisitions successfully, all 
in a timely manner, at reasonable costs and on satisfactory terms and 
conditions. Future growth may place a significant strain on the Company's 
administrative, operational and financial resources. The Company's ability to 
manage its growth successfully will require the Company to centralize and 
enhance its operational, management, financial and information systems and 
controls and to hire and retain qualified sales, marketing, administrative, 
operating and technical personnel. There can be no assurance that the Company 
will be able to do so. In addition, as the Company expands into its targeted 
markets, there will be additional demands on the customer support, sales, 
marketing and administrative resources and the network 

                               11           
<PAGE>
infrastructures of the Acquired Companies, which have not been integrated. 
The Company's inability to implement its growth strategy successfully or to 
manage its growth effectively could have a material adverse effect on the 
Company's business, results of operations and financial condition and the 
value of the Common Stock. 

CAPITAL REQUIREMENTS 

   The Company anticipates the expenditure of approximately $22.0 million 
during calendar year 1998 for the acquisition of additional circuit and 
packet switches, the leasing of bulk fiber optic capacity from others and the 
purchase of other capital assets. In order to fund these expenditures, the 
Company intends to utilize internally generated funds and borrowings under 
the Company's proposed credit facility and may use a portion of the net 
proceeds of the Offering allocated to general corporate purposes. With 
respect to the Company's proposed credit facility, see "Management's 
Discussion and Analysis of Financial Condition and Results of Operations of 
Certain Acquired Companies -- Pro Forma Combined Results of Operations -- Pro 
Forma Combined Liquidity and Capital Resources." If the Company is successful 
in growing its local telecommunications services business or effecting 
acquisitions, it will have materially increased capital requirements in 
calendar year 1999 and beyond. In order to fund these capital requirements, 
the Company will be required to raise substantial funds from external sources 
through public or private debt and equity financings. However, in the event 
that the Company's plans or assumptions change or prove to be inaccurate, the 
Company may be required to seek additional capital sooner than currently 
anticipated. There can be no assurance that financing will be available or 
that if financing is available, that it will be available on terms and 
conditions acceptable to the Company. 

RECENT RESULTS AND ANTICIPATED FUTURE QUARTERLY LOSSES 

   The following table sets forth certain pro forma combined results of 
operations data of the Company for the three months ended September 30, 1996 
and 1997: 

<TABLE>
<CAPTION>
                                              THREE MONTHS ENDED 
                                                 SEPTEMBER 30, 
                                              ------------------- 
                                                1996      1997 
                                              -------- --------- 
                                                  (DOLLARS IN 
                                                  THOUSANDS) 
<S>                                           <C>      <C>
Revenue 
  Telecommunications services................  $ 9,015   $11,918 
  Yellow page publishing.....................    8,060     8,258 
                                              -------- --------- 
    Total....................................   17,075    20,176 
  Cost of services...........................    9,393    12,202 
  Depreciation and amortization..............    1,465     1,460 
                                              -------- --------- 
  Gross profit...............................    6,217     6,514 
  Selling, general and administrative 
   expenses..................................    5,321     7,418 
                                              -------- --------- 
  Income (loss) from operations..............  $   896   $  (904) 
                                              ======== ========= 

</TABLE>

   The Company's results of operations for the three months ended September 
30, 1997 reflect operating expenses for ACG that were not present in the 
third quarter of 1996 because ACG commenced operations in June 1996. The 
results of operations for the third quarter of 1997 also reflect the 
additional expenses associated with repositioning the Company to implement 
its CLEC strategy, including an expanded marketing staff and the lower 
margins associated with the resale of local service. Preliminary indications 
are that the Company's pro forma combined results of operations for the three 
months ended December 31, 1997 will reflect a loss from operations in excess 
of that incurred in the three months ended September 30, 1997. The Company 
expects that while pro forma telecommunications revenue for the three months 
ended December 31, 1997 will be greater than in the three months ended 
September 30, 1997, yellow page publishing revenue will be down slightly. The 
subsequent year's edition of a directory which had been published and 
distributed in the fourth quarter of 1996 was published but not distributed 
until January 1998. Accordingly, the anticipated revenue of approximately 
$2.7 million and related 

                               12           
<PAGE>
expense of approximately $1.5 million from that directory will be recognized 
in the first quarter of 1998 rather than the fourth quarter of 1997. The 
Company expects that it will incur losses from operations over at least the 
next several quarters as it continues to implement its CLEC strategy. 

   In addition, the Company expects that in the fourth quarter of 1997, it 
will incur a compensation charge of approximately $1.0 million related to the 
employment of the Company's new senior management team. 

DEPENDENCE ON SUCCESSFUL CROSS-SELLING OF EXISTING AND NEW CUSTOMER BASES 

   The Company intends to expand its revenue base through the marketing of 
its bundled telecommunication services to, among others, the aggregate of 
approximately 75,000 advertisers in its yellow page directories and the 
yellow page directories published by FPI, the approximately 15,000 business 
customers of PAM Oil, Inc. and, if a mutually acceptable strategic alliance 
can be negotiated, the approximately 100,000 electric and natural gas 
customers of Northwestern. This cross-selling strategy presents risks that, 
singularly or in any combination, could adversely affect the Company's 
business, financial condition, results of operations and cash flows and the 
value of the Common Stock. These risks include the possible adverse effects 
of a failure to coordinate and integrate the sales programs of the Acquired 
Companies, a failure to train its sales force effectively to market its 
bundled products, a failure to develop compensation and incentive programs 
needed to appropriately motivate its sales force, a failure to develop and 
implement a sales program and organize a sales force to market the Company's 
bundled telecommunications services to yellow page and other customers who do 
not at present purchase the Company's telecommunications services, a failure 
to develop integrated accounting and management information systems for ACG 
and the Acquired Companies and any companies that are acquired in the future, 
a failure to convert long distance customers into local service customers and 
other unanticipated problems that might arise in connection with the 
implementation of any new marketing strategy. Any of the foregoing problems 
could have a material adverse effect on the Company's business, results of 
operations and financial condition and the value of the Common Stock. 

RISKS RELATED TO LOCAL SERVICES STRATEGY 

   The local dial tone services market has only recently been opened to 
competition through the passage of the Telecommunications Act of 1996 (the 
"Telecommunications Act") and subsequent state and Federal regulatory actions 
designed to implement the Telecommunications Act. Regulatory bodies have not 
completed all actions expected to be needed to implement local service 
competition, and there is little experience under those decisions that have 
been made to date. The Company has begun to act as a CLEC only recently and 
on a small scale, through the resale of the ILEC's networks, and has limited 
experience in this market. The revenues generated to date from local services 
have not been material. At the time the Company determines to cease simple 
resale of local services in some of its markets and provide those services 
with its own switches and either leased unbundled loops or its own fiber 
optic facilities, the Company will be required to make significant operating 
and capital investments in order to implement that phase of its local service 
strategy and will have to acquire rights-of-way, easements, conduits, other 
equipment and facilities and permits. There are numerous operating 
complexities associated with providing local services. The Company will be 
required to develop new services and systems and will need to develop new 
marketing initiatives and train its sales force in connection with selling 
these services. The Company will face significant competition from ILECs, 
including the RBOCs, whose core business is providing local dial tone 
service. The RBOCs, who currently are the dominant providers of local 
services in their markets, are expected to mount a significant competitive 
response to new entrants such as the Company in their markets. Further, each 
of the RBOCs may expand outside of its historical markets into the market 
areas of other RBOCs. The Company also will face significant competitive 
product and pricing pressures from other ILECs and from other firms seeking 
to compete in the local services market. Many of these competitors, including 
all of the RBOCs and many CLECs, have far greater experience and operational, 
administrative and financial resources than the Company. A recent Eighth 
Circuit Court of 

                               13           
<PAGE>
Appeals decision, which invalidated the pricing discounts for such services 
which had been prescribed by the FCC under the Telecommunications Act, adds 
uncertainty to the marketplace and could also have an adverse effect on the 
Company's business, financial condition, results of operations and cash flows 
and the value of the Common Stock. 

   The Company also expects that the addition of resold local service to its 
bundle of telecommunications services will have an adverse impact on its 
gross margin because the gross margin on the resale of local services through 
an ILEC's facilities is lower than the gross margin on most of the Company's 
existing business. See "Management's Discussion and Analysis of Financial 
Condition and Results of Operations of Certain Acquired Companies--Overview 
of the Acquired Companies' Sources of Revenue and Expenses." 

DEPENDENCE ON DEVELOPMENT OF BILLING, CUSTOMER SERVICE AND MANAGEMENT 
 INFORMATION SYSTEMS; TECHNOLOGY RISKS 

   Sophisticated information and processing systems are vital to the 
Company's operations and growth and its ability to monitor costs, render 
single monthly invoices for bundled services, process customer orders, 
provide customer service and achieve operating efficiencies. As the Company 
commences providing dial tone and switched local access services in future 
years, the need for further enhanced billing and information systems will 
increase significantly and the Company will have significant additional 
requirements for data interface with RBOCs. Additionally, any subsequent 
acquisitions will place additional burdens on the Company's accounting, 
information and other systems. 

   While the Company believes that its software applications are year 2000 
compliant, there can be no assurance until the year 2000 occurs that all 
systems will then actually function adequately. Further, if the software 
applications of local exchange carriers, long distance carriers or others on 
whose services the Company depends are not year 2000 compliant resulting in 
any loss of such services, it could have a material adverse effect on the 
Company's business, financial condition, results of operations and cash flows 
and the value of the Common Stock. 

   Unanticipated problems in any of the above areas, or the Company's 
inability to implement solutions in a timely manner or to upgrade existing 
systems as necessary, could have a material adverse impact on the ability of 
the Company to reach its objectives and on its financial condition, results 
of operations and cash flows and the value of the Common Stock. 

   In addition to its accounting and information systems, the 
telecommunications industry generally is subject to rapid and significant 
changes in technology. While the Company believes that for the foreseeable 
future these changes will not materially hinder the Company's ability to 
acquire necessary technologies, the effect of technological changes on the 
business of the Company cannot be predicted. There can be no assurance that 
technological developments in telecommunications will not have a material 
adverse effect on the Company's business, financial condition, results of 
operations and cash flows and the value of the Common Stock. 

LIMITED TECHNICAL STAFF 

   The telecommunications industry is highly technical and the Company's 
success in designing and operating local and long distance networks and their 
components, such as switches, is dependent upon the quality of the Company's 
technical support capabilities. While the Acquired Companies have technical 
personnel on staff and the Company intends to expand its in-house technical 
capabilities following the Offering, the Company also intends to engage 
outside technical consultants and vendors rather than rely solely upon its 
in-house expertise. The Company's technical personnel will coordinate and 
supervise outside consultants and vendors, which may include KINI, L.C., the 
entity that provides management services to KINNET. See "Management." While 
the Company will attempt to select consultants and vendors that have the 
technical expertise to provide in a timely manner the services required to 
design, construct and maintain the Company's network and all additions 
thereto, a failure by any consultant or vendor to perform in the anticipated 
manner could have a material adverse effect upon the Company's business, 
financial condition, results of operations and cash flows and the value of 
the Common Stock 

                               14           
<PAGE>
because the Company could experience customer dissatisfaction and possible 
defection and could be forced to contract with other consultants and vendors 
and thereby incur time delays or additional costs. 

COMPETITION 

   The telecommunications industry is highly competitive. The Company 
competes with long distance carriers in the provision of long distance 
services. The United States long distance market includes approximately 1,000 
service providers, but is dominated by four major competitors: AT&T, MCI, 
Sprint and WorldCom (the "Dominant Long Distance Carriers"). The Company also 
faces intense competition from ILECs, including Southwestern Bell and U S 
WEST, two of the RBOCs which currently dominate their local 
telecommunications markets in the Region, and independently owned 
telecommunications companies. Other ILECs and CLECs with which the Company 
does not now compete may initiate service or make acquisitions in the Region. 
Other competitors of the Company may include cable television companies, 
competitive access providers, microwave and satellite carriers and private 
networks owned by large end users. In addition, the Company competes with 
RBOCs and other ILECs, numerous direct marketers and telemarketers, equipment 
vendors and installers and telecommunications management companies with 
respect to certain portions of its business. Many of the Company's existing 
and potential competitors have financial and other resources far greater than 
those of the Company. Many of the Company's competitors may have lower 
overhead and because of their ownership of fiber optic transmission networks 
have substantially lower cost of service than the Company. Consequently, 
these competitors may be able to provide their services at lower rates than 
the Company. 

   The long distance telecommunications industry has relatively insignificant 
barriers to entry, numerous entities competing for the same customers and a 
high average churn rate, as customers frequently change long distance 
providers in response to the offering of lower rates or promotional 
incentives by competitors. As procompetitive regulatory initiatives are 
implemented, the RBOCs will become competitors in the long distance 
telecommunications industry and various other participants in the long 
distance telecommunications industry, including one or more of the Dominant 
Long Distance Carriers, also will seek to compete in the local switched 
services market. The Company believes that the principal competitive factors 
affecting its telecommunications market share are pricing, accurate billing 
of a bundle of services on a single invoice, quality of service and customer 
dissatisfaction with the services provided by the existing carrier. The 
ability of the Company to compete effectively will depend upon its ability to 
maintain high quality, market-driven services at prices generally equal to or 
below those charged by its competitors. While customers may be willing to pay 
to some extent for superior service, the Company believes that to maintain 
its competitive posture, it must be in a position to reduce its prices in 
order to meet reductions in rates, if any, by others. Any such reductions 
could adversely affect the Company's business, financial condition, results 
of operations and cash flows and the value of the Common Stock, and the 
Company's numerous competitors with greater financial resources may be better 
postured to withstand the effects of such reductions. See "Business -- 
Competition." The Company generally prices its services at a discount to the 
primary carrier or carriers in each of its target markets. The Company has 
experienced, and expects to continue to experience, declining revenue per 
minute in all of its markets as a result of increased competition, although 
due to technological innovation and substantial available transmission 
capacity, transmission costs in the telecommunications industry often have 
declined at a more rapid rate than prices. There can be no assurance that 
this relationship will continue. Industry observers predict that, early in 
the next decade, telephone charges will no longer be based on the distance a 
call is carried. As a consequence, the Company could experience a substantial 
reduction in its margins on long distance calls which, absent a significant 
increase in billable minutes carried or charges for additional services, 
would have a material adverse effect on the Company's business, financial 
condition, results of operations and cash flows and the value of the Common 
Stock. 

   Local access telephone services offered by the Company compete principally 
with the services offered by the local ILEC. ILECs have long-standing 
relationships with their customers and have the potential to subsidize 
competitive services with revenues from services they offer in which 
competition is less intense. In addition, if ILECs expand their toll free 
calling areas, traffic which might otherwise have been carried by the Company 
as long distance traffic may be carried by the Company as local traffic, or 
carried by the other carrier rather than by the Company. 

                               15           
<PAGE>
   The Company faces competition in the markets in which it operates from one 
or more CLECs that own and operate fiber optic networks, in many cases in 
conjunction with the local cable television operator. Each of the Dominant 
Long Distance Carriers has indicated its intention to offer local 
telecommunications services, either directly or in conjunction with other 
competitive access providers or cable television operators. There can be no 
assurance that these firms, and others, will not enter the small and 
mid-sized markets where the Company currently focuses its sales efforts. 

   The Company believes that the market for wireless telecommunications 
services is likely to expand significantly as equipment costs and service 
rates continue to decline, equipment becomes more convenient and functional, 
and wireless services become more diverse. The Company has only a very small 
participation in the wireless services market, and as that market expands the 
Company will face increasing competition. The Company also believes that 
providers of wireless services increasingly will offer, in addition to 
products that supplement customers' landline communications (similar to 
cellular telephone services in use today), wireline replacement products that 
may result in wireless services becoming customers' primary mode of 
communication. The Company anticipates that in the future there could 
potentially be several wireless competitors in each of its current or target 
markets, including cellular and personal communication services providers. 

   The Company primarily competes in the markets in which it currently 
distributes yellow pages with Southwestern Bell. In expanding its yellow page 
business into other service areas in the Region, the Company will face 
competition from Southwestern Bell, U S WEST and other publishers of existing 
directories in the Region. Many of these competitors, including all of the 
RBOCs and many other ILECs, have greater financial, operational and 
administrative resources than the Company. 

IMPLICATIONS OF TELECOMMUNICATIONS ACT AND OTHER REGULATION 

   The Company's telecommunications services are subject to varying degrees 
of federal, state and local regulation. The FCC exercises jurisdiction over 
all telecommunications service providers to the extent such services involve 
the provision, origination and termination of jurisdictionally interstate or 
international telecommunications, including the resale of long distance 
services and the provision of local access services necessary to connect 
callers to long distance carriers. The state regulatory commissions retain 
jurisdiction over services to the extent such services involve the provision, 
origination and termination of jurisdictionally intrastate 
telecommunications. The Company, as a provider of resale and switch-based 
local and long distance telecommunications services, files tariffs with the 
FCC and relevant state authorities for local, interstate and international 
service on an ongoing basis. Challenges to these tariffs by third parties 
could cause the Company to incur substantial legal and administrative 
expenses. Additionally, the Company expects that, as its business expands and 
as more procompetitive regulatory initiatives pertaining to the local 
telecommunications services industry are implemented, it will offer increased 
intrastate services which will be subject to state regulation. In its 
provision of local telecommunications services, the Company currently is not 
subject to price-cap or rate-of-return regulation, nor is it currently 
required to obtain FCC authorization for installation or operation of the 
facilities used by the Company in providing its domestic interstate services. 

   The Company believes that the Telecommunications Act and state legislative 
and regulatory initiatives have substantially reduced the barriers to local 
exchange competition. These initiatives include requirements that the RBOCs 
negotiate with entities such as the Company to provide interconnection to the 
existing local telephone network, to allow the purchase, at cost-based rates, 
of access to unbundled network elements, to establish dialing parity, to 
obtain access to rights-of-way and to resell services offered by the ILECs. 
See "Business -- Regulation." The Company's plans to provide local switched 
services are dependent, among other things, upon obtaining favorable 
interconnection agreements with local exchange carriers. In August 1996, the 
FCC adopted the Interconnection Decision to implement the interconnection, 
resale and number portability provisions of the Telecommunications Act. In 
October 1996, the U.S. Eighth Circuit Court of Appeals stayed the 
effectiveness of certain portions of the Interconnection Decision, including 
provisions establishing a pricing methodology and a procedure permitting new 
entrants to "pick and choose" among various provisions of existing 
interconnection agreements. Although the judicial stay of the Interconnection 
Decision did not prevent the Company 

                               16           
<PAGE>
from attempting to negotiate interconnection agreements with local exchange 
carriers, it did create uncertainty about the rules governing pricing, terms 
and conditions of interconnection agreements, and could make negotiating such 
agreements more difficult and protracted. Although the FCC applied 
unsuccessfully to the U.S. Supreme Court to vacate the judicial stay, on July 
18, 1997, the U.S. Eighth Circuit Court of Appeals issued an opinion which, 
among other things, held that the stay had expired. The decision also 
invalidated key elements of the Interconnection Decision and stated that the 
law grants the state commissions, not the FCC, the authority to determine 
rates involved in the implementation of the local competition provisions of 
the Telecommunications Act. More specifically, the court overturned the FCC's 
pricing guidelines, the "pick and choose" rule, and some portions of the FCC 
unbundling rules, including the requirement that ILECs recombine network 
elements that are purchased by CLECs on an unbundled basis. The court upheld, 
however, the FCC's view of the network elements that ILECs must unbundle, 
found that nothing in the Telecommunications Act requires a CLEC to own or 
control a telecommunications network before being able to purchase unbundled 
elements, and affirmed certain other aspects of the Interconnection Decision. 
Several interexchange carriers (including AT&T, MCI and Sprint) filed 
petitions for rehearing with the Eighth Circuit requesting the court to 
reinstate certain of the FCC rules found unlawful, while various ILECs filed 
petitions of their own regarding aspects of the court's decision that they 
found objectionable. On October 14, 1997, the court denied the petitions of 
the interexchange carriers, granted those of the ILECs, and vacated an 
additional FCC rule established in the Interconnection Decision that, it 
held, would have the effect of permitting a CLEC access to an ILEC's network 
elements on a bundled as well as an unbundled basis. The court's decision 
thereby prevented CLECs from acquiring bundled network elements at cost-based 
rates and made only unbundled elements available at those rates. In a 
separate decision on August 22, 1997, the Eighth Circuit held that the FCC 
exceeded the scope of its jurisdiction by issuing rules concerning dialing 
parity that affect essentially intrastate services and local, interstate 
calls within a single local access and transport area ("LATA"). The FCC, 
AT&T, MCI, Sprint, WorldCom and a large number of CLECs and others filed 
petitions for certiorari requesting the United States Supreme Court to 
overturn both of the Eighth Circuit's decisions. The petitions asserted, 
among other things, that the Eighth Circuit erred in finding the FCC lacked 
jurisdiction to promulgate rules implementing the local competition pricing 
provisions of the Telecommunications Act of 1996 and in rejecting the "pick 
and choose" provisions of the FCC's rules. On January 26, 1998, the United 
States Supreme Court granted the petitions for certiorari filed by the FCC, 
various IXCs, CLECs and others challenging the Eighth Circuit's decision. In 
addition, the Supreme Court granted conditional petitions for certiorari 
filed by the ILECs that, among other things, challenged the Eighth Circuit's 
decisions to uphold FCC rules that would give new competitors cost-based 
access to ILECs' unbundled network elements. These petitions have been 
consolidated, and one hour of oral argument has been allotted during the 
Supreme Court's next term. There can be no assurance that the Company will be 
able to obtain and maintain resale and interconnection agreements on terms 
acceptable to the Company. 

   In early July 1997, the parent company of Southwestern Bell ("SBC") 
initiated litigation in the United States District Court, Northern District 
of Texas (Wichita Falls) (the "Court") challenging the constitutionality of 
Sections 271 through 275 of the Telecommunications Act on four grounds, 
including a denial of First Amendment free speech rights. On December 31, 
1997, the Court granted SBC's motion. The Court found that Sections 271-275 
of the Telecommunications Act of 1996 (the "Special Provisions") constitute a 
"bill of attainder" and are therefore unconstitutional. The Court's decision 
is considered to be controversial by many, and the United States Department 
of Justice has joined AT&T, MCI and Sprint in asking the Court for a stay of 
the decision's effectiveness pending the filing of an appeal to the United 
States Court of Appeals for the Fifth Circuit. MCI has since filed a notice 
of appeal with the Fifth Circuit urging that it overturn the Court's 
decision. In the meantime, the Court has approved a December 30, 1997 request 
by Bell Atlantic Corporation ("Bell Atlantic") that it be covered by the 
effect of the December 31 ruling. The Court has also rejected the request of 
Ameritech Corporation ("Ameritech") to join the case, on grounds that it was 
filed after the ruling. On February 11, 1998, the Court stayed its order, 
pending the appeal. See "Business -- Regulation -- Federal Regulations." 

   The Telecommunications Act provides the ILECs with new competitive 
opportunities. That Act removes previous restrictions concerning the 
provision of long distance service by the RBOCs and also 

                               17           
<PAGE>
provides them with increased pricing flexibility. Under the 
Telecommunications Act, the RBOCs will, upon the satisfaction of certain 
conditions, be able to offer long distance services that would enable them to 
duplicate the "one-stop" integrated telecommunications approach that the 
Company intends to use. There can be no assurance that the anticipated 
increased competition will not have a material adverse effect on the 
Company's business, results of operation and financial condition and the 
value of the Common Stock. The Telecommunications Act provides that rates 
charged by ILECs for interconnection to their network are to be 
nondiscriminatory and based upon the cost of providing such interconnection, 
and may include a "reasonable profit," which terms are subject to 
interpretation by regulatory authorities. If the ILECs, particularly the 
RBOCs, charge alternative providers such as the Company unreasonably high 
fees for interconnection to their networks or significantly lower their rates 
for access and private line services or offer significant volume and term 
discount pricing options to their customers, the Company could be at a 
significant competitive disadvantage. 

   Effective January 1, 1998 ILECs became entitled to charge subscriber 
interexchange carrier charges ("PICC") upon switching a customer's service 
from one provider to another. At the present time, the Company expects to pay 
a blended rate of approximately $5.00 per business and residential customer 
as a PICC charge. Unless all interexchange carriers elect to pass these 
charges along to their customers, those carriers that elect to absorb the 
PICC charge will enjoy a competitive advantage over those that attempt to 
pass the charge along to their customers. The Company believes that larger 
carriers will be better able to absorb the PICC charges over the short term, 
and hence will enjoy a competitive advantage until market conditions drive 
the cost of the PICC charge to lower levels. The Company will determine 
whether to absorb or pass along the PICC charge once it assesses the action 
taken by its competitors. 

Absorption of the PICC charge would increase the Company's cost of providing 
telecommunication services and consequently would adversely impact the 
Company's results of operations and cash flows and could adversely affect the 
value of the Common Stock. 

   The Company believes that, with two exceptions in Arkansas and Missouri, 
it is in substantial compliance with all material laws, rules and regulations 
governing its operations and has obtained, or is in the process of obtaining, 
all licenses and approvals necessary or appropriate to conduct its operations 
following the Offering; however changes in existing laws and regulations, or 
any failure or significant delay in obtaining necessary regulatory approvals, 
could have a material adverse effect on the Company's business, results of 
operations, financial condition and cash flows and the value of the Common 
Stock. Statutes and regulations which may become applicable to the Company as 
it expands could require the Company to alter methods of operations at costs 
which could be substantial, or otherwise limit the types of services offered 
by the Company. See Notes to Combined Financial Statements of Valu-Line of 
Longview, Inc. and Related Companies and Notes to Financial Statements of 
Feist Long Distance Service, Inc. for information relating to two of the 
Acquired Companies conducting long distance telephone operations in Arkansas 
and Missouri without a permit. 

   The telecommunications industry is undergoing dynamic change and 
regulatory responses to such change could be sweeping. Larger, more 
established telecommunications companies may promote legislation or 
regulations which could adversely affect the Company's ability to offer its 
services to its targeted customers or to carry out its business plans. There 
can be no assurance that the Company will be able to comply with additional 
applicable laws, regulations and licensing requirements or have sufficient 
resources to take advantage of the opportunities which may arise from this 
dynamic regulatory environment. See "Business -- Regulation." 

RECENTLY INSTITUTED LITIGATION AGAINST AN ACQUIRED COMPANY 

   In early February 1998, Valu-Line of Longview, Inc. ("Valu-Line") was 
served with a petition by four plaintiffs (including the lawyer filing the 
suit) which alleged, among other things, that Valu-Line billed the plaintiffs 
for services never provided and intentionally "bumped up" the actual time of 
services used by plaintiffs in order to increase Valu-Line's charges to them. 
The plaintiffs purported to bring the suit as a class action and alleged 
violations of the Texas Deceptive Trade Practices Act, fraud, breach of 
contract, negligence and gross negligence. They sought damages in an 
unspecified amount, further damages under the Deceptive Trade Practices Act 
(which could be as much as triple the actual damages), interest, attorney's 
fees and such other relief to which they may have been entitled. The petition 
contained no 

                               18           
<PAGE>
details with respect to Valu-Line's alleged conduct. While representatives of 
Valu-Line advised ACG that they believe Valu-Line's billing practices have 
and do conform generally to industry standards and FCC rate filings and that 
the plaintiffs' allegations were without merit. Valu-Line, in order to avoid 
protracted litigation, entered into a settlement, a nominal portion of which 
will be paid by the Company, and an agreed confidential dismissal with 
prejudice, with the four named plaintiffs prior to the certification of the 
suit as a class action. The former stockholders of Valu-Line have agreed, 
severally, to indemnify the Company for a period of six months after the 
closing of the Offering against liabilities, costs and expenses, including 
legal fees, relating to similar claims which others may bring in the future. 
In order to fund this indemnity obligation, the former stockholders have 
deposited in escrow an aggregate of 71,428 shares of Common Stock, and their 
obligation is limited to the value of those shares. 

DEPENDENCE ON THIRD-PARTY LONG DISTANCE CARRIERS 

   The Company is dependent on certain major long distance carriers to 
transmit its customers' long distance telephone calls. The Company has 
agreements with such long distance carriers that provide it with access to 
such carriers' networks for transmission of its customers' calls. Although 
the Company believes that it currently has sufficient access to transmission 
facilities and long distance networks and believes that its relationships 
with its carriers are generally satisfactory, any increase in the rates 
charged by carriers or their unwillingness to provide service to the Company 
would materially adversely affect the Company's business, financial 
condition, results of operations and cash flows and the value of the Common 
Stock. Failure to obtain continuing access to such facilities and networks 
also would have a material adverse effect on the Company, including possibly 
requiring the Company to significantly curtail or cease its long distance 
operations. In addition, the Company's long distance service operations 
require that its switching facilities and its carriers' long distance 
networks operate on a continuous basis. It is not atypical for long distance 
carriers and switching facilities to experience periodic service 
interruptions and equipment failures. It is possible that the Company's 
switching facilities and its carriers' long distance networks may from time 
to time experience service interruptions or equipment failures resulting in 
material delays which would adversely affect consumer confidence as well as 
the Company's business operations and reputation, which might ultimately 
affect the value of the Common Stock. 

DEPENDENCE ON INCUMBENT LOCAL EXCHANGE CARRIERS 

   The Company intends to obtain the local telephone services of ILECs on a 
wholesale basis and resell that service to end users, particularly in the 
early stages of its local telephone service business. To the extent that the 
Company resells the local services of an ILEC, the Company and its customers 
will be subject to the quality of service, equipment failures and service 
interruptions of those carriers, all of which could redound to the Company's 
detriment. Even if the Company ultimately constructs its own local network 
facilities, it will be dependent on ILEC's for provision of local telephone 
service through access to local loops, termination service and, in some 
markets, central office switches. 

   The Company is also dependent on ILECs to provide access service for the 
origination and termination of its toll long distance traffic and 
interexchange private lines. Historically those access charges have made up a 
significant percentage of the overall cost of providing long distance 
service. On May 7, 1997, the FCC adopted changes to its interstate access 
rules that, among other things, will reduce per-minute access charges and 
substitute new per-line flat rate monthly charges. The FCC also approved 
reductions in overall access rates, and established new rules to recover 
subsidies to support universal service and other public policies. The impact 
of these changes on the Company or its competitors is not yet clear. The 
Company could be adversely affected if it does not experience access cost 
reductions proportionally equivalent to those of its competitors. See 
"Business --Regulation." 

   In addition, the Company's plans to provide local telephone service are 
heavily dependent upon implementation of provisions of the Telecommunications 
Act. The Telecommunications Act preempted state and local laws to the extent 
that those laws prohibited local telephone competition, and imposed a variety 
of new duties on ILECs intended to advance such competition, including the 
duty to negotiate in good faith with competitors requesting interconnection 
to an ILEC's network. However, negotiations with ILECs have sometimes 
involved considerable delays and the resulting negotiated agreements may not 

                               19           
<PAGE>
necessarily be obtained on terms and conditions that are acceptable to the 
Company. In such instances, the Company may petition the proper state 
regulatory agency to arbitrate disputed issues. There can be no assurance 
that the Company will be able to negotiate acceptable new interconnection 
agreements with ILECs or that if state regulatory authorities impose terms 
and conditions on the parties in arbitration, such terms will be acceptable 
to the Company. 

   Any successful effort by the ILECs to deny or substantially limit the 
Company's access to their network elements or wholesale services would have a 
material adverse effect on the Company's ability to provide local telephone 
services which could ultimately have a material adverse effect on its 
business, financial condition, results of operations and cash flows and the 
value of the Common Stock. Although the Telecommunications Act imposes 
interconnection obligations on ILECs, there can be no assurance that the 
Company will be able to obtain access to such network elements or services at 
rates, and on terms and conditions, that permit the Company to offer local 
services at rates that are both profitable and competitive. In order to 
provide switched based local service, the Company must negotiate satisfactory 
interconnect agreements with Southwestern Bell, U S WEST and other ILECs. The 
forms of such agreements currently in use do not provide for all material 
terms for the resale of local services or access to the unbundled network 
elements. Some of such terms may be affected by pending legal proceedings 
regarding FCC regulatory requirements. Many issues relevant to the terms and 
conditions by which competitors may use an ILEC's network and wholesale 
services remain to be resolved. For example, Southwestern Bell, U S WEST and 
certain other ILECs have taken the position that when a carrier seeking to 
provide local service obtains all necessary elements (loops and switches) 
from the ILEC in a combined form, the ILEC retains the right to receive the 
access revenues associated with service to the customers served on that 
basis. See "Business -- Regulation." 

DEPENDENCE ON KEY PERSONNEL; NEW MANAGEMENT TEAM 

   The efforts of a small number of key management and operating personnel 
will largely determine the Company's success. The Company's operations depend 
on the continuing efforts of its executive officers and the senior management 
of the Acquired Companies. Because the Company is a holding company with no 
previous operating experience and is seeking to consolidate numerous separate 
businesses, it is particularly vulnerable to the loss of one or more members 
of management in the near term. In addition, the Company likely will depend 
on the senior management of any significant business it acquires in the 
future. The Company's business, financial condition, results of operations 
and cash flows and the value of the Common Stock could be affected adversely 
if any of these persons does not continue in his or her management role after 
joining the Company and the Company is unable to attract and retain qualified 
replacements. As competition in the telecommunications business has 
increased, it has become increasingly difficult and expensive to attract and 
retain management personnel. The success of the Company's growth strategy, as 
well as the Company's current operations, will depend, in part, on the extent 
to which the Company is able to retain, recruit and train qualified personnel 
who meet the Company's standards of conduct and service to its customers. The 
Company's senior management team has been assembled only recently, and the 
Company is currently seeking to augment that team with additional personnel. 
There can be no assurance that the management team can function effectively 
to implement the Company's business plans. See "Management." 

CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS 

   On closing of the Acquisitions and the Offering, Consolidation Partners 
Founding Fund, L.L.C. ("CPFF"), the executive officers and directors of the 
Company and former owners of the Acquired Companies and KINNET will own in 
the aggregate approximately 56.7% of the outstanding Common Stock. Promptly 
after the Offering, CPFF intends to distribute to its owners all shares of 
Common Stock owned by it. As a result of such distribution, Consolidation 
Partners, L.L.C. ("Consolidation Partners"), a limited liability company 
owned by Rod K. Cutsinger, a director of the Company, his wife and two adult 
children, will own approximately 26.7% of the then outstanding shares of 
Common Stock. 

                               20           
<PAGE>
TERMS OF THE ACQUISITIONS 

   For accounting purposes, the aggregate purchase price of the Acquisitions 
is estimated to be $139.5 million, an excess of $122.8 million (including 
$0.6 million of deferred acquisition costs incurred by ACG) over the book 
value of the net assets acquired of $17.3 million. This excess purchase price 
of $122.8 million can be attributed to several factors, including the 
customer lists of the Acquired Companies, the benefits to be gained from 
switching existing and future traffic to KINNET, the ability to cross-sell 
telecommunications services through established yellow page directories, and 
the future operating synergies hoped to be realized from consolidating nine 
entities into one. Of the excess, $105.8 million relates to the Acquired 
Companies and $17.0 million relates to the assets of KINNET. The excess of 
the respective purchase prices over the fair value of tangible net assets 
acquired have been preliminarily classified as intangible assets. The final 
allocation to identifiable tangible and intangible assets, including customer 
lists and goodwill, and the useful lives for the amortization of the various 
asset classifications will be based upon the results of an appraisal by an 
independent third party which is expected to be completed prior to the 
release of the Company's audited financial statements for 1997. The portion 
of the purchase prices not allocated to identifiable tangible and intangible 
assets will be recorded as goodwill. Until the independent appraisal is 
completed, the intangible assets will be amortized over a period of 25 years. 
After receipt of the appraisal, the tangible and intangible assets and the 
goodwill attributable to the Acquisitions will be amortized over the useful 
lives determined by the independent appraiser. Accordingly, if the 
appraiser's composite amortization period is less than 25 years, the 
Company's annual charge for depreciation and amortization will be increased, 
perhaps significantly, over the preliminary amount reflected in the Company's 
pro forma combined financial statements. See "The Company -- Summary of Terms 
of the Acquisitions" and the Pro Forma Combined Financial Statements. 

CERTAIN INTERESTS OF MANAGEMENT IN THE ACQUISITIONS AND OTHER TRANSACTIONS 

   Several shareholders of certain of the Acquired Companies will become 
executive officers or directors of the Company upon the consummation of the 
Acquisitions. These shareholders will receive a portion of the consideration 
in the Acquisitions consisting of, in the aggregate, 837,878 shares of Common 
Stock, $35.6 million in cash, $11.7 million in subordinated promissory notes, 
$0.6 million in convertible subordinated notes, and 293,513 five-year 
non-transferrable warrants to purchase Common Stock at the initial public 
offering price. Certain of these shareholders, in connection with the 
execution of the agreement pursuant to which their Acquired Company will be 
acquired, received ten-year non-transferrable warrants to purchase an 
aggregate of 756,078 shares of Common Stock at $6.61 per share. Certain of 
these shareholders will also have employment agreements with the Company. See 
"The Company -- Summary of Terms of the Acquisitions" and "Certain 
Transactions -- The Acquisitions." 

   A corporation in which an executive officer and director of the Company is 
an officer, director and 50% shareholder has provided high quality yellow 
page colorizing services and licensed World Pages to Great Western 
Directories, Inc. In addition, KINI, L.C. (a majority of which is owned by 
the shareholders of Liberty Cellular, Inc. ("Liberty"), which is the former 
sole stockholder and current 51% stockholder of KINNET) has provided certain 
management services to KINNET, and Feist Long Distance Service, Inc. has 
transported traffic on KINNET's network. These arrangements, which the 
Company considers reasonable under the circumstances, are expected to 
continue after the Acquisitions, under the terms described in "Certain 
Transactions -- Other Transactions," and the Company intends, where practical 
and economic, to transport additional long distance traffic over the KINNET 
network. Except as noted herein, any future transactions with directors, 
officers, employees or affiliates of the Company are expected to be minimal 
and will, in any case, be approved in advance by a majority of the Board of 
Directors, including a majority of disinterested members of the Board of 
Directors. 

RISKS OF EXPANSION INTO ADDITIONAL YELLOW PAGE MARKETS 

   The Company's strategy to expand into additional yellow page markets 
carries certain risks in addition to those of its expansion plans generally. 
To enter a new yellow page market, the Company will typically be required to 
increase its sales force if it hopes to communicate effectively with its 
prospective new customers. When the Company first expands into a yellow page 
market, it often seeks to attract its 

                               21           
<PAGE>
targeted customers by producing and publishing a full-scale initial directory 
with minimal or no charges for advertising space. Thus for a first directory 
in a new market, the Company may have substantial expenses, depending on the 
size of the directory and the market, with insignificant offsetting revenues. 
Additionally, when the Company enters a new market it has no prior first-hand 
credit experience with its advertising customers, and therefore typically has 
higher bad debt risk for the first directory in which advertising space is 
sold. Further, many of the Company's yellow page advertisers pay for their 
advertisements in installments over terms of twelve months. In connection 
with the acquisition of one of the Acquired Companies, the Company has agreed 
not to publish a yellow page directory in Oklahoma City or its metropolitan 
area until after the fifth anniversary date of the acquisition of Feist Long 
Distance Service, Inc. 

RISKS RELATED TO ACQUISITIONS 

   A portion of the Company's future growth is expected to come through the 
acquisition of companies engaged in the various aspects of the 
telecommunications and yellow page publishing businesses. Other companies, 
including existing publicly owned telecommunications companies, which have 
objectives similar to those of the Company, may be actively evaluating the 
same companies that would otherwise be targeted for acquisition by the 
Company. A number of these acquiring companies may have greater resources 
than the Company to finance acquisition opportunities and might be willing to 
pay higher prices than the Company. Further, as competition for acquisitions 
increases, the prices for the companies to be acquired are likely to increase 
as well. Consequently, the Company may encounter significant difficulties in 
its efforts to achieve growth through acquisitions. Its acquisition strategy 
presents risks that, singularly or in any combination, could materially 
adversely affect the Company's business, financial condition, results of 
operations and cash flows and the value of the Common Stock. These risks 
include the possibility of an adverse effect on existing operations of the 
Company from the diversion of management attention and resources to 
acquisitions, the possible loss of acquired customer bases and key personnel 
and the contingent and latent risks associated with the past operations of 
and other unanticipated problems arising in the acquired businesses. Customer 
dissatisfaction or performance problems of a single acquired company could 
have an adverse effect on the reputation of the Company generally and render 
the Company's sales and marketing initiatives ineffective. Whether the 
Company's acquisition strategy is successful will depend on the extent to 
which it is able to acquire, successfully integrate and profitably manage 
additional businesses, and no assurance can be given that the Company's 
strategy will succeed. 

   The Company may use Common Stock, cash, notes or other consideration to 
effect future acquisitions. The extent to which the Company will be able or 
willing to use the Common Stock for this purpose will be dependent on its 
market value from time to time and the willingness of potential sellers to 
accept the Common Stock as payment. To the extent the Company is unable or 
unwilling to use its Common Stock to make future acquisitions, its ability to 
grow may be limited by the extent to which it is able to raise capital for 
this purpose, as well as to expand existing operations, through debt or 
additional equity financings. Significant incurrences of debt for 
acquisitions or other purposes would increase the Company's leverage and 
could adversely affect its business, financial condition, results of 
operations and cash flows and the value of the Common Stock. See 
"Management's Discussion and Analysis of Combined Financial Condition and 
Results of Operations of Certain Acquired Companies -- Pro Forma Combined 
Results of Operations -- Pro Forma Liquidity and Capital Resources." 

POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK 

   On closing of the Acquisitions and the Offering, 19,624,920 shares of 
Common Stock will be outstanding. The 8,000,000 shares sold in the Offering 
(other than shares that may be purchased by affiliates of the Company) will 
be freely tradable. Substantially all of the remaining shares outstanding may 
be resold publicly only following their effective registration under the 
Securities Act of 1933, as amended (the "Securities Act"), or pursuant to an 
available exemption (such as that provided by Rule 144 following a one or two 
year holding period from the registration requirements of the Securities 
Act). The holders of these shares have certain rights to require the Company 
to file a registration statement with respect to their shares in the future 
under the Securities Act (see "Shares Eligible for Future Sale"), but 

                               22           
<PAGE>
may not exercise such registration rights for a period of one year following 
the closing of the Acquisitions. Sales made pursuant to Rule 144 must comply 
with its applicable volume limitations and other requirements. 

   On closing of the Offering, the Company also will have outstanding 
convertible notes, preferred stock and options and warrants to purchase up to 
a total of 4,185,775 shares of Common Stock. 

   The Company has agreed not to offer or sell any shares of Common Stock for 
a period of 180 days following the date of this Prospectus, subject to 
certain exceptions, without the prior written consent of PaineWebber 
Incorporated, provided that the Company may issue shares of Common Stock in 
acquisitions if such Common Stock is subject to similar lock-up provisions. 
The Company's directors, its executive officers and substantially all of the 
stockholders of ACG prior to the Acquisitons, including CPFF, have agreed not 
to offer or sell any shares for a period of one year following the date of 
this Prospectus (the "Lock-up Period"), subject to certain exceptions, 
without the prior written consent of PaineWebber Incorporated. Further, all 
persons who acquire shares of Common Stock in connection with the 
Acquisitions (other than the acquisition of ACG's predecessor) have agreed 
with the Company, subject to certain exceptions, not to offer or sell such 
shares during the Lock-Up Period, and the Company has agreed not to waive or 
amend these agreements without the prior written consent of PaineWebber 
Incorporated. In addition, Rod K. Cutsinger, a director and the largest 
stockholder of the Company, has agreed not to offer or sell any of his shares 
during a period ending 18 months after the closing of the Offering, subject 
to certain exceptions, without the prior written consent of PaineWebber 
Incorporated. See "Underwriting." 

   The effect, if any, of the availability for sale, or sale, of shares of 
Common Stock will have on the market price of the Common Stock prevailing 
from time to time is unpredictable, and no assurance can be given that the 
effect will not be adverse. 

NO PRIOR MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE 

   Prior to the Offering, no public market for the Common Stock has existed, 
and the initial public offering price, which has been determined by 
negotiation between the Company and representatives of the Underwriters, may 
not be indicative of the price at which the Common Stock will trade after the 
Offering. See "Underwriting." The Common Stock has been approved for listing 
on the New York Stock Exchange, Inc., subject to official notice of issuance; 
however, no assurance can be given that an active trading market for the 
Common Stock will develop or, if developed, continue after the Offering. The 
market price of the Common Stock after the Offering may be subject to 
significant fluctuations from time to time in response to numerous factors, 
including variations in the reported financial results of the Company, 
actions and recommendations of securities analysts, and changing conditions 
in the economy in general or in the Company's industry in particular. In 
addition, the stock markets experience significant price and volume 
volatility from time to time which may affect the market price of the Common 
Stock for reasons unrelated to the Company's performance at that time. 

IMMEDIATE AND SUBSTANTIAL DILUTION 

   Purchasers of Common Stock in the Offering (i) will experience immediate, 
substantial dilution in the net tangible book value of their stock of $13.33 
per share (see "Dilution") and (ii) may experience further dilution in that 
value from issuances of Common Stock in connection with future acquisitions. 

ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER PROVISIONS, DELAWARE LAW AND A 
STANDSTILL AGREEMENT 

   The terms of the Company's Restated Certificate of Incorporation, as well 
as the concentration of ownership of the Common Stock and the Company's 
ability to issue up to 20,000,000 "blank check" shares of preferred stock may 
have the effect of discouraging proposals by third parties to acquire a 
controlling interest in the Company, which could deprive stockholders of the 
opportunity to consider an offer to acquire their shares at a premium price 
to them. These provisions include (i) a classified Board of Directors, (ii) 
the ability of the Board of Directors to establish a sinking fund for the 
purchase or redemption of shares, fix the number of directors within a 
certain range and fill vacancies on the Board 

                               23           
<PAGE>
of Directors, and (iii) restrictions on the ability of stockholders to call 
special meetings, act by written consent or amend the foregoing provisions. 
In addition, under certain conditions Section 203 of the DGCL would impose a 
three-year moratorium on certain business combinations between the Company 
and an "interested stockholder" (in general, a stockholder owning 15% or more 
of a corporation's outstanding voting stock). The existence of such 
provisions may have a depressive effect on the market price of the Common 
Stock in certain situations. While the Company has not adopted a 
stockholders' rights plan, the Company has the power to do so under Delaware 
law. See "Description of Capital Stock -- Provisions Having Possible 
Anti-Takeover Effect." 

   In addition, Rod K. Cutsinger, a director and the Company's largest 
stockholder, intends to enter into a three-year standstill agreement with the 
Company pursuant to which he will agree not to acquire any additional shares 
of Common Stock except from the Company pursuant to stock dividends or splits 
or option or benefit plans, solicit proxies in opposition to nominees for 
directors proposed by the board, vote any of his shares of Common Stock in 
opposition to the recommendation of the disinterested members of ACG's board 
of directors regarding the election or removal of directors and matters 
relating to a possible change in control of the Company or take certain other 
proscribed actions. See "Description of Capital Stock -- Standstill 
Agreement." 

NO DIVIDENDS 

   The Company intends to retain all of its earnings, if any, to finance the 
expansion of its business and for general corporate purposes and does not 
anticipate paying any cash dividends on its Common Stock for the foreseeable 
future. In addition, the Company's proposed credit facility may contain 
certain significant restrictions on the ability of the Company to pay 
dividends. See "Dividend Policy" and "Management's Discussion and Analysis of 
Financial Condition and Results of Operations of Certain Acquired Companies 
- -- Pro Forma Combined Results of Operations -- Pro Forma Liquidity and 
Capital Resources." 

                               24           
<PAGE>
                                 THE COMPANY 

   ACG: ACG was founded to create a regional CLEC that provides an integrated 
portfolio of telecommunications services principally to business customers. 
The Company offers long distance, local, Internet access and cellular 
services, primarily in Kansas, Minnesota, Nebraska, North Dakota, Oklahoma, 
South Dakota and Texas and to a lesser extent in Arkansas, Colorado and 
Montana. As of November 30, 1997, the Company provided telecommunications 
services to almost 35,000 business customers and over 10,000 residential 
customers, typically located in mid-sized to smaller markets. The Company is 
also an independent publisher of yellow page directories. As of November 30, 
1997, the Company had approximately 255 direct sales personnel, including 
approximately 40 telemarketing personnel. The Company is entering into these 
businesses concurrently with the Offering by acquiring the nine Acquired 
Companies, its predecessor and its interest in KINNET. The Company had pro 
forma combined revenues of $85.4 million and EBITDA of $11.5 million in the 
fiscal year ended December 31, 1996. See "Certain Transactions -- 
Organizational Transactions" and "--The Acquisitions." The following is a 
description of the operating companies involved in the Acquisitions: 

   GREAT WESTERN: Great Western Directories, Inc. ("Great Western"), founded 
in 1984 and headquartered in Amarillo, Texas, produces and distributes 
approximately 3.1 million yellow page directories annually covering 20 
service areas in Oklahoma and Texas, and also publishes three yellow page 
directories in California. During the twelve months ended November 30, 1997, 
Great Western published 20 yellow page directories covering markets in the 
Region that contained advertisements for approximately 46,000 primarily small 
to mid-sized business customers. Great Western's revenues and EBITDA for the 
fiscal year ended December 31, 1996 were $44.3 million and $8.0 million, 
respectively. 

   VALU-LINE: Valu-Line of Longview, Inc. ("Valu-Line"), headquartered in 
Longview, Texas, was founded in 1983. Valu-Line owns and operates a Harris 
2020 LX digital tandem and local switch located in Dallas, Texas, and as of 
November 30, 1997, provided long distance services to approximately 9,200 
customers in Arkansas, Louisiana, Oklahoma and Texas. Valu-Line has recently 
received authorization to provide local telephone service in Texas, and as of 
November 30, 1997, provided local service to approximately 2,250 access lines 
on a resale basis through Southwestern Bell to customers in North and East 
Texas. Valu-Line's revenues and EBITDA for the fiscal year ended December 31, 
1996 were $11.2 million and $1.6 million, respectively. 

   FIRSTEL: FirsTel, Inc. ("FirsTel") headquartered in Sioux Falls, South 
Dakota, was founded in 1993. FirsTel owns and operates a switch center in 
Sioux Falls that includes three linked Harris 2020 digital tandem switches 
and, as of November 30, 1997, provided bundled telecommunications service to 
approximately 9,400 customers in Colorado, Idaho, Iowa, Minnesota, Montana, 
Nebraska, North Dakota, South Dakota and Wyoming. As of November 30, 1997, 
FirsTel provided local service to approximately 5,800 access lines on a 
resale basis through U S WEST to customers in North Dakota and South Dakota. 
FirsTel has recently secured authorization to provide local service in 
Minnesota, Nebraska and Wyoming and has an application pending to provide 
local service in Iowa. FirsTel began offering cellular service on a resale 
basis in South Dakota in February 1997 and had approximately 2,200 cellular 
subscribers as of November 30, 1997. FirsTel's revenues and EBITDA for the 
fiscal year ended December 31, 1996 were $10.4 million and $1.2 million, 
respectively. In early September 1997, FirsTel contracted to acquire two 
small telecommunications companies in South Dakota whose combined revenues 
for the fiscal year ended December 31, 1996 were $1.7 million. 

   FEIST LONG DISTANCE: Feist Long Distance Service, Inc. ("Feist Long 
Distance"), headquartered in Wichita, Kansas, was founded in 1992 by the 
stockholders of Feist Publications, Inc., a yellow page publisher that has 
been in business for 20 years. Feist Long Distance owns and operates a 
Northern Telecom DMS 250 digital tandem switch located in Wichita, Kansas, 
and as of November 30, 1997, provided primarily long distance services to 
approximately 15,000 customers in Colorado, Kansas, Nebraska, Oklahoma and 
Texas. Feist Long Distance received authorization in March 1997 to provide 
local telephone service in Kansas. As of November 30, 1997, Feist Long 
Distance provided local service to approximately 9,400 access lines on a 
resale basis through Southwestern Bell to customers primarily in the Wichita, 
Kansas metropolitan area. Feist Long Distance's revenues and EBITDA for the 
fiscal year ended December 31, 1996 were $10.0 million and $0.7 million, 
respectively. 

                               25           
<PAGE>
   OTHER ACQUIRED COMPANIES: The Other Acquired Companies (Long Distance 
Management II, Inc., Long Distance Management of Kansas, Inc., The 
Switchboard of Oklahoma City, Inc., Tele-Systems, Inc. and National Telecom, 
a proprietorship) include three other small long distance companies and two 
telephone equipment sales and service companies. One of the Other Acquired 
Companies owns and operates a Stromberg Carlson digital tandem switch located 
in Oklahoma City, Oklahoma. As of November 30, 1997, the Other Acquired 
Companies provided long distance service to approximately 8,800 customers and 
also provided telephone equipment and related maintenance services to over 
2,800 customers in the Wichita, Kansas market. The Other Acquired Companies' 
combined revenues and EBITDA for their most recent fiscal years were $7.8 
million and $0.6 million, respectively. 

   KINNET: KINNET, headquartered in Salina, Kansas, owns or operates an 
approximately 880-route mile fiber optic network in Kansas that connects 105 
Kansas communities. KINNET sells private line services of DS0, DS1 and DS3 
capacity to interexchange carriers, cellular carriers, independent local 
telephone companies, business and governmental accounts and others, including 
Feist Long Distance. KINNET currently has one of the largest fiber optic 
networks in the state of Kansas. KINNET also operates a Northern Telecom DMS 
500 digital tandem and local switch located near the center of its fiber 
optic network in Moundridge, Kansas capable of handling both long distance 
and local services. In 1996, KINNET provided 104 million minutes of equal 
access time or 1+ dialing service for approximately 18 independent local 
telephone companies in Kansas. ACG will account for its 49% ownership 
interest in KINNET by using the equity method of accounting. KINNET's 
revenues and EBITDA for the fiscal year ended December 31, 1996 were $8.6 
million and $2.4 million, respectively. 

   As part of the consideration in the KINNET transaction, the Company issued 
714,286 shares of Common Stock to the existing stockholder of KINNET, and it 
also made a $10.0 million direct cash investment in KINNET, $5.0 million of 
which KINNET has agreed to apply to the buildout in 1998 and 1999 of a 
537-mile, $21.5 million network extension from Wichita, Kansas to the greater 
Kansas City metropolitan area, with a leg to Tulsa, Oklahoma that will 
provide self-healing redundancy to its fiber optic network. KINNET has 
advised the Company that it expects to finance the balance of the expansion 
with proceeds from the Rural Telephone Finance Cooperative ("RTFC"). 

   STRATEGIC RELATIONSHIPS: The Company has a strategic relationship with 
Feist Publications, Inc. During the twelve months ended November 30, 1997, 
FPI sold advertisements in its yellow page directories published during the 
period to approximately 29,000 business customers in Kansas, Texas and 
Oklahoma. FPI has agreed, for a period of five years, to provide the Company 
access to its advertising customers and to provide eight information pages in 
the front of its directories with instructions on how to subscribe to the 
Company's services as well as free advertising space in each of FPI's 15 
yellow page directories that are currently in publication. FPI has reserved 
the right to terminate this agreement if the Company commences the 
publication of a yellow page directory in any market served by FPI. 

   One of the Acquired Companies recently purchased PAM COMM, a division of 
PAM Oil, Inc. ("PAM Oil"). Such company and PAM Oil, a distributor of 
automobile parts, oil and lubricants primarily in Idaho, Minnesota, Montana, 
North Dakota and South Dakota, have entered into a strategic arrangement. 
Under this arrangement, the Company is authorized to solicit the 
telecommunications business of PAM Oil's approximately 15,000 business 
customers, comprised of automobile dealers, parts suppliers and others. PAM 
Oil has agreed to use its telemarketing staff to solicit and refer 
telecommunications leads to the Company and to permit the Company to include 
telecommunications inserts in PAM Oil's monthly billing statements to its 
customers. The Company has agreed to pay PAM Oil a commission of 1% per month 
on most telecommunications revenues attributable to PAM Oil's customers. 

   The Company and Northwestern have entered into an agreement (the 
"Agreement") regarding the possible creation of a strategic alliance that 
would permit ACG to market its telecommunications services to that utility's 
approximately 100,000 electric and natural gas business and residential 
customers in South Dakota and Nebraska. Under the terms of the Agreement, 
which will be consummated contemporaneously with the Closing of the Offering, 
ACG will issue a number of shares of its Series A Redeemable Convertible 
Preferred Stock ("Preferred Stock") with an aggregate liquidation preference 
of $2 million to Northwestern Growth Corporation ("NGC"), a wholly-owned 
subsidiary of Northwestern, in exchange 

                               26           
<PAGE>
for, among other things, Northwestern's commitment to negotiate in good faith 
a strategic alliance upon commercially reasonable terms ("Northwestern 
Alliance"). Pursuant to the proposed Northwestern Alliance, ACG would have 
the exclusive right to market its telecommunications services to the 
customers of Northwestern and to have access to Northwestern's rights-of-way 
for the purpose of laying fiber optic cables. Subject to existing contractual 
commitments, ACG would also have the right to supply all of Northwestern's 
telecommunications services on competitive terms. Northwestern would 
cooperate with ACG in soliciting Northwestern's customers and receive a 
percentage of the telecommunications revenues generated by ACG sales to such 
customers. The Agreement contains a three-year standstill agreement by 
Northwestern and NGC with respect to ACG containing customary terms and 
conditions, regarding, among other things, mergers and acquisitions, tender 
offers, proxy contests, joining groups or encouraging others with respect to 
such matters. 

   The Preferred Stock becomes convertible into shares of Common Stock at the 
initial public offering price eighteen months after the consummation of this 
Offering, does not pay any dividends and is not entitled to vote in the 
election of directors. If the Northwestern Alliance has not been signed by 
the first anniversary date of the closing of the Offering, ACG can redeem the 
shares of Preferred Stock as an entirety for $1.25 million on or prior to the 
thirteenth monthly anniversary of the closing. 

SUMMARY OF TERMS OF THE ACQUISITIONS 

   ACG has entered into definitive acquisition agreements to acquire each of 
the Acquired Companies, its predecessor and its interest in KINNET. The 
aggregate consideration to be paid by ACG in the Acquisitions consists of 
approximately $73.3 million in cash to stockholders of the Acquired 
Companies, $10.0 million as a direct cash investment in KINNET, a fiber optic 
network company, promissory notes in the aggregate principal amount of $17.4 
million, 3,392,644 shares of Common Stock, warrants issued in June 1997 to 
purchase 756,078 shares of Common Stock exercisable at $6.61 per share, and 
options or warrants to be issued at the closing to purchase 598,500 shares of 
Common Stock exercisable at the initial public offering price and 38,635 
shares of Common Stock exercisable at one-third of the initial public 
offering price. Up to $50,000 in value of additional shares of Common Stock 
(computed at the initial public offering price) may be issued in connection 
with the acquisition of FirsTel if a company recently acquired by FirsTel 
reaches certain customer targets by August 31, 1998. Further, prior to the 
closing of the Acquisitions, certain of the Acquired Companies that are S 
Corporations will make cash distributions to their stockholders in amounts 
generally equal either to the undistributed retained earnings of the S 
Corporations, or the income tax due on those amounts, subject to certain 
limitations. Had these distributions been made at September 30, 1997, they 
would have been approximately $1.9 million, in addition to the approximately 
$3.1 million that had been distributed prior to that date. To the extent 
these Acquired Companies have additional earnings after September 30, 1997, 
the amounts of these distributions will increase. Additionally, ACG will also 
acquire from the stockholders of Feist Long Distance and FirsTel, together 
with the stock of those companies, approximately $0.7 million and $1.0 
million, respectively, of notes owed by those corporations to certain of 
their stockholders. See "Certain Transactions -- The Acquisitions." 

                               27           
<PAGE>
   The following table sets forth certain summary information relating to the 
acquisition of the Acquired Companies and the interest in KINNET, including 
the consideration payable, anticipated debt of the Acquired Companies and 
estimated cash distributions by S Corporations. See "The Company" and the 
separate financial statements for certain of the Acquired Companies and 
KINNET listed below included elsewhere in this Prospectus. 

<TABLE>
<CAPTION>
                                   CONSIDERATION 
                --------------------------------------------------- 
                                                                     ANTICIPATED 
    ACQUIRED       NUMBER OF                                           DEBT OF         ESTIMATED 
   COMPANIES       SHARES OF                                           ACQUIRED      S CORPORATION 
 AND KINNET(1)  COMMON STOCK(2)     CASH          NOTES      OTHER   COMPANIES(3)  DISTRIBUTIONS(4) 
- --------------  --------------- ------------  ------------ -------  ------------- -------------- 
                                      (DOLLARS IN THOUSANDS) 
<S>             <C>             <C>           <C>          <C>      <C>        <C>     <C>
Great Western .      714,286       $55,000       $15,000(5)    (6)         $   --      $1,318 
Valu-Line......      371,429(7)      6,600          --        --         1,506            195 
FirsTel........      792,643         5,000         2,000(8)    (9)         147(10)         22 
Feist Long 
 Distance......      714,286         1,500(11)      --        --            17            343 
Other Acquired 
 Companies.....       85,714         5,236           350(12)  (13)         437             61 
KINNET.........      714,286(14)    10,000(14)      --         --          N/A            N/A 
                --------------- ------------  ------------ -------  ------------- -------------- 
  Total........    3,392,644       $83,336       $17,350                $2,107         $1,939 
                =============== ============  ============ =======  ============= ============== 
</TABLE>

- ------------ 
(1)     In each case represents the acquisition of all of the stock or 
        substantially all of the assets, except KINNET, where the Company is 
        acquiring 49% of outstanding capital stock. 
(2)     The definitive agreements with respect to the various Acquisitions 
        provide that the number of shares of Common Stock to be issued in 
        each Acquisition shall be calculated by dividing the initial public 
        offering price into the following dollar amounts: Great Western -- 
        $10.0 million; Valu-Line -- $5.2 million; FirsTel -- $11.1 million; 
        Feist Long Distance -- $10.0 million; Other Acquired Companies -- 
        $1.2 million; and KINNET -- $10.0 million. 
(3)     Includes long term debt outstanding as of September 30, 1997 and a 
        payable with respect to S Corporation distributions, all of which are 
        anticipated to be paid out of the net proceeds of the Offering. Does 
        not include approximately $1.7 million of notes owed to stockholders 
        of Feist Long Distance and FirsTel which will be acquired by ACG in 
        the Acquisitions. 
(4)     These S Corporation distributions are estimated as of September 30, 
        1997, and are shown net of $3.1 million of distributions made by the 
        Acquired Companies during the first nine months of fiscal 1997. 
(5)     Notes mature on the second anniversary date of the closing of the 
        Acquisitions, bear interest at 5% per annum, payable annually, and 
        are subordinated to the first $50.0 million of outstanding bank debt. 
(6)     Includes non-transferable ten-year warrants to purchase 756,078 
        shares of Common Stock exercisable at $6.61 per share granted in June 
        1997 and 500,000 non-transferrable five-year warrants to purchase 
        Common Stock at the initial public offering price issued at the 
        closing of the Acquisitions. See "Certain Transactions -- Other 
        Organizational Matters" for additional information regarding these 
        warrants. 
(7)     Includes 20,000 shares of Common Stock placed into escrow for one 
        year, all or a portion of which will be returned to the Company if 
        Valu-Line incurs any liability for providing intrastate long distance 
        services to customers in Arkansas without the requisite permit and 
        71,428 shares of Common Stock placed into escrow for six months, all 
        or a portion of which may be returned to the Company to indemnify it 
        if certain liabilities described under "Risk Factors -- Recently 
        Instituted Litigation Against an Acquired Company" arise. 
(8)     Notes are convertible into Common Stock at the initial public 
        offering price, mature on the second anniversary date of the closing 
        of the Acquisitions, bear interest at 10% per annum, payable 
        annually, and are subordinated to the first $50.0 million of 
        outstanding bank debt. 
(9)     Includes 50,000 non-transferrable five-year warrants to purchase 
        Common Stock at the initial public offering price issued at the 
        closing of the Acquisitions. 
(10)    Includes obligations of $101,000 incurred by FirsTel in connection 
        with two acquisitions it made in September 1997 which will be paid 
        out of the proceeds of the Offering. 
(11)    In connection with the extension of the termination date of the 
        acquisition agreement relating to Feist Long Distance from January 
        31, 1998 to February 20, 1998, the Feist shareholders agreed to 
        reduce the cash component of the consideration payable to them by 
        $3.5 million in exchange for the Company's covenant not to commence 
        publication of a yellow page directory in Oklahoma City or its 
        metropolitan area until after the fifth anniversary of the 
        acquisition. 
(12)    Note bears interest at 7% per annum, and is payable in three equal 
        installments plus accrued interest, payable on the first three 
        anniversary dates of the closing of the Acquisitions. 
(13)    Includes 12,500 ten-year options and 36,000 ten-year warrants to 
        purchase Common Stock exercisable at the initial public offering 
        price and 38,635 ten-year options to purchase Common Stock at 
        one-third of the initial public offering price. These 38,635 options 
        vest as an entirety at the end of the 37th month following the 
        closing of the Acquisitions, may be put back to the Company for 
        $155,000 during the 38th month following the closing of the 
        Acquisitions, and are subject to cancellation if the terms of certain 
        employment and non-competition agreements are violated. A stockholder 
        of one of the Other Acquired Companies may receive up to 12,500 
        additional ten-year options to purchase Common Stock at the initial 
        public offering price if his company meets certain financial tests 
        subsequent to the closing. 
(14)    The shares are being issued to the stockholder of KINNET, and the 
        $10.0 million cash component is a direct cash investment in KINNET. 

                               28           
<PAGE>
   The consideration being paid by ACG in the Acquisitions was determined by 
arm's length negotiations between representatives of ACG and each of the 
respective companies. The closing of each Acquisition is subject to customary 
conditions. These conditions include, among others, the accuracy on the 
closing date of the Acquisitions of the representations and warranties made 
by their principal stockholders and ACG; the performance of each of their 
respective covenants included in the agreements relating to the Acquisitions; 
and the nonexistence of a material adverse change in the results of 
operations, financial condition or business of each of the companies being 
acquired. 

   Each agreement relating to an Acquisition may be terminated, under certain 
circumstances, prior to the closing of the Offering (i) by the mutual consent 
of the boards of directors of ACG and the relevant company being acquired; 
(ii) if this Offering and the acquisition of that company are not closed by 
February 20, 1998; (iii) by ACG if the schedules to the acquisition agreement 
are amended to reflect a material adverse change; or (iv) if a material 
breach or default under the agreement by one party occurs and is not waived. 
No assurance can be given that the conditions to the closing of all the 
Acquisitions will be satisfied or waived or that each Acquisition will close. 
For information regarding the employment agreements to be entered into by 
certain officers of certain of the Acquired Companies (which include 
covenants not to compete), see "Management -- Employment Agreements." 

                               29           
<PAGE>
                               DIVIDEND POLICY 

   It is the Company's current intention to retain its earnings, if any, to 
finance the expansion of its business and for general corporate purposes and 
the Company expects that it will not pay any dividends for the foreseeable 
future. Any future dividends will be at the discretion of the Board of 
Directors after taking into account various factors, including, among others, 
the Company's financial condition, results of operations, cash flows from 
operations, current and anticipated cash needs, general business conditions, 
the income tax laws then in effect, the requirements of Delaware law, the 
restrictions that may be imposed by the Company's proposed $25.0 million 
revolving credit facility to finance the Company's working capital 
requirements, any restrictions that may be imposed by the Company's future 
indebtedness and such other factors as the Board of Directors deems relevant. 
The proposed credit facility may place limitations on the payment of 
dividends (except for dividends payable in Common Stock and certain preferred 
stock). See "Management's Discussion and Analysis of Financial Condition and 
Results of Operations of Certain Acquired Companies -- Pro Forma Results of 
Operations -- Pro Forma Liquidity and Capital Resources." 

                               USE OF PROCEEDS 

   The net proceeds to the Company from the sale of the shares of Common 
Stock offered hereby, after deducting underwriting discounts and commissions 
and estimated offering expenses payable by the Company, are estimated to be 
approximately $100.6 million (approximately $116.3 million if the 
Underwriters exercise their over-allotment option in full). Of those net 
proceeds, $73.3 million will be used to pay the aggregate cash portion of the 
purchase price for the Acquired Companies, $10.0 million will be used to make 
a direct cash investment in KINNET, a fiber optic network company, and the 
remaining net proceeds will be used for (i) the repayment of outstanding 
principal amount of indebtedness and certain other payables of the Acquired 
Companies (approximately $2.3 million as of September 30, 1997 and the date 
of this Prospectus), (ii) the repayment of outstanding principal amount of 
indebtedness of ACG to CPFF (approximately $1.7 million and $3.2 million, 
respectively, as of September 30, 1997 and the date of this Prospectus); 
(iii) a one-time payment to Rod K. Cutsinger, the founder of ACG, as 
consideration for a five-year non-competition agreement ($1.75 million); and 
(iv) general corporate purposes, including capital expenditures, 
infrastructure buildout and acquisitions. Shareholders of the Acquired 
Companies who will become executive officers or directors of the Company upon 
the consummation of the Acquisitions will receive approximately $35.6 million 
of the cash purchase price paid in the Acquisitions. See "Certain 
Transactions -- The Acquisitions" and "--Organization of the Company." 

   The indebtedness of the Acquired Companies to be repaid from the proceeds 
of the Offering (some of which has been guaranteed by stockholders of the 
Acquired Companies) bears interest at rates ranging from 5.75% to 18.6% per 
annum. Such indebtedness would otherwise mature at various dates through 
August 2005. The indebtedness of ACG to CPFF bears interest at 8% per annum 
and is payable on the earlier of the effectuation of an initial public 
offering by ACG or December 31, 1998. 

                               30           
<PAGE>
                                CAPITALIZATION 

   The following table sets forth, as of September 30, 1997, the cash, 
short-term debt and current maturities of long-term obligations and 
capitalization of (i) ACG and its predecessor on an actual basis, (ii) the 
Company on a pro forma combined basis to give effect to the Acquisitions and 
the issuance of shares of Preferred Stock to Northwestern, and (iii) the 
Company on a pro forma combined basis to give effect to the Acquisitions and 
the issuance of shares of Preferred Stock to Northwestern, as further 
adjusted to give effect to the Offering and the application of the estimated 
net proceeds therefrom. See "Use of Proceeds." This table should be read in 
conjunction with the Unaudited Pro Forma Financial Statements of the Company 
and the related notes thereto included elsewhere in this Prospectus. 

<TABLE>
<CAPTION>
                                                                         SEPTEMBER 30, 1997 
                                                                 ---------------------------------- 
                                                                                         COMPANY 
                                                                             COMPANY    PRO FORMA 
                                                                               PRO          AS 
                                                                    ACG       FORMA      ADJUSTED 
                                                                 --------- ----------  ----------- 
                                                                           (IN THOUSANDS) 
<S>                                                              <C>        <C>        <C>
Cash............................................................  $  --      $    554   $ 11,862 
                                                                 ========= ==========  =========== 
Short-term debt and current maturities of long-term 
 obligations: 
  8% promissory note payable to CPFF (1)........................  $ 1,856    $  1,856    $  -- 
  Other(2)......................................................     --         1,102         117 
Obligation for cash portion of consideration for Acquisitions ..     --        83,336       -- 
Long-term debt: 
  Long-term debt of Acquired Companies, less current 
   maturities...................................................     --         1,316       -- 
  5% Subordinated Promissory Notes(3)...........................     --        15,000      15,000 
  10% Convertible Subordinated Notes(4).........................     --         2,000       2,000 
  7% Note, less current maturities(5)...........................     --           233         233 
Stockholders' equity: 
  Preferred Stock: $0.0001 par value, 20,000,000 shares 
   authorized: no shares of Series A issued and outstanding, 
   ACG and Company pro forma; 142,857 shares issued and 
   outstanding, Company pro forma as adjusted(6)................     --         --          1,122 
  Common Stock: $0.0001 par value, 180,000,000 shares 
   authorized: 8,232,276 shares issued and outstanding, ACG; 
   11,624,920 shares issued and outstanding, Company pro forma; 
   19,624,920 shares issued and outstanding, Company pro forma 
   as adjusted(7)...............................................                                1 
  Additional paid-in capital....................................       47      38,798     140,051 
  Retained earnings.............................................   (2,263)     (2,263)     (2,263) 
                                                                 --------- ----------  ----------- 
   Total stockholders' equity (deficit) ........................   (2,216)     36,535     138,911 
                                                                 --------- ----------  ----------- 
    Total debt and capitalization...............................  $  (360)   $141,378    $156,261 
                                                                 ========= ==========  =========== 
</TABLE>

- ------------ 
(1)    As of January 12, 1998, this amount has increased to $3.2 million. 
(2)    Includes $985,000 in current portion of long-term debt of the Acquired 
       Companies and $117,000 in current maturities of a 7% Note. 
(3)    Notes mature on the second anniversary date of the closing of the 
       Acquisitions and are subordinated to the first $50.0 million of 
       outstanding bank debt. 
(4)    Notes are convertible into Common Stock at the initial public offering 
       price, mature on the second anniversary date of the closing of the 
       Acquisitions and are subordinated to the first $50.0 million of 
       outstanding bank debt. 
(5)    Note is payable in three annual installments on the first, second and 
       third anniversary dates of the closing of the Acquisitions. 
(6)    The Preferred Stock has an aggregate liquidation preference of $2.0 
       million, is convertible into 142,857 shares of Common Stock at the 
       initial public offering price 18 months after the consummation of the 
       initial public offering and is redeemable, at the option of the 
       Company, for $1.25 million in the 13th month after the initial public 
       offering if no strategic alliance has been entered into. The Preferred 
       Stock has been assigned a value of $1,122,000 representing the 
       estimated fair value on the date of grant based on an imputed market 
       interest rate of 10%. See "The Company -- Strategic Relationships." 
(7)    Excludes an aggregate of 4,185,775 shares of Common Stock issuable upon 
       the exercise of options granted pursuant to the Plan, the Directors' 
       Plan or otherwise issuable upon the exercise of options, warrants or 
       convertible notes and preferred stock issued prior to or 
       contemporaneously with the consummation of the Offering and the 
       Acquisitions at exercise prices ranging from $2.50 to the initial 
       public offering price. See "Management -- 1997 Stock Awards Plan." 

                               31           
<PAGE>
                                   DILUTION 

   The pro forma net tangible book value deficit of the Company as of 
September 30, 1997 was approximately $86.4 million, or approximately $7.43 
per share, after giving effect to the Acquisitions. The pro forma net 
tangible book value per share represents the Company's pro forma net tangible 
assets as of September 30, 1997, divided by the number of shares to be 
outstanding after giving effect to the Acquisitions. After giving effect to 
the sale of the 8,000,000 shares offered hereby at the initial public 
offering price of $14.00 per share and deducting estimated underwriting 
discounts and commissions and estimated offering expenses payable by the 
Company, the Company's pro forma net tangible book value as of September 30, 
1997 would have been approximately $13.2 million or approximately $0.67 per 
share. This represents an immediate increase in pro forma net tangible book 
value of approximately $8.10 per share to existing stockholders and an 
immediate dilution of approximately $13.33 per share to new investors 
purchasing shares in the Offering. The following table illustrates this pro 
forma dilution: 

<TABLE>
<CAPTION>
<S>                                                              <C>       <C>
 Initial public offering price per share.........................            $14.00 
 Pro forma net tangible book value per share before the 
  Offering......................................................   $(7.43) 
 Increase in pro forma net tangible value per share 
 attributable 
  to new investors .............................................     8.10 
                                                                 --------- 
Pro forma net tangible book value per share after the Offering .               0.67 
                                                                           -------- 
Dilution per share to new investors.............................             $13.33 
                                                                           ======== 
</TABLE>

   The following table sets forth on a pro forma basis as of September 30, 
1997 (after giving effect to the Acquisitions), the number of shares of 
Common Stock purchased from the Company, the total consideration to the 
Company and the average price per share paid to the Company by existing 
stockholders and the new investors purchasing shares from the Company in the 
Offering (before deducting underwriting discounts and commissions and 
estimated offering expenses): 

<TABLE>
<CAPTION>
                                                                        
                            SHARES PURCHASED      TOTAL CONSIDERATION   AVERAGE 
                       -------------------------- -------------------    PRICE   
                            NUMBER      PERCENT        AMOUNT(2)       PER SHARE
                       --------------- ---------  ------------------- ----------- 
                                                     (IN THOUSANDS) 
<S>                    <C>             <C>        <C>                 <C>
Existing 
 stockholders.........    11,624,920(1)   59.2%         $(85,529)        $(7.36) 
New investors.........     8,000,000      40.8           112,000          14.00 
                       --------------- ---------  -------------------             
  Total...............    19,624,920       100%         $ 26,471 
                       =============== =========  =================== 
</TABLE>
- ------------ 
(1)    Shares purchased by existing stockholders include shares outstanding on 
       September 30, 1997 plus 3,392,644 shares issued in the Acquisitions. 
(2)    Total consideration paid by existing stockholders represents the sum of 
       (i) total common stock value and additional paid in capital of the 
       Acquired Companies and ACG as set forth under the caption "Historical 
       Basis Combined" on ACG's pro forma balance sheet, less (ii) cash paid 
       in the Acquisitions of $83,336,000, less (iii) S Corporation 
       distributions of $1,939,000, plus (iv) notes payable to existing 
       stockholders of the Acquired Companies acquired by ACG of $1,699,000. 

                               32           
<PAGE>
                           SELECTED FINANCIAL DATA 

   ACG will effect the Acquisitions concurrently with and as a condition to 
the consummation of the Offering. For financial statement presentation 
purposes, ACG has been identified as the "accounting acquiror." The following 
selected financial data for ACG as of December 31, 1996 and for the period 
from inception to December 31, 1996, has been derived from the audited 
financial statements of ACG. The selected historical financial data for ACG 
as of and for the nine months ended September 30, 1997 have been derived from 
unaudited financial statements of ACG which have been prepared on the same 
basis as the audited financial statements and, in the opinion of ACG, reflect 
all adjustments, consisting only of normal recurring adjustments, necessary 
for a fair presentation of such data. The selected unaudited pro forma 
combined financial data for the Company as of September 30, 1997, and for the 
year ended December 31, 1996 and the nine months ended September 30, 1996 and 
1997, are as adjusted for (i) the effects of the Acquisitions; (ii) the 
effects of certain pro forma adjustments to the historical financial 
statements and (iii) the consummation of the Offering and the application of 
the net proceeds therefrom as set forth under "Use of Proceeds" and recording 
the balance as cash. See the Unaudited Pro Forma Combined Financial 
Statements and the notes thereto and the historical financial statements and 
the notes thereto included elsewhere in this Prospectus. 

<TABLE>
<CAPTION>
                                                              PERIOD FROM 
                                                               INCEPTION 
                                                             (JUNE 6, 1996) 
                                                                THROUGH       NINE MONTHS ENDED 
                                                           DECEMBER 31, 1996  SEPTEMBER 30, 1997 
                                                           -----------------  ------------------ 
                                                                      (IN THOUSANDS) 
<S>                                                        <C>               <C>
STATEMENT OF OPERATIONS DATA: 
 ACG 
  Revenues................................................      $    --            $    -- 
  Selling, general and administrative expenses ...........          649              1,462 
  Net loss................................................          659              1,604 
  Net loss per share .....................................      $  0.08            $  0.19 

                                                               YEAR ENDED     NINE MONTHS ENDED 
                                                           DECEMBER 31, 1996  SEPTEMBER 30, 1997 
                                                           -----------------  ------------------ 
                                                           (IN THOUSANDS, EXCEPT PER SHARE DATA) 
 THE COMPANY 
 PRO FORMA COMBINED(1) 
  Revenues 
    Telecommunications services...........................      $41,090            $33,455 
    Yellow page publishing................................       44,324             35,624 
                                                           ----------------- ------------------ 
      Total revenues......................................       85,414             69,079 
  Cost of services........................................       47,087             37,637 
  Depreciation and amortization(2)........................        6,111              4,339 
                                                           ----------------- ------------------ 
  Gross profit............................................       32,216             27,103 
  Selling, general and administrative expenses ...........       26,966             23,172 
                                                           ----------------- ------------------ 
  Operating income........................................        5,250              3,931 
  Other income and expense, net(3)........................        6,448                253 
  Interest expense........................................         (774)              (581) 
  Equity in earnings (loss) of KINNET.....................       (1,069)              (657) 
                                                           ----------------- ------------------ 
  Income before tax.......................................        9,855              2,946 
  Net income(4)...........................................      $ 3,703            $   168 
                                                           ================= ================== 
  Accretion of preferred stock(5).........................          112                 16 
                                                           ----------------- ------------------ 
  Net income available to common stockholders  ...........      $ 3,591            $   152 
                                                           ================= ================== 
  Net income per share available to common stockholders  .      $  0.18            $  0.01 
                                                           ================= ================== 
  Shares used in computing pro forma net income per 
   share(6)...............................................   20,190,864          20,190,864 
                                                           ================= ================== 
  Cash provided by operating activities...................      $ 9,037            $ 5,893 
  Cash used in investing activities.......................         (711)              (579) 
  Cash used in financing activities.......................       (7,482)            (4,470) 
  EBITDA (7) .............................................      $11,527            $ 8,523 
</TABLE>

                               33           
<PAGE>
<TABLE>
<CAPTION>
                                                                             THE COMPANY 
                                                     ACG                 SEPTEMBER 30, 1997 
                                       ------------------------------- ----------------------- 
                                        DECEMBER 31,    SEPTEMBER 30,                   AS 
                                            1996            1997        PRO FORMA    ADJUSTED 
                                       -------------- ---------------  ----------- ---------- 
                                                           (IN THOUSANDS) 
<S>                                    <C>            <C>              <C>         <C>
BALANCE SHEET DATA: 
  Cash and cash equivalents...........      $  33          $    --       $    554    $ 11,862 
  Working capital (deficit) ..........       (689)          (3,407)       (73,532)     25,275 
  Total assets........................         92            1,191        153,393     166,954 
  Total debt, including current 
   portion............................        575            1,856         21,507      17,350 
  Stockholders' equity................       (632)          (2,216)        36,535     138,911 
</TABLE>

- ------------ 
(1)    The pro forma statements of operations data and the pro forma balance 
       sheet data assume that the Acquisitions were closed on January 1, 1996 
       and September 30, 1997, respectively, and are not necessarily 
       indicative of the results the Company would have obtained had these 
       events actually then occurred or of the Company's future results. The 
       pro forma combined financial information (i) is based on preliminary 
       estimates, available information and certain assumptions that 
       management deems appropriate and (ii) should be read in conjunction 
       with the other financial statements and notes thereto included 
       elsewhere in this Prospectus. The pro forma combined revenues are all 
       attributable to the Acquired Companies. 

(2)    Includes $4.2 million and $3.2 million of amortization for the twelve 
       months ended December 31, 1996 and the nine months ended September 30, 
       1997, respectively, on the estimated $105.8 million of goodwill to be 
       recorded as a result of the Acquisitions computed on the basis 
       described in Notes to the Unaudited Pro Forma Combined Financial 
       Statements. 

(3)    Other income for the year ended December 31, 1996 includes a $6.3 
       million litigation settlement received by Great Western. 

(4)    Assumes that all income is subject to a corporate tax rate of 40% and 
       that all intangible asset amortization is non-deductible for income tax 
       purposes. 
(5)    Represents accretion of the excess of the liquidation preference over 
       the carrying value of the Preferred Stock. 

(6)    Includes (i) the 8,232,276 shares outstanding immediately prior to the 
       Offering, (ii) 3,392,644 shares issued in the Acquisitions, (iii) 
       7,230,601 of the shares sold in the Offering necessary to generate all 
       net proceeds other than those unallocated and available for general 
       corporate purposes (see "Use of Proceeds") and (iv) 1,335,343 shares 
       representing the incremental effect of options and warrants on shares 
       outstanding. 

(7)    EBITDA as used in this Prospectus consists of earnings (loss) before 
       interest, income taxes, depreciation and amortization and less equity 
       in earnings (loss) of a minority owned affiliate and less the portion 
       of other income and expense (net) attributable to the $6.3 million 
       litigation settlement received by Great Western in 1996. The Company 
       has included EBITDA data because it is a measure commonly used in the 
       telecommunications industry. EBITDA is not a measure of financial 
       performance determined under generally accepted accounting principles, 
       should not be considered as an alternative to net income as a measure 
       of performance or to cash flows as a measure of liquidity, and is not 
       necessarily comparable to similarly titled measures of other companies. 

                               34           
<PAGE>
         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
           AND RESULTS OF OPERATIONS OF CERTAIN ACQUIRED COMPANIES 

   The following discussion should be read in conjunction with the financial 
statements, the notes thereto and the other financial data included elsewhere 
in this Prospectus. The following discussion contains certain forward-looking 
statements with respect to the Company's expectations regarding its business 
after it has consummated the Acquisitions. These forward-looking statements 
are subject to certain risks and uncertainties which may cause actual results 
to differ significantly from such forward-looking statements. See "Risk 
Factors." 

OVERVIEW OF THE ACQUIRED COMPANIES' SOURCES OF REVENUES AND EXPENSES 

   The Acquired Companies derive their revenues primarily from the provision 
of telecommunications services in the Region and the sale of advertising 
space in yellow page directories serving market areas in two states in the 
Region and California. 

   Telecommunications Services Revenues and Price Declines. The Acquired 
Companies' telecommunications services principally include long distance and 
local services, Internet access, cellular service and other enhanced 
services. Their telecommunications revenues are derived principally from 
minutes of long distance telecommunications traffic carried. As discussed 
under " -- Pro Forma Combined Results of Operations," the domestic revenue 
per minute and domestic cost per minute have declined steadily over the last 
several years, while the domestic billable minutes of use attributable to the 
Acquired Companies' combined long distance operations have increased 
substantially over the same period. 

   The Acquired Companies generally price their long distance services at a 
discount to the primary carrier or carriers in each of their markets. The 
Acquired Companies have generally experienced and expect to continue to 
experience declining revenue per minute in all of their markets as a result 
of increased competition; nevertheless, due to technological innovation and 
substantial available transmission capacity, transmission costs in the 
telecommunications industry have often declined at a more rapid rate than 
prices. There can be no assurance that this relationship will continue. 
Industry observers predict that, early in the next decade, telephone charges 
will no longer be based on the distance a call is carried. As a consequence, 
the Company could experience a substantial reduction in its margins on long 
distance calls which, absent a significant increase in billable minutes of 
traffic carried or charges for additional services, would have a material 
adverse effect on the Company's financial position and results of operations 
and could have a material adverse effect on the price of the Common Stock. 

   Local service revenues, which are currently not material but which the 
Company expects to increase in future periods, represent the resale at a 
discount of the local carrier services provided primarily by Southwestern 
Bell and U S WEST. In most of the Acquired Companies' market areas, local 
service is sold on a flat monthly fee basis. Certain of the Acquired 
Companies have recently commenced reselling cellular service in a limited 
portion of the Region, and the revenues generated to date from these 
activities have not been material. 

   Yellow Page Publishing Revenues. Yellow page publishing revenues are 
attributable to the sale of advertising space in the directories that serve 
its 17 market areas in Texas, three market areas in Oklahoma and six market 
areas in California. Revenues are recognized when each directory is 
published. Great Western has decided to discontinue three of its directories 
in California, which produced revenues of $2.3 million in fiscal 1996. 
Because of the timing of the discontinuation, $1.4 million of these revenues 
will not recur in 1997, and none of them will recur in 1998. While Great 
Western's yellow page business is not seasonal, five of its directories which 
have for the last several years accounted for approximately one-third of its 
annual revenue are published in the first quarter. The gross margin on these 
directories is generally significantly higher than that in several 
directories published in the fourth quarter. Consequently, Great Western's 
gross margin and gross profit in the first quarter are higher than those in 
subsequent quarters. Directories are typically published annually in each 
market area. Increases in revenues have generally been attributable to 
increases in the number and size of advertisements in the directories. 

                               35           
<PAGE>
   When Great Western expands into a new yellow page market, it typically 
seeks to attract its targeted customers by producing and publishing a full 
scale initial directory in which it gives away advertising space. Thus on a 
first directory in a new market (the "prototype year"), Great Western may 
have substantial expenses, depending on the size of the market, with little 
or no offsetting revenues. During the last three fiscal years, the expenses 
associated with the first publication of a directory in a market have ranged 
from approximately $500,000 to $2.0 million, depending on the size of the 
market. Great Western sells advertising in the second directory in a market 
(the "first sold year"), after the advertisers have had an opportunity to 
experience the reception of the new yellow page directory and their 
advertisements in the marketplace. See "Management's Discussion and Analysis 
of Financial Condition and Results of Operations of Certain Acquired 
Companies -- Great Western Directories, Inc." Great Western usually is able 
to sell advertising space in the directory for the first sold year to 
approximately 65% of the advertisers who received free space in the prototype 
directory. In a new market, however, Great Western has no prior first-hand 
credit experience with its advertising customers, and therefore usually has 
disproportionate bad debt expense with respect to the directory for the first 
sold year, and it typically records a provision for bad debts of 20% with 
respect to that directory, versus its overall allowance of 10% for current 
receivables. Once in a market, Great Western may seek to increase its 
geographic coverage by expanding outward from its initial service area. 

   Cost of Services -- Telecommunications Services. The Acquired Companies 
have an extensive network that connects a number of cities in the Region and 
upon which they can transmit their customers' long distance calls. These 
"on-net" facilities include the Acquired Companies' switches, a web of leased 
access trunks that connect those switches to the local exchange carrier's 
switches, DS1 and DS3 lines that connect certain high volume customers to the 
Acquired Companies' switches and leased lines from other long-haul carriers. 
Once a long distance call reaches one of the Acquired Comanies' switches, it 
can be routed over that Acquired Companies' network or, if the Acquired 
Company does not have an "on-net" connection, over the network of another 
long-haul carrier from which the Acquired Company purchases access. The bulk 
of the Acquired Companies' "off-net" termination services are provided by 
large long distance companies with long haul transmission capabilities. See 
"Business -- Network Facilities and Carrier Agreements." 

   Because of its ownership interest in KINNET, the Company expects to 
consolidate some of its traffic in KINNET's area of operations on the KINNET 
network after the Offering. Further, the Company expects that after the 
Offering it will obtain pricing reductions from KINNET with respect to the 
traffic that the Company consolidates on the KINNET network. 

   The Acquired Companies' cost of long distance services comprises the costs 
associated with acquiring switched transmission and leased line capacity. 
Switched transmission capacity is acquired on a per-minute basis (with volume 
discounts) and is, therefore, a variable cost. Virtually all calls carried by 
the Acquired Companies must be originated or terminated over another 
carrier's facilities and access charges must be paid to utilize those 
facilities. Termination, origination and access charges on calls are paid by 
the Acquired Companies to ILECs. Leased transmission capacity is typically 
acquired on a fixed cost basis, generally involving fixed monthly payments 
regardless of usage levels. Accordingly, once certain volume levels are 
reached, leased line capacity is more cost effective than switched 
transmission capacity. Following the Offering, the Company expects to be able 
to obtain better pricing because of the substantial number of minutes of 
traffic generated by the Acquired Companies on a combined basis. Although the 
Acquired Companies have entered into four take-or-pay agreements with other 
carriers in order to maximize volume discounts, since their inception the 
minimum usage levels under these contracts have been met, and the Acquired 
Companies have not incurred any obligation to make cash payments in lieu of 
usage under these agreements. See "Business -- Network Facilities and Carrier 
Agreements." 

   At present the Acquired Companies provide local services by reselling the 
local services of other local exchange carriers at a discount from the prices 
charged by those carriers to individual customers. The cost of providing such 
services depends on the rates which the Acquired Companies can negotiate from 
those carriers. 

                               36           
<PAGE>
   Cost of Services -- Yellow Page Publishing. The principal components of 
cost of service relate to sales commissions, paper and publishing costs, 
colorizing advertisements and delivery expenses. The introduction of a new 
directory of significant size in one of the cities in the Region would 
increase the Company's aggregate yellow page cost of services. Great Western 
has in the last year lowered its printing costs by switching from a single 
printing supplier to a competitive bidding process among several suppliers. 
Great Western contracts with third parties for printing and delivering its 
directories and routinely purchases its paper requirements from third party 
suppliers. The colorizing of advertisements in its yellow page directories is 
provided by a company in which an executive officer and director of the 
Company is an officer, director and significant stockholder. See "Certain 
Transactions -- Other Matters." 

   Selling, General Administrative Expenses. The Acquired Companies have 
historically sold their telecommunications services primarily through 
commissioned sales personnel, advertising, internal and external marketers 
and agents. Selling expenses have, therefore, primarily consisted of 
advertising and promotion costs, salaries and commissions of employees, 
expenses related to the provision of customer service and, to a lesser 
extent, commissions paid to agents. Great Western has historically sold 
advertising space in its yellow page directories through commissioned sales 
personnel. Hence selling expenses for the Great Western's yellow pages 
business consists primarily of employee salaries and commissions. After the 
Offering, the Company expects its total selling expenses to increase as it 
increases its sales staff to expand its marketing efforts. Great Western has 
historically included its selling expenses in cost of services. 

   In anticipation of the commencement of operating activities and of the 
Offering, the Company has been assembling its senior management team, which 
it expects to continue to augment, which is resulting in an increase in 
general and administrative expenses. General and administrative expenses will 
increase substantially subsequent to the Offering, as the Company publishes 
additional yellow page directories, expands its customer service and sales 
staffs, implements billing, financial reporting and other management 
information systems and network management systems and incurs organizational 
expenses relating to entering additional markets. Such expenses will be 
incurred in advance of anticipated related revenues. 

GREAT WESTERN DIRECTORIES, INC. 

   The following table sets forth for Great Western selected statement of 
operations data and such data as a percentage of revenues for the periods 
indicated: 

<TABLE>
<CAPTION>
                                                                   YEAR ENDED                NINE MONTHS ENDED 
                              YEAR ENDED JANUARY 31,              DECEMBER 31,                 SEPTEMBER 30, 
                      --------------------------------------- ------------------- --------------------------------------- 
                             1995               1996(1)             1996(1)               1996                1997 
                      ------------------- ------------------- ------------------- ------------------- ------------------- 
                                                             (DOLLARS IN THOUSANDS) 
<S>                   <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>        <C>
Revenues.............  $29,407    100.0%   $36,469    100.0%   $44,324    100.0%   $33,463    100.0%    $35,624    100.0% 
Cost of services ....   17,733     60.3%    19,568     53.7%    21,394     48.3%    15,111     45.2%     16,690     46.8% 
Depreciation and 
 amortization........      272      0.9%       228      0.6%       223      0.5%       171      0.5%        168      0.5% 
                      --------- --------  --------- --------  --------- --------  --------- --------  ---------  -------- 
Gross profit.........   11,402     38.8%    16,673     45.7%    22,707     51.2%    18,181     54.3%     18,766     52.7% 
Selling, general and 
 administrative 
 expenses............   10,785     36.7%    12,661     34.7%    14,987     33.8%    11,606     34.7%     12,647     35.5% 
                      --------- --------  --------- --------  --------- --------  --------- --------  ---------  -------- 
Income from 
 operations..........      617      2.1%     4,012     11.0%     7,720     17.4%     6,575     19.6%      6,119     17.2% 
</TABLE>

- ------------ 
(1)    The fiscal years of Great Western Directories, Inc. ended on January 
       31, 1995 and 1996 and December 31, 1996. Consequently the data for 
       Great Western for the fiscal years ended January 31, 1996 and December 
       31, 1996 both include the month of January 1996. 

Great Western results for the nine months ended September 30, 1996 compared 
 to the nine months ended September 30, 1997. 

   Revenues. Revenues increased $2.1 million, or 6.5%, from $33.5 million for 
the nine months ended September 30, 1996 to $35.6 million for the nine months 
ended September 30, 1997. This improvement resulted primarily from a $1.2 
million increase in sales of advertising space in the Tulsa, Oklahoma 

                               37           
<PAGE>
directory, due to increased numbers of customers. The Tulsa directory was in 
its second year of revenue publication after its prototype publication in 
fiscal 1995. In addition, there were increases in sales of advertising space 
in directories of $0.2 million in each of the established Texas markets of 
Amarillo and Humble, $0.1 million in each of the established markets of 
Lawton, Oklahoma and Temple, Arlington, Clear Lake and Baytown, Texas, and 
$0.4 million in the established markets of Enid, Oklahoma and Denton, Grand 
Prairie, Killeen, Northeast Tarrant County, Pasadena and 
Pearland/Friendswood, Texas. These gains were partially offset by decreases 
in sales of advertising space of $0.3 million in the established California 
markets of Santa Cruz, Napa and Vallejo. 

   Gross profit. Gross profit increased $0.6 million, or 3.2%, from $18.2 
million for the nine months ended September 30, 1996 to $18.8 million for the 
nine months ended September 30, 1997. Gross margin decreased from 54.3% for 
the nine months ended September 30, 1996 to 52.7% for the nine months ended 
September 30, 1997. While certain variable costs of services, such as 
commissions, increased at a more rapid rate than revenues, due primarily to 
temporary changes in commission payment methodology, certain other costs of 
services, such as printing and distribution, which fluctuate with the number 
of directories published, remained flat due to a competitive bidding process 
that resulted in the use of alternative printing facilities and delivery 
services. 

   Selling, general and administrative expenses. Selling, general and 
administrative expenses increased $1.0 million, or 9.0%, from $11.6 million 
for the nine months ended September 30, 1996 to $12.6 million for the nine 
months ended September 30, 1997. As a percentage of revenues, selling, 
general and administrative expenses increased from 34.7% for the nine months 
ended September 30, 1996 to 35.5% for the nine months ended September 30, 
1997 due to an increase in salaries and payroll taxes of $0.9 million, which 
includes an increase in executive compensation in the amount of approximately 
$600,000, a substantial portion of which will not recur after the 
Acquisitions and the Offering. As a percentage of revenues, salaries and 
payroll taxes increased from 13.9% for the nine months ended September 30, 
1996 to 15.6% for the nine months ended September 30, 1997. 

Great Western results for the fiscal year ended January 31, 1996 compared 
 to the fiscal year ended December 31, 1996. 

   Revenues. Revenues increased $7.8 million, or 21.5%, from $36.5 million 
for the fiscal year ended January 31, 1996 to $44.3 million for the fiscal 
year ended December 31, 1996, primarily as a result of the first publication 
for revenue of the Tulsa, Oklahoma directory in February 1996, which resulted 
in sales of advertising space of $7.4 million. This increase was partially 
offset by a $0.5 million charge from the settlement of litigation in Sonoma 
County, California, and a $0.6 million decrease in sales of advertising space 
of the combined California markets. An additional $1.6 million in revenue 
growth was the result of successful marketing efforts in the remaining, more 
mature markets. 

   Gross profit. Gross profit increased $6.0 million, or 36.2%, from $16.7 
million for the fiscal year ended January 31, 1996 to $22.7 million for the 
fiscal year ended December 31, 1996. Gross margin increased from 45.7% for 
the fiscal year ended January 31, 1996 to 51.2% for the fiscal year ended 
December 31, 1996 due primarily to the gross profit contribution of the first 
sold year of the Tulsa, Oklahoma directory, a highly profitable market. Also, 
certain costs of services did not increase proportionately with revenues due 
to a competitive bidding process that resulted in the use of alternative 
printing facilities. In addition, Great Western was able to take advantage of 
an overall decrease in paper prices. 

   Selling, general and administrative expenses. Selling, general and 
administrative expenses increased $2.3 million, or 18.4%, from $12.7 million 
for the fiscal year ended January 31, 1996 to $15.0 million for the fiscal 
year ended December 31, 1996. As a percentage of revenues, selling, general 
and administrative expenses decreased from 34.7% for the fiscal year ended 
January 31, 1996 to 33.8% for the fiscal year ended December 31, 1996 as a 
result of the impact of the revenues from the first sold year of the Tulsa, 
Oklahoma directory. While the sales for the first publication for revenue of 
the Tulsa directory were included in the fiscal year ended December 31, 1996, 
the associated general and administrative expenses were included in the 
fiscal year ended January 31, 1996. General and administrative expenses 
related to 

                               38           
<PAGE>
a given directory are generally incurred prior to the generation and 
recognition of revenues and costs of services. As a percentage of revenues, 
bad debt expense increased from 8.9% for the fiscal year ended January 31, 
1996 to 10.5% for the fiscal year ended December 31, 1996 due to a 20% 
provision, or $1.3 million, related to the first sold year of the Tulsa, 
Oklahoma directory, partially offset by lower bad debt provisions for 
maturing markets. 

Great Western results for the fiscal year ended January 31, 1995 compared 
 to the fiscal year ended January 31, 1996. 

   Revenues. Revenues increased $7.1 million, or 24.0%, from $29.4 million 
for fiscal year ended January 31, 1995 to $36.5 million for fiscal year ended 
January 31, 1996 as a result of the first sold publications of the Irving and 
Fort Worth, Texas, directories in November 1995 which resulted in combined 
sales of $3.6 million. In addition, the Lawton, Oklahoma directory was 
published for 1995 in February 1995 and for 1996 in January 1996; 
consequently fiscal year ended January 31, 1996 includes $2.7 million revenue 
for both directories, while fiscal year ended January 31, 1995 includes no 
revenues related to Lawton, Oklahoma. These increases are partially offset by 
an $0.8 million decrease in sales of advertising space in the combined 
California markets. An additional $1.6 million in revenue growth was the 
result of successful marketing efforts in the remaining, more mature markets. 

   Gross profit. Gross profit increased $5.3 million, or 46.2%, from $11.4 
million for fiscal year ended January 31, 1995 to $16.7 million for fiscal 
year ended January 31, 1996. Gross margin increased from 38.8% for fiscal 
year ended January 31, 1995 to 45.7% for fiscal year ended January 31, 1996 
as a result of three prototype directories published in fiscal year ended 
January 31, 1995 that made significant contributions to gross profit in 
fiscal year ended January 31, 1996 during their second year of publication 
but resulted in only minimal revenues in their prototype year of fiscal year 
ended January 31, 1995 to offset the related cost of services of $4.3 
million. 

   Selling, general and administrative expenses. Selling, general and 
administrative expenses increased $1.9 million, or 17.4%, from $10.8 million 
for fiscal year ended January 31, 1995 to $12.7 million for fiscal year ended 
January 31, 1996. As a percentage of revenues, selling, general and 
administrative expenses decreased from 36.7% for fiscal year ended January 
31, 1995 to 34.7% for fiscal year ended January 31, 1996 as a result of the 
impact of the revenues from the first sold years of the Irving and Fort 
Worth, Texas directories. In order to support the anticipated increase in 
volume, Great Western's infrastructure was enhanced during fiscal year ended 
January 31, 1995, when the Irving and Fort Worth, Texas directories were 
prototyped. As a percentage of revenues, bad debt expense decreased from 9.9% 
for fiscal year ended January 31, 1995 to 8.9% fiscal year ended January 31, 
1996 due to lower bad debt provisions for maturing markets, based on improved 
collection experience in those markets, partially offset by provisions for 
the first sold directories in Irving and Fort Worth, Texas. 

Great Western liquidity and capital resources 

   Great Western follows a policy of extending three to twelve month terms to 
its customers. Accounts receivable consist of current balances that are less 
than one year (approximately 70% of total receivables) and prior year 
balances with aging of more than one year but less than two years. This aging 
is consistent with Great Western's general customer profile which is 
comprised of small businesses that tend to have a higher failure rate. Using 
historical collection rates, Great Western records an allowance for doubtful 
accounts based on 10% of sales for current receivables plus 92.5% of all 
receivables that are older than one year. The allowance covering prior year 
balances is adjusted quarterly to reflect write-offs of balances maturing 
beyond two years, new provisions for balances maturing into the prior year 
category, and for collections. Great Western believes this method of 
providing an allowance which is substantially equivalent to the receivable 
itself results in a reasonable estimate of future cash realization. 

   Great Western generated $5.1 million in net cash from operating activities 
for the nine months ended September 30, 1997. Net cash used in investing 
activities was approximately $0.3 million, principally for purchases of 
property and equipment. Net cash used in financing activities was $4.2 
million, representing repayments of long term debt, and cash dividends. 

                               39           
<PAGE>
   At September 30, 1997, working capital was $13.0 million and there was no 
debt. 

   Great Western generated $5.9 million in net cash from operating activities 
in the fiscal year ended December 31, 1996. Net cash used in investing 
activities in the fiscal year ended December 31, 1996 was approximately $0.3 
million, principally for the purchase of property and equipment. Net cash 
used in financing activities in the fiscal year ended December 31, 1996 was 
$5.0 million, primarily for repayments of long-term debt and notes payable. 

   At December 31, 1996, working capital was $11.5 million and total debt was 
$1.8 million. 

   Great Western used $3.0 million in net cash from operating activities for 
the fiscal year ended January 31, 1996. Net cash used in investing activities 
was approximately $0.1 million principally for purchases of property and 
equipment. Net cash provided by financing activities was $2.7 million, 
primarily from net borrowings under a bank line of credit and advances under 
long-term debt. 

   At January 31, 1996, working capital was $7.1 million and total debt was 
$7.7 million. 

VALU-LINE OF LONGVIEW, INC. 

   The following table sets forth for Valu-Line selected statement of 
operations data and such data as a percentage of revenues for the periods 
indicated: 

<TABLE>
<CAPTION>
                                                                                            NINE MONTHS ENDED 
                                        YEAR ENDED DECEMBER 31,                               SEPTEMBER 30, 
                      ----------------------------------------------------------- ------------------------------------- 
                             1994                1995                 1996               1996               1997 
                      ------------------- ------------------- ------------------- ------------------ ------------------ 
                                                            (DOLLARS IN THOUSANDS) 
<S>                   <C>       <C>       <C>       <C>       <C>       <C>       <C>      <C>       <C>       <C>
Revenues.............  $13,417    100.0%   $13,330    100.0%   $11,181    100.0%   $8,623    100.0%    $9,058    100.0% 
Cost of services ....    6,775     50.5%     7,491     56.2%     6,036     54.0%    4,593     53.3%     5,070     56.0% 
Depreciation and 
 amortization........      399      3.0%       718      5.4%       819      7.3%      616      7.1%       399      4.4% 
                      --------- --------  --------- --------  --------- --------  -------- --------  --------  -------- 
Gross profit.........    6,243     46.5%     5,121     38.4%     4,326     38.7%    3,414     39.6%     3,589     39.6% 
Selling, general and 
 administrative 
 expenses............    3,725     27.7%     3,898     29.2%     3,571     32.0%    2,659     30.8%     2,875     31.7% 
                      --------- --------  --------- --------  --------- --------  -------- --------  --------  -------- 
Income from 
 operations..........    2,518     18.8%     1,223      9.2%       755      6.7%      755      8.8%       714      7.9% 
</TABLE>

Valu-Line results for the nine months ended September 30, 1996 compared 
 to the nine months ended September 30, 1997. 

   Revenues. Revenues increased $0.4 million, or 5.0%, from $8.6 million for 
the nine months ended September 30, 1996 to $9.0 million for the nine months 
ended September 30, 1997. A decrease in domestic long distance revenue was 
more than offset by the effects of adding international long distance service 
to the revenue base. Revenues for the first nine months of 1997 include sales 
of local telephone service and non-contract international traffic, which were 
not offered by Valu-Line in the first nine months of 1996. For domestic long 
distance traffic, total billed minutes increased slightly from 59.6 million 
for the nine months ended September 30, 1996 to 59.9 million for the nine 
months ended September 30, 1997, while the average revenue per domestic 
billable minute decreased by 9.8%. During the first nine months of 1997, 
international long distance service included 3.8 million minutes at an 
average price per minute of more than twice the domestic long distance rate. 

   Gross profit. Gross profit increased $0.2 million, or 5.1%, from $3.4 
million for the nine months ended September 30, 1996 to $3.6 million for the 
nine months ended September 30, 1997. Gross margin remained at 39.6% for each 
of the nine month periods ended September 30 due to scheduled decreases in 
depreciation expense of equipment under accelerated depreciation methods, 
offset by higher cost of service. For domestic long distance traffic, average 
cost per billable minute decreased 18.1% between the periods. However, the 
average cost per billable international minute was over four times the cost 
per billable minute for domestic traffic. 

                               40           
<PAGE>
   Selling, general and administrative expenses. Selling, general and 
administrative expenses increased $0.2 million, or 8.1%, from $2.7 million 
for the nine months ended September 30, 1996 to $2.9 million for the nine 
months ended September 30, 1997. As a percentage of revenues, selling, 
general and administrative expenses increased from 30.8% for the nine months 
ended September 30, 1996 to 31.7% for the nine months ended September 30, 
1997 primarily because of salary and administrative costs incurred to rebuild 
a segment of the sales team. Several employees resigned from Valu-Line in 
late 1995 and, accordingly, their salaries and related costs are not included 
in the nine months ended September 30, 1996. Replacements for the sales team 
were hired during 1996 with the result of a higher level of salaries and 
related expenses reflected in the nine months ended September 30, 1997. 

Valu-Line results for the fiscal year ended December 31, 1995 compared 
 to the fiscal year ended December 31, 1996. 

   Revenues. Revenues declined $2.1 million, or 16.1%, from $13.3 million for 
fiscal 1995 to $11.2 million for fiscal 1996 due to a decrease in the volume 
of business long distance accounts. This resulted from technical difficulties 
experienced during a transition from a larger, more technically complex 
switching system which caused a temporary erosion of Valu-Line's customer 
base. For domestic long distance traffic, total billed minutes decreased from 
99.6 million for fiscal 1995 to 79.5 million for fiscal 1996, while average 
revenue per billable minute increased 3.2%. 

   Gross profit. Gross profit decreased $0.8 million, or 15.5%, from $5.1 
million for fiscal 1995 to $4.3 million for fiscal 1996. Gross margin 
increased from 38.4% for fiscal 1995 to 38.7% for fiscal 1996 as Valu-Line 
instituted a program to recycle surplus dialer equipment. Subsequent to the 
transition to the new switching system, new customers were supplied with 
refurbished dialer equipment recovered from previous subscribers. The cost of 
refurbishing dialer equipment is significantly less than the cost to purchase 
new dialers. These savings were partially offset by an increase in the 
average cost of service per minute resulting from the additional cost 
associated with carrying Longview area traffic to the new switch in Dallas. 
For domestic long distance traffic, average cost per billable minute 
increased 6.1%. 

   Selling, general and administrative expenses. Selling, general and 
administrative expenses decreased $0.3 million, or 8.4%, from $3.9 million 
for fiscal 1995 to $3.6 million for fiscal 1996. As a percentage of revenues, 
selling, general and administrative expenses increased from 29.2% for fiscal 
1995 to 32.0% for fiscal 1996, primarily as a result of costs incurred to 
accommodate customers' service needs resulting from technical problems 
encountered upon the installation of the new switch. For periods generally 
ranging from one to four months, Valu-Line customers became temporary 
subscribers to other long distance carriers because of the technical problems 
associated with the new switch. Valu-Line reimbursed those customers for the 
difference between the tariffed rates charged by other carriers and 
Valu-Line's contracted rates as an inducement to return to Valu-Line. 

Valu-Line results for the fiscal year ended December 31, 1994 compared 
 to the fiscal year ended December 31, 1995. 

   Revenues. Revenues decreased $0.1 million, or 0.6%, from $13.4 million for 
fiscal 1994 to $13.3 million for fiscal 1995, primarily due to new 
competition. In order to maintain its existing customers and to attract new 
business, Valu-Line reduced its rate structures in fiscal 1995. For domestic 
long distance traffic, total billed minutes increased from 92.8 million for 
fiscal 1994 to 99.6 million for fiscal 1995, while average revenue per 
billable minute decreased 6.0%. 

   Gross profit. Gross profit decreased $1.1 million, or 18.0%, from $6.2 
million for fiscal 1994 to $5.1 million for fiscal 1995. Gross margin 
decreased from 46.5% for fiscal 1994 to 38.4% for fiscal 1995 as a result of 
a one-time charge incurred to change the dialing patterns of all its dialers 
in accordance with industry requirements. For domestic long distance traffic, 
average cost per billable minute increased 4.9%. 

   Selling, general and administrative expenses. Selling, general and 
administrative expenses increased $0.2 million, or 4.6%, from $3.7 million 
for fiscal 1994 to $3.9 million for fiscal 1995. As a percentage of revenues, 
selling, general and administrative expenses increased from 27.7% for fiscal 
1994 to 29.2% for fiscal 1995 as a result of costs associated with the 
unsuccessful launch of a new sales office in Houston and costs incurred in 
preparation for the switch transition. 

                               41           
<PAGE>
Valu-Line liquidity and capital resources 

   Valu-Line generated $0.7 million in net cash from operating activities for 
the nine months ended September 30, 1997. Net cash used in financing 
activities was $0.7 million, representing $0.3 million in net repayments of 
long term debt and $0.5 million in distributions to shareholders, net of $0.1 
million provided by proceeds from long term debt. 

   At September 30, 1997, Valu-Line had working capital of $0.3 million and 
total debt outstanding of $1.5 million. Valu-Line has historically funded its 
operations with cash from operations and borrowings from lenders. 

   Valu-Line generated $1.5 million in net cash from operating activities in 
fiscal 1996. Net cash used in investing activities was approximately $0.1 
million, which was primarily used for capital expenditures. Net cash used in 
financing activities was $1.4 million, of which $0.8 million was distributed 
to shareholders and $0.6 million was used to repay long-term debt, capital 
leases and other notes payable. 

   As of December 31, 1996, Valu-Line had a working capital deficit of $0.1 
million and total debt outstanding of $1.7 million. 

   Valu-Line generated $2.2 million in net cash from operating activities in 
fiscal 1995. Net cash used in investing activities was approximately $2.4 
million, which was primarily used for capital expenditures. Net cash provided 
by financing activities was $0.3 million, of which $2.1 million was provided 
by proceeds from long-term debt and other notes payable, net of $1.3 million 
distributed to shareholders and $0.5 million was used to repay long-term 
debt, capital leases and other notes payable. 

   See "Business-Regulation--State Regulation" for information regarding 
Valu-Line's conducting intrastate long distance telephone operations in 
Arkansas without a permit for approximately the last six years. 

FIRSTEL, INC. 

   The following table sets forth for FirsTel selected operating data and 
such data as a percentage of revenues for the periods indicated: 

<TABLE>
<CAPTION>
                                                                                          NINE MONTHS ENDED 
                                       YEAR ENDED DECEMBER 31,                              SEPTEMBER 30, 
                      --------------------------------------------------------- ------------------------------------- 
                             1994               1995                1996               1996               1997 
                      ------------------ ------------------ ------------------- ------------------ ------------------ 
                                                           (DOLLARS IN THOUSANDS) 
<S>                   <C>      <C>       <C>      <C>       <C>       <C>       <C>      <C>       <C>       <C>
Revenues.............  $4,079    100.0%   $7,838    100.0%   $10,355    100.0%   $7,659    100.0%    $9,488    100.0% 
Cost of services ....   3,040     74.5%    5,334     68.1%     7,066     68.2%    5,168     67.5%     6,864     72.3% 
Depreciation and 
 amortization........     125      3.1%      206      2.6%       248      2.4%      183      2.4%       202      2.1% 
                      -------- --------  -------- --------  --------- --------  -------- --------  --------  -------- 
Gross profit.........     914     22.4%    2,298     29.3%     3,041     29.3%    2,308     30.1%     2,422     25.5% 
Selling, general and 
 administrative 
 expenses............   1,155     28.3%    1,726     22.0%     2,147     20.7%    1,558     20.3%     1,969     20.7% 
                      -------- --------  -------- --------  --------- --------  -------- --------  --------  -------- 
Income (loss) from 
 operations..........    (241)    (5.9)%     573      7.3%       894      8.6%      750      9.8%       453      4.8% 
</TABLE>

FirsTel results for the nine months ended September 30, 1996 compared 
 to the nine months ended September 30, 1997. 

   Revenues. Revenues increased $1.8 million, or 23.9%, from $7.7 million for 
the nine months ended September 30, 1996 to $9.5 million for the nine months 
ended September 30, 1997 primarily due to increased sales of long distance 
services, partially offset by competitive pricing. For long distance traffic, 
total billed minutes increased from 49.3 million for the nine months ended 
September 30, 1996 to 62.9 million for the nine months ended September 30, 
1997, while average revenue per billable minute decreased 6.9%. 

   Gross profit. Gross profit increased $0.1 million, or 4.9%, from $2.3 
million for the nine months ended September 30, 1996 to $2.4 million for the 
nine months ended September 30, 1997. Gross margin 

                               42           
<PAGE>
decreased from 30.1% for the nine months ended September 30, 1996 to 25.5% 
for the nine months ended September 30, 1997 as a result of competitive 
pricing strategies and low margins on the start up of cellular and local 
sales. For long distance traffic, average cost per billable minute decreased 
14.5%. 

   Selling, general and administrative expenses. Selling, general and 
administrative expenses increased $0.4 million, or 26.4%, from $1.6 million 
for the nine months ended September 30, 1996 to $2.0 million for the nine 
months ended September 30, 1997. As a percentage of revenues, selling, 
general and administrative expenses increased slightly from 20.3% for the 
nine months ended September 30, 1996 to 20.8% for the nine months ended 
September 30, 1997 as a result of increases in sales support expenses. Most 
of these increases were due to costs associated with preparing for the 
provision of cellular and local services prior to revenues being generated 
from these services. 

FirsTel results for the fiscal year ended December 31, 1995 compared 
 to the fiscal year ended December 31, 1996. 

   Revenues. Revenues increased $2.6 million, or 32.1%, from $7.8 million for 
fiscal 1995 to $10.4 million for fiscal 1996, primarily due to expansion into 
new markets and a larger sales force. For long distance traffic, total billed 
minutes increased from 48.3 million for fiscal 1995 to 67.9 million for 
fiscal 1996, while average revenue per billable minute decreased 8.1%. 

   Gross profit. Gross profit increased $0.7 million, or 32.3%, from $2.3 
million for fiscal 1995 to $3.0 million for fiscal 1996. Gross margin 
remained stable at 29.4% for fiscal 1995 and fiscal 1996. For long distance 
traffic, average cost per billable minute decreased 5.6%. 

   Selling, general and administrative expenses. Selling, general and 
administrative expenses increased $0.4 million, or 24.4%, from $1.7 million 
for fiscal 1995 to $2.1 million for fiscal 1996. As a percentage of revenues, 
selling, general and administrative expenses decreased from 22.0% for fiscal 
1995 to 20.7% for fiscal 1996 as a result of reduced selling expenses. In 
1995, sales personnel were paid base salaries; whereas, in 1996 sales 
personnel were compensated on a straight commission basis. 

FirsTel results for fiscal year ended December 31, 1994 compared 
 to fiscal year ended December 31, 1995. 

   Revenues. Revenues increased $3.7 million, or 92.2%, from $4.1 million for 
fiscal 1994 to $7.8 million for fiscal 1995. Although FirsTel was founded in 
1993, its initial launch of an effective sales force and a comprehensive 
marketing effort occurred during fiscal 1994. Accordingly, fiscal 1995 was 
the first year to reflect a full year of benefit from the sales and marketing 
programs. For long distance traffic, total billed minutes increased from 24.1 
million for fiscal 1994 to 48.3 million for fiscal 1995, while average 
revenue per billable minute decreased 4.1%. 

   Gross profit. Gross profit increased $1.4 million, or 151.4%, from $0.9 
million for fiscal 1994 to $2.3 million for fiscal 1995. Gross margin 
increased from 22.4% for fiscal 1994 to 29.3% for fiscal 1995 as a result of 
a reduction in line costs per minute, and more efficient use of the network 
and switching facilities. For long distance traffic, average cost per 
billable minute decreased 3.7%. 

   Selling, general and administrative expenses. Selling, general and 
administrative expenses increased $0.5 million, or 49.4%, from $1.2 million 
for fiscal 1994 to $1.7 million for fiscal 1995. As a percentage of revenues, 
selling, general and administrative expenses decreased from 28.3% for fiscal 
1994 to 22.0% for fiscal 1995 as a result of increased revenues without a 
corresponding increase in expenses. 

FirsTel liquidity and capital resources 

   FirsTel generated $0.5 million in net cash from operating activities for 
the nine months ended September 30, 1997. Net cash used in investing 
activities was approximately $0.2 million, representing equipment purchases. 
Net cash used in financing activities was $0.4 million, representing 
reductions in capitalized leases and distributions to stockholders, offset by 
the proceeds from a debt offering. 

   At September 30, 1997, FirsTel had a working capital deficit of $0.9 
million and $1.2 million of total debt outstanding, including $1.0 million of 
notes payable to stockholders which will be acquired by ACG. 

                               43           
<PAGE>
FirsTel has historically funded its operations with cash flow from operations 
and loans from stockholders. FirsTel maintains a revolving line of credit 
with a local bank in the amount of $0.8 million for the financing of 
receivables and unbilled services. As of September 30, 1997 there was an 
outstanding balance of $0.1 million on the line of credit. 

   FirsTel generated $0.9 million in net cash from operating activities in 
fiscal 1996. Net cash used in investing activities was approximately $0.1 
million, of which $0.2 million was used for purchasing equipment. Net cash 
used in financing activities was $0.8 million, primarily for reduction in 
long-term debt. 

   As of December 31, 1996, FirsTel had a working capital deficit of $1.1 
million and total debt outstanding of $1.4 million. 

   FirsTel generated $0.4 million in net cash from operating activities in 
fiscal 1995. Net cash used in investing activities was approximately $0.5 
million, of which $0.4 million was used for purchases of property and 
equipment. Net cash provided by financing activities was $0.1 million, of 
which $0.5 million represented proceeds from long term borrowings, net of 
$0.2 million in principal payments on long-term debt and $0.2 million in 
distributions to stockholders. 

FEIST LONG DISTANCE, INC. 

   The following table sets forth for Feist Long Distance selected statement 
of operations data and such data as a percentage of revenues for the periods 
indicated: 

<TABLE>
<CAPTION>
                                                                                          NINE MONTHS ENDED 
                                       YEAR ENDED DECEMBER 31,                              SEPTEMBER 30, 
                      --------------------------------------------------------- ------------------------------------- 
                             1994               1995                1996               1996               1997 
                      ------------------ ------------------ ------------------- ------------------ ------------------ 
                                                           (DOLLARS IN THOUSANDS) 
<S>                   <C>      <C>       <C>      <C>       <C>       <C>       <C>      <C>       <C>       <C>
Revenues.............  $5,712    100.0%   $7,923    100.0%   $10,028    100.0%   $7,416    100.0%    $8,965    100.0% 
Cost of services ....   3,623     63.4%    5,469     69.0%     6,854     68.3%    5,057     68.2%     6,044     67.4% 
Depreciation and 
 amortization........     255      4.5%      278      3.5%       237      2.4%      170      2.3%       142      1.6% 
                      -------- --------  -------- --------  --------- --------  -------- --------  --------  -------- 
Gross profit.........   1,834     32.1%    2,176     27.5%     2,937     29.3%    2,189     29.5%     2,779     31.0% 
Selling, general and 
 administrative 
 expenses............   1,553     27.2%    2,201     27.8%     2,469     24.6%    1,706     23.0%     2,404     26.8% 
                      -------- --------  -------- --------  --------- --------  -------- --------  --------  -------- 
Income (loss) from 
 operations..........     281      4.9%      (25)    (0.3)%      467      4.7%      482      6.5%       375      4.2% 
</TABLE>

Feist Long Distance results for the nine months ended September 30, 1996 
compared to the nine months ended September 30, 1997. 

   Revenues. Revenues increased $1.6 million, or 20.9%, from $7.4 million for 
the nine months ended September 30, 1996 to $9.0 million for the nine months 
ended September 30, 1997 primarily due to a larger customer base. However, 
for the nine months ended September 30, 1997 Feist experienced a slower rate 
of growth than experienced in prior periods due to a change in advertising 
strategy. For long distance traffic, total billed minutes increased from 49.8 
million for the nine months ended September 30, 1996 to 66.1 million for the 
nine months ended September 30, 1997, while average revenue per billable 
minute decreased 6.9%. 

   Gross profit. Gross profit increased $0.6 million, or 27.0%, from $2.2 
million for the nine months ended September 30, 1996 to $2.8 million for the 
nine months ended September 30, 1997. Gross margin increased from 29.5% for 
the nine months ended September 30, 1996 to 31.0% for the nine months ended 
September 30, 1997 as a result of an increase in lower-cost "on-net" traffic 
and decrease in higher cost "off-net" resold traffic, as well as declining 
fiber lease rates and access charges. For long distance traffic, average cost 
per billable minute decreased 15.3%. 

                               44           
<PAGE>
   Selling, general and administrative expenses. Selling, general and 
administrative expenses increased $0.7 million, or 40.9%, from $1.7 million 
for the nine months ended September 30, 1996 to $2.4 million for the nine 
months ended September 30, 1997. As a percentage of revenues, selling, 
general and administrative expenses increased from 23.0% for the nine months 
ended September 30, 1996 to 26.8% for the nine months ended September 30, 
1997 as Feist Long Distance added selling and administrative personnel in 
anticipation of providing local service. 

Feist Long Distance results for the fiscal year ended December 31, 1995 
compared to the fiscal year ended December 31, 1996. 

   Revenues. Revenues increased $2.1 million, or 26.6%, from $7.9 million for 
fiscal 1995 to $10.0 million for fiscal 1996, due to successful marketing 
efforts to obtain new small business customers in the long distance market. 
For long distance traffic, total billed minutes increased from 50.9 million 
for fiscal 1995 to 71.3 million for fiscal 1996, while average revenue per 
billable minute decreased 7.1%. 

   Gross profit. Gross profit increased $0.7 million, or 35.0%, from $2.2 
million for fiscal 1995 to $2.9 million for fiscal 1996. Gross margin 
increased from 27.5% for fiscal 1995 to 29.3% for fiscal 1996 as a result of 
an increase in lower-cost "on-net" traffic as compared to higher cost 
"off-net" resold traffic, as well as declining fiber lease rates and access 
charges. For long distance traffic, average cost per billable minute 
decreased 9.4%. 

   Selling, general and administrative expenses. Selling, general and 
administrative expenses increased $0.3 million, or 12.2%, from $2.2 million 
for fiscal 1995 to $2.5 million for fiscal 1996. As a percentage of revenues, 
selling, general and administrative expenses decreased from 27.8% for fiscal 
1995 to 24.6% for fiscal 1996 as management improved the efficiency of 
administrative and clerical personnel through higher levels of automation. 

Feist Long Distance results for the fiscal year ended December 31, 1994 
compared to the fiscal year ended December 31, 1995. 

   Revenues. Revenues increased $2.2 million, or 38.7%, from $5.7 million for 
fiscal 1994 to $7.9 million for fiscal 1995, due to the penetration of new 
markets in Oklahoma, Nebraska, Missouri and Texas utilizing agents and 
telemarketing. For long distance traffic, total billed minutes increased from 
35.1 million for fiscal 1994 to 50.9 million for fiscal 1995, while average 
revenue per billable minute decreased 4.8%. 

   Gross profit. Gross profit increased $0.4 million, or 18.6%, from $1.8 
million for fiscal 1994 to $2.2 million for fiscal 1995. Gross margin 
decreased from 32.1% for fiscal 1994 to 27.5% for fiscal 1995 as a result of 
an expansion into areas served by independent telephone companies which 
impose higher access charges than areas served by RBOCs, and the costs 
associated with utilizing purchased facilities in those new areas. For long 
distance traffic, average cost per billable minute increased 3.7%. 

   Selling, general and administrative expenses. Selling, general and 
administrative expenses increased $0.6 million, or 41.7%, from $1.6 million 
for fiscal 1994 to $2.2 million for fiscal 1995. As a percentage of revenues, 
selling, general and administrative expenses slightly increased from 27.2% 
for fiscal year 1994 to 27.8% for fiscal year 1995. 

Feist Long Distance liquidity and capital resources 

   Feist Long Distance generated $0.4 million in net cash from operating 
activities for the nine months ended September 30, 1997. Net cash used in 
investing activities was approximately $0.1 million, principally for 
equipment purchases. Net cash used in financing activities was $0.2 million, 
representing repayment of long-term debt. 

   At September 30, 1997, Feist Long Distance had current assets 
approximately equal to current liabilities and $0.7 million of total debt 
outstanding which amount is due to shareholders and will be acquired by ACG. 

                               45           
<PAGE>
   Feist Long Distance generated $0.3 million in net cash from operating 
activities in fiscal 1996. Net cash used in investing activities was 
approximately $0.1 million, which was primarily used to purchase equipment. 
Net cash used in financing activities was $0.2 million, which was used to 
repay long term debt. 

   As of December 31, 1996, Feist Long Distance had a working capital deficit 
of $0.3 million and total debt outstanding of $0.8 million. 

   Feist Long Distance used $0.3 million in net cash from operating 
activities in fiscal 1995. Net cash used in investing activities was 
approximately $0.1 million, which was primarily used for the purchase of 
equipment. Net cash generated from financing activities was $0.4 million, 
which represented net proceeds from the issuance of long term debt. 

   As of December 31, 1995, Feist Long Distance had a working capital deficit 
of $0.8 million and total debt outstanding of $1.1 million. 

KIN NETWORK, INC. 

   The following table sets forth for KINNET selected statement of operations 
data and such data as a percentage of revenues for the periods indicated: 

<TABLE>
<CAPTION>
                                                                                             NINE MONTHS ENDED 
                                        YEAR ENDED DECEMBER 31,                                SEPTEMBER 30, 
                      ------------------------------------------------------------ ------------------------------------- 
                              1994                 1995                1996               1996               1997 
                      -------------------- -------------------- ------------------ ------------------ ------------------ 
                                                            (DOLLARS IN THOUSANDS) 
<S>                   <C>       <C>        <C>       <C>        <C>      <C>       <C>      <C>       <C>       <C>
Revenues.............  $ 3,550     100.0%   $ 6,497     100.0%   $8,553    100.0%   $6,031    100.0%    $8,796    100.0% 
Cost of services ....    2,450      69.0%     3,094      47.6%    2,864     33.5%    2,055     34.1%     2,996     34.1% 
Depreciation and 
 amortization(1).....    1,700      47.9%     1,825      28.1%    1,906     22.3%    1,321     21.9%     1,597     18.2% 
                      --------- ---------  --------- ---------  -------- --------  -------- --------  --------  -------- 
Gross profit(1)......     (600)    (16.9)%    1,578      24.3%    3,783     44.2%    2,655     44.0%     4,203     47.7% 
Selling, general and 
 administrative 
 expenses............    2,533      71.4%     2,930      45.1%    3,417     40.0%    2,479     41.1%     3,466     39.4% 
                      --------- ---------  --------- ---------  -------- --------  -------- --------  --------  -------- 
Income (loss) from 
 operations..........   (3,133)    (88.3)%   (1,352)    (20.8)%     366      4.3%      176      2.9%       737      8.4% 
</TABLE>

- ------------ 
(1)    KINNET has historically included depreciation and amortization in 
       neither gross profit nor selling, general and administrative expenses, 
       but as a separate item in the calculation of income (loss) from 
       operations. The Acquired Companies have historically recorded 
       depreciation and amortization expense as an element of gross profit, 
       and for consistency of presentation, in the text of this Prospectus and 
       the pro forma financial statements, KINNET's depreciation and 
       amortization expense is included in the calculation of gross profit. As 
       presented in KINNET's historical financial statements included herein, 
       its gross profit for fiscal 1994, 1995 and 1996, and for the nine 
       months ended September 30, 1996 and 1997, was (in thousands) $1,100, 
       $3,402, $5,689, $3,976, and $5,800, respectively. 

   The Company is acquiring 49% of the outstanding voting stock of KINNET, 
and hence KINNET's results of operations are included in the Company's 
financial statements on the equity method of accounting. Such amounts 
included in the Company's pro forma combined financial statements for the 
fiscal year ended December 31, 1996 and the nine months ended September 30, 
1996 and 1997 were $(388,000), $(349,000) and $(146,000), respectively. 

KINNET results for the nine months ended September 30, 1996 compared 
 to the nine months ended September 30, 1997. 

   Revenues. Revenues increased $2.8 million, or 45.8%, from $6.0 million for 
the nine months ended September 30, 1996 to $8.8 million for the nine months 
ended September 30, 1997. This increase in revenues occurred primarily 
because of an increase in the volume of traffic as a result of continued 
successful marketing efforts. Incremental customers gains included two 
resellers, two equal access subscribers and 79 new private line customers. 
For long distance traffic, total billed minutes increased from 11.6 million 
for the nine months ended September 30, 1996 to 16.9 million for the nine 
months ended September 30, 1997, while average revenue per billable minute 
decreased 19.3%. 

                               46           
<PAGE>
   Gross profit. Gross profit increased $1.5 million, or 58.3%, from $2.7 
million for the nine months ended September 30, 1996 to $4.2 million for the 
nine months ended September 30, 1997. Gross margin increased from 44.0% for 
the nine months ended September 30, 1996 to 47.7% for the nine months ended 
September 30, 1997 as a result of network efficiencies, volume discounts and 
negotiated lower rates. For long distance traffic, average cost per billable 
minute decreased 4.7%. 

   Selling, general and administrative expenses. Selling, general and 
administrative expenses increased $1.0 million, or 39.8%, from $2.5 million 
for the nine months ended September 30, 1996 to $3.5 million for the nine 
months ended September 30, 1997. As a percentage of revenues, selling, 
general and administrative expenses decreased from 41.1% for the nine months 
ended September 30, 1996 to 39.4% for the nine months ended September 30, 
1997 as KINNET was able to take advantage of economies of scale. 

KINNET results for the fiscal year ended December 31, 1995 compared 
 to the fiscal year ended December 31, 1996. 

   Revenues. Revenues increased $2.1 million, or 31.6%, from $6.5 million for 
fiscal 1995 to $8.6 million for fiscal 1996. The largest contribution to the 
increase came from wholesale long distance services which increased from $0.5 
million in fiscal 1995 to $1.4 million in fiscal 1996. KINNET experienced 
significant revenue gains in its other major product lines with private line 
revenues and equal access revenues increasing 44% and 31%, respectively. 
Increases in revenues for all product lines are attributable to increases in 
volumes resulting from successful marketing efforts. For long distance 
traffic, total billed minutes increased from 10.2 million for fiscal 1995 to 
15.9 million for fiscal 1996, while average revenue per billable minute 
increased 37.3%. 

   Gross profit. Gross profit increased $2.2 million, or 139.7%, from $1.6 
million for fiscal 1995 to $3.8 million for fiscal 1996. Gross margin 
increased from 24.3% for fiscal 1995 to 44.2% for fiscal 1996 as the 
Company's product mix shifted to a greater proportion of equal access 
service, which is a higher margin product. For long distance traffic, average 
cost per billable minute decreased 11.3%. 

   Selling, general and administrative expenses. Selling, general and 
administrative expenses increased $0.5 million, or 16.6%, from $2.9 million 
for fiscal 1995 to $3.4 million for fiscal 1996. As a percentage of revenues, 
selling, general and administrative expenses decreased from 45.1% for fiscal 
1995 to 40.0% for fiscal 1996 as a result of efficiencies achieved on 
maintenance of the fiber system and economies of scale achieved in 
administrative operations. 

KINNET results for the fiscal year ended December 31, 1994 compared 
 to the fiscal year ended December 31, 1995. 

   Revenues. Revenues increased $2.9 million, or 83.0%, from $3.6 million for 
fiscal 1994 to $6.5 million for fiscal 1995. The largest contribution to the 
increase came from equal access revenues which more than doubled in fiscal 
1995 to a total of $3.0 million. Thirteen independent telephone companies 
were utilizing KINNET's access tandem switch by the end of fiscal 1995 with 
three more in the process of conversion. For long distance traffic, total 
billed minutes increased from 3.0 million for fiscal 1994 to 10.2 million for 
fiscal 1995, while average revenue per billable minute increased 38.1%. 

   Gross profit. Gross profit increased $2.2 million, from a loss of $0.6 
million for fiscal 1994 to profit of $1.6 million for fiscal 1995. Gross 
margin increased from (16.9)% for fiscal 1994 to 24.3% for fiscal 1995 as the 
company's product mix shifted to a greater proportion of equal access 
service, which is a higher margin product. For long distance traffic, average 
cost per billable minute increased 9.3%. 

   Selling, general and administrative expenses. Selling, general and 
administrative expenses increased $0.4 million, or 15.7%, from $2.5 million 
for fiscal 1994 to $2.9 million for fiscal 1995. As a percentage of revenues, 
selling, general and administrative expenses decreased from 71.4% for fiscal 
1994 to 45.1% for fiscal 1995 as KINNET achieved significant economies of 
scale in customer support and administration. 

KINNET liquidity and capital resources 

   KINNET generated $4.3 million in net cash from operating activities for 
the nine months ended September 30, 1997. Net cash used in investing 
activities was approximately $5.8 million for additions to 

                               47           
<PAGE>
property, plant and equipment. Net cash generated in financing activities was 
$2.0 million of which $3.9 million was received from KINNET's parent for 
utilizing the income tax benefit of an operating loss carryover, and $0.3 
million was received from the return of Rural Telephone Finance Cooperative 
capital certificates, net of $2.0 million in principal payments on long-term 
debt. 

   At September 30, 1997, KINNET had a working capital deficit of $2.2 
million and $29.5 million of total debt outstanding. KINNET has historically 
funded its operations with cash flow from operations and debt from lenders. 

   KINNET generated $0.5 million in net cash from operating activities in 
fiscal 1996. Net cash used in investing activities was approximately $1.5 
million, which was primarily used for additions to property, plant and 
equipment. Net cash provided by financing activities was $1.4 million, of 
which $3.5 million was received from KINNET's parent for utilizing the income 
tax benefit of an operating loss carryover and for contributions of capital, 
and $0.4 million was received from the return of Rural Telephone Finance 
Cooperative capital certificates, net of $2.5 million principal repayments on 
long-term debt. 

   As of December 31, 1996, KINNET had working capital of $1.2 million and 
total debt outstanding of $31.7 million. 

   KINNET used $1.9 million in net cash from operating activities in fiscal 
1995. Net cash used in investing activities was approximately $0.7 million, 
which was primarily used for additions to property, plant and equipment. Net 
cash provided by financing activities was $3.7 million, of which $6.0 million 
represented a capital contribution from Liberty Cellular, Inc., net of $2.3 
million principal repayments on long-term debt. 

   As of December 31, 1995, KINNET had working capital of $0.6 million and 
total debt of $34.2 million. 

PRO FORMA COMBINED RESULTS OF OPERATIONS 

   The following discussion of the Company's pro forma combined results of 
operations for the years ended December 31, 1995 and 1996 and the nine months 
ended September 30, 1996 and 1997 should be read in conjunction with the pro 
forma financial statements included elsewhere herein. 

   The following table sets forth certain pro forma combined results of 
operations data of the Company and such results as a percentage of pro forma 
combined revenues: 

<TABLE>
<CAPTION>
                                        FISCAL YEARS ENDED(1)              NINE MONTHS ENDED SEPTEMBER 30, 
                               --------------------------------------- --------------------------------------- 
                                     1995(1)             1996(1)               1996                1997 
                               ------------------- ------------------- ------------------- ------------------- 
                                                            (DOLLARS IN THOUSANDS) 
<S>                            <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
Revenue 
 Telecommunications services .  $37,772     50.9%   $41,090     48.1%   $29,648     47.0%   $33,455     48.4% 
 Yellow page publishing.......   36,469     49.1%    44,324     51.9%    33,463     53.0%    35,624     51.6% 
                               --------- --------  --------- --------  --------- --------  --------- -------- 
 Total........................   74,241    100.0%    85,414    100.0%    63,111    100.0%    69,079    100.0% 
Cost of services..............   43,005     57.9%    47,087     55.1%    33,322     52.8%    37,637     54.5% 
Depreciation and 
 amortization.................    5,975      8.0%     6,111      7.2%     4,521      7.2%     4,339      6.3% 
                               --------- --------  --------- --------  --------- --------  --------- -------- 
Gross profit..................   25,261     34.0%    32,216     37.7%    25,268     40.0%    27,103     39.2% 
Selling, general and 
 administrative expenses......   23,243     31.3%    26,966     31.6%    19,323     30.6%    23,172     33.5% 
                               --------- --------  --------- --------  --------- --------  --------- -------- 
Income from operations........    2,018      2.7%     5,250      6.1%     5,945      9.4%     3,931      5.7% 
</TABLE>

- ------------ 
(1)    All of the Acquired Companies and ACG, except Great Western Directories 
       (for fiscal 1995), Long Distance Management of Kansas, Inc. ("LDM 
       Kansas") and Long Distance Management II, Inc. ("LDM II") have fiscal 
       years which end on December 31. The combined data above for the fiscal 
       years ended December 31, 1995 and 1996 includes data for LDM Kansas and 
       LDM II for the twelve month periods then ended. The combined data above 
       also includes Great Western's fiscal year ended January 31, 1996 for 
       the combined fiscal year ended 1995. Because of the change in Great 
       Western's fiscal year, revenues for the month of January 1996 are 
       included both in fiscal 1995 and fiscal 1996. 

                               48           
<PAGE>
Pro forma combined results for the nine months ended September 30, 1996 
compared to the nine months ended September 30, 1997. 

   Pro forma revenues. Revenues increased $6.0 million, or 9.5%, from $63.1 
million for the nine months ended September 30, 1996 to $69.1 million for the 
nine months ended September 30, 1997. Telecommunications services revenue 
increased $3.9 million, or 12.8%, from $29.6 million for the nine months 
ended September 30, 1996 to $33.5 million for the nine months ended September 
30, 1997 as a result of an overall increase in traffic for all of the 
Acquired Companies except Valu-Line, whose domestic long distance minutes 
were relatively flat. For long distance traffic, total domestic billed 
minutes increased 13.7% from 192.2 million for the nine months ended 
September 30, 1996 to 222.6 million for the nine months ended September 30, 
1997, while average revenue per domestic billable minute decreased 7.4% from 
$0.1422 to $0.1317. Yellow page publishing revenue increased $2.2 million, or 
6.5%, from $33.5 million for the nine months ended September 30, 1996 to 
$35.6 million for the nine months ended September 30, 1997 primarily as a 
result of increased sales of advertising space in the directory in Tulsa, 
Oklahoma and in other established markets. See "Risk Factors -- Recent 
Results and Anticipated Future Quarterly Losses." 

   Pro forma gross profit. Gross profit increased $1.8 million, or 7.3%, from 
$25.3 million for the nine months ended September 30, 1996 to $27.1 million 
for the nine months ended September 30, 1997. As a percentage of revenue, 
gross margin decreased from 40.0% to 39.2% for the nine months ended 
September 30, 1996 and 1997. Telecommunications services gross profit 
increased $1.2 million, or 13.2%, from $9.1 million for the nine months ended 
September 30, 1996 to $10.3 million for the nine months ended September 30, 
1997. Telecommunications services gross margin increased from 30.5% for the 
nine months ended September 30, 1996 to 30.8% for the nine months ended 
September 30, 1997 as a result of a scheduled decrease in depreciation 
expense on equipment. For domestic long distance traffic, average cost per 
billable minute decreased 10.7% from $0.0856 for the nine months ended 
September 30, 1996 to $0.0786 for the nine months ended September 30, 1997. 
Yellow page publishing gross profit increased $0.6 million, or 3.6%, from 
$16.2 million for the nine months ended September 30, 1996 to $16.8 million 
for the nine months ended September 30, 1997. Yellow page publishing gross 
margin declined from 48.5% for the nine months ended September 30, 1996, to 
47.2% for the nine months ended September 30, 1997, due to certain variable 
costs of services, such as commissions, increasing at a more rapid rate than 
revenues, resulting from temporary changes in commission payment methodology 
and certain other costs of services, such as printing and distribution. 

Pro forma combined results for fiscal 1995 compared to fiscal 1996. 

   Pro forma revenues. Revenues increased $11.2 million, or 15.0%, from $74.2 
million for fiscal 1995 to $85.4 million for fiscal 1996. Telecommunications 
services revenue increased $3.3 million, or 8.8%, from $37.8 million for 
fiscal 1995 to $41.1 million for fiscal 1996 primarily as a result of 
successful marketing efforts and expansion into new markets. These gains were 
partially offset by a decrease in the volume of commercial long distance 
accounts at Valu-Line resulting from technical difficulties experienced 
during an equipment change. For long distance traffic, total domestic billed 
minutes increased 10.9% from 238.3 million for fiscal 1995 to 264.3 million 
for fiscal 1996, while average revenue per domestic billable minute decreased 
3.4% from $0.1458 to $0.1409. Yellow page publishing revenue increased $7.8 
million, or 21.5% from $36.5 million for fiscal 1995 to $44.3 million for 
fiscal 1996 primarily as a result of the first publication for revenue of the 
Tulsa, Oklahoma directory in February 1996. 

   Pro forma gross profit. Gross profit increased $6.9 million, or 27.5%, 
from $25.3 million for fiscal 1995 to $32.2 million for fiscal 1996. Gross 
margin increased from 34.0% for fiscal 1995 to 37.7% for fiscal 1996. 
Telecommunications services gross profit increased $0.9 million, or 8.0%, 
from $11.2 million for fiscal 1995 to $12.1 million for fiscal 1996. 
Telecommunications services gross margin decreased from 29.7% for fiscal 1995 
to 29.5% for fiscal 1996 as a result of changes in product mix to lower 
margin, higher cost services and implementation of a program to recycle 
surplus equipment. For long distance traffic, average cost per domestic 
billable minute decreased 1.7% from $0.0858 for fiscal 1995 to $0.0843 for 
fiscal 1996. Yellow page publishing gross profit increased $6.0 million, or 
42.6%, from $14.1 million for fiscal 1995 to $20.1 million for fiscal 1996. 
Yellow page publishing gross margin increased from 38.5% for fiscal 1995 to 
45.3% for fiscal 1996 due primarily to the gross profit contribution of the 
first sold year of the 

                               49           
<PAGE>
Tulsa, Oklahoma directory, a highly profitable market. Also, certain costs of 
services did not increase proportionately with revenues due to a competitive 
bidding process for printing. In addition, Great Western was able to take 
advantage of an overall decrease in paper prices. 

Pro forma combined liquidity and capital resources 

   The Company has obtained a commitment letter from CIBC, Inc. ("Lender"), 
as lender, and Canadian Royal Bank of Commerce ("Agent"), as agent (each an 
affiliate of CIBC Oppenheimer, one of the Representatives of the Underwriters 
in this Offering), for a $25.0 million senior secured revolving credit 
facility (the "Facility"). The commitment is subject to the preparation, 
execution and delivery of a definitive Credit Agreement incorporating 
substantially the terms set forth in the term sheet. The amount actually 
available to the Company under the Facility will be subject to a borrowing 
base equal to 85% of the face value of the eligible accounts receivable of 
the Company and its subsidiaries. The obligations of the Company under the 
Facility will be guaranteed by each subsidiary of the Company, and will be 
secured by a first priority lien on or pledge of (a) accounts receivable of 
the Company and each of the Company's subsidiaries, (b) stock of each of the 
Company's subsidiaries, and (c) a negative pledge of all other assets of the 
Company and the Company's subsidiaries. 

   All loans advanced under the Facility will mature within one year. Amounts 
advanced under the Facility will accrue interest at a floating rate based 
upon, at the Company's option, either LIBOR plus a margin of 1.50% or the 
Agent's base rate (but not less than the Federal Funds rate plus 0.5% per 
annum) plus a margin of 0.5%. The Facility will require the payment of an 
upfront fee equal to 1% of the amount committed, a quarterly unused 
commitment fee equal to 0.5% of the undrawn balance available under the 
Facility, and an annual administrative fee. The Company intends to use the 
proceeds of the Facility for working capital, capital expenditures, and 
general corporate purposes. 

   The Facility will include restrictive covenants that are customary for 
this type of facility and for comparable companies that have recently 
completed an initial public offering, including without limitation the 
maintenance of a minimum interest coverage ratio of 3:00 to 1:00 and 
restrictions on (a) the incurrence of additional indebtedness, (b) granting 
liens, (c) making loans, investments, and advances, (d) entering into 
mergers, consolidations, and sales of assets, (e) making capital expenditures 
in excess of, in the aggregate, $25 million, and (f) acquiring additional 
subsidiaries without the prior consent of the Lender. In addition, the 
Facility will prohibit the declaration or payment by Company of dividends or 
similar distributions to stockholders. 

   The obligation of the Lender to make any advances under the Facility will 
be subject to the satisfaction of certain conditions precedent that are 
customary for this type of facility and for comparable companies that have 
recently completed an initial public offering, including without limitation 
the successful completion of this Offering and receipt of all required payoff 
letters and evidence of related lien releases in connection with certain 
indebtedness of the subsidiaries of the Company. 

   The $17.0 million of notes issued to stockholders of Great Western and 
FirsTel in the Acquisitions will be subordinated to the first $50.0 million 
of outstanding bank debt. 

   The Company expects to expend approximately $25.0 million in 1998 to fund 
the acquisition of additional circuit and packet switches, the leasing of 
bulk fiber optic capacity from others and the purchase of other capital 
assets. See "Risk Factors -- Capital Requirements." 

   The Company generated $5.9 million in net cash from operating activities 
for the nine months ended September 30, 1997. Net cash used in investing 
activities was approximately $0.6 million, principally for property and 
equipment purchases. Net cash used in financing activities was $4.5 million, 
representing $3.8 million in principal payments on long-term debt, capital 
leases and other notes payable and $1.1 million in dividends and 
distributions to shareholders, net of $0.4 million of proceeds from long-term 
debt and other notes payable. 

   At September 30, 1997, the Company had working capital, as adjusted, of 
$25.3 million and total debt outstanding of $17.4 million. 

                               50           
<PAGE>
   The Company generated $9.0 million in net cash from operating activities 
in the fiscal year ended December 31, 1996. Net cash used in investing 
activities in the fiscal year ended December 31, 1996 was approximately $0.7 
million, principally for property and equipment purchases, net of proceeds 
from the sale of equipment. Net cash used in financing activities was $7.5 
million, representing $6.5 million in principal payments on long-term debt, 
capital leases and other notes payable and $1.2 million in dividends and 
distributions to shareholders, net of $0.3 million of proceeds from long-term 
debt and other notes payable and $0.1 million net purchases of treasury 
stock. 

   At December 31, 1996, working capital was $10.7 million and total debt 
outstanding was $6.3 million. 

                               51           
<PAGE>
                       INDUSTRY BACKGROUND AND OVERVIEW 

GENERAL 

   The present U.S. telecommunications marketplace was shaped principally by 
the court-directed divestiture (the "Divestiture") of the Bell System in 
1984. In connection with the Divestiture, the United States was divided into 
194 local regions known as Local Access Transport Areas ("LATAs") and the 
Bell System was separated into a long distance carrier, AT&T, to provide long 
distance services, and seven RBOCs, including Southwestern Bell and U S WEST, 
to provide local telecommunications services. Long distance services involve 
the carriage of telecommunications traffic between LATAs (interexchange). 
Local services involve the carriage of telecommunications traffic within 
LATAs (local exchange) and the provision of local network access to the long 
distance carriers by the local exchange carriers ("LECs"), including the 
RBOCs and independent entities, thereby allowing long distance traffic to 
reach end users in a LATA (local access). 

   Both local and long distance telephony are switched services, meaning that 
a customer's call travels over the public switched telephone network with 
millions of possible routes and is switched (i.e., routed) to its intended 
destination by a telecommunications service provider, such as the Company, 
based on dialing information provided by the caller. A letter of 
authorization from a customer permits a service provider to instruct the ILEC 
to tag all calls from that customer with the service provider's 
identification code. This code enables the service provider to bill such 
customer directly for its local and long distance services. A second type of 
telephony service is "dedicated" or non-switched service, which generally 
involves the provision of service between two fixed points, such as between 
two branch offices of a corporation or between a long distance carrier's 
points of presence ("POPs") and the customer's private branch exchange 
("PBX"). 

   The long distance and local telecommunications markets are currently 
undergoing substantial changes, including fundamental changes resulting from 
the February 8, 1996 enactment of the Telecommunications Act, and the Company 
believes that it is well positioned to take advantage of these developments. 

LONG DISTANCE SERVICES 

   Until 1984, AT&T largely monopolized local and long distance telephone 
services in the United States. Technological and regulatory developments 
gradually enabled others to compete with AT&T in the long distance market. 
Since the Divestiture in 1984, competition in the long distance market has 
increased, service levels have improved, product offerings have increased and 
prices for long distance services have generally declined, all of which has 
resulted in increased consumer demand and significant market growth for long 
distance services. One component of this growth has been the advent of a 
number of long distance resellers (including some of the Acquired Companies), 
which emerged as a result of procompetitive regulatory initiatives fostered 
by the Divestiture. Typically, a reseller of long distance services enters 
into interconnect agreements with one or more major long distance carriers 
that allow the reseller to channel its customers' traffic over the major 
carriers' networks at rates more favorable than those generally available to 
individual customers. 

   A long distance telephone call between two LATAs consists of three 
segments. Starting with the originating customer, the call is transmitted 
along the ILEC's local network to a long distance carrier's POP in the 
originating customer's LATA. At the POP, the call is sent along the long 
distance carrier's network to the long distance carrier's POP in the LATA in 
which the terminating customer is located. The call is then sent from this 
POP along another local network to the terminating customer. Long distance 
carriers provide only the connection between the two local networks, and pay 
access charges for switched calls to both the originating and terminating 
ILEC for traffic obtained from or terminated on their respective local 
networks. 

LOCAL SERVICES 

   While the Divestiture facilitated competition in the long distance segment 
of the telecommunications market, each ILEC initially enjoyed a monopoly in 
the provision of local telecommunications services in 

                               52           
<PAGE>
its respective service area. In the mid-1980s, however, there was a surge of 
construction activity by entities building their own local networks and 
providing local access and dedicated services designed to allow users to 
bypass a portion of a particular ILEC's local network. The competitive access 
providers ("CAPs") were the first providers of these access services and the 
first competitors in the local telecommunications services market. The demand 
for alternative local telecommunications services providers in the past has 
been driven in large part by the significant charges levied by the ILECs 
against the long distance carriers for access to such ILECs' local networks 
(access charges). Access charges typically represent approximately 40% to 45% 
of long distance carriers' long distance revenue. The CAPs' local networks 
typically consist of fiber optic-based facilities connecting long distance 
carriers' POPs within a metropolitan area, connecting end users (primarily 
large businesses and government agencies) with long distance carriers' POPs 
and connecting different locations of a particular customer. CAPs take 
advantage of the substantial capacity and economies of scale inherent in 
their networks to offer customers service that is generally less expensive 
and of higher quality than that obtained from the ILECs. As CAPs have grown, 
regulators in some states and at the federal level have issued rulings which 
favored competition and allowed CAPs to offer a number of new services. 
Several CAPs have emerged into full-fledged CLECs capable of providing an 
entire range of switch-based local and long distance telephony services. The 
Company believes that the trend toward increased competition and deregulation 
of the telecommunications industry is continuing and accelerating. 

   The market for local exchange services consists of a number of distinct 
service components. These service components are defined by specific 
regulatory tariff classifications including: (i) local network services, 
which generally include basic dial tone, enhanced calling features and data 
services (dedicated point-to-point and frame relay service); (ii) network 
access services, which consist of access provided by ILECs to long distance 
network carriers; (iii) short-haul long distance network services, which 
include intraLATA long distance calls; and (iv) other varied services, 
including the publication of white page and yellow page telephone 
directories. According to publicly available sources, the 1996 aggregate 
revenues of all ILECs were approximately $107.0 billion. Until recently, 
there was virtually no competition in the local exchange markets. 

   Since the Divestiture in 1984, several factors have served to promote 
competition in the local exchange market, including: (i) rapidly growing 
customer demand for an alternative to the ILECs monopoly, spurred partly by 
the development of competitive activities in the long distance market; (ii) 
advances in the technology for transmission of data and video, which require 
significant capacity and reliability levels; (iii) the development of fiber 
optics and digital electronic technology, which reduced network construction 
costs while increasing transmission speeds, capacity and reliability as 
compared to traditional copper-based networks; (iv) the significant access 
charges interexchange carriers are required to pay to ILECs to access the 
ILECs' networks; and (v) a willingness on the part of legislators to enact 
and regulators to enforce legislation and regulations permitting and 
promoting competition in the local exchange market. In particular, the 
Telecommunications Act requires all ILECs to "unbundle" their local network 
offerings and allow other providers of telecommunications services to 
interconnect with their facilities and equipment. Most significantly, the 
incumbent local exchange carriers will be required to complete local calls 
originated by the Company's customers and switched by the Company and to 
deliver inbound local calls to the Company for termination to its customers, 
assuring customers of unimpaired local calling ability. The Company expects 
that it will be able to obtain access to incumbent carrier local "loop" 
facilities (the transmission lines connecting customers' premises to the 
public switched telephone network) on an unbundled basis at reasonable rates. 
In addition, ILECs are obligated to provide local number portability and 
dialing parity upon request and make their local services available for 
resale by competitors. ILECs also are required to allow competitors 
non-discriminatory access to local exchange carrier pole attachments, conduit 
space and other rights-of-way. Moreover, states may not erect "barriers to 
entry" of local competition, although they may regulate such competition. The 
Company believes that, as a result of continued regulatory and technological 
changes and competitive trends, competitive local telecommunications 
companies have substantial opportunities for growth. 

                               53           
<PAGE>
                                   BUSINESS 

THE COMPANY 

   The Company was founded to create a regional CLEC that provides an 
integrated portfolio of telecommunications services principally to business 
customers in selected service areas of Southwestern Bell Telephone Company 
and U S WEST Communications, Inc. The Company offers long distance, local, 
Internet access and cellular service primarily in Kansas, Minnesota, 
Nebraska, North Dakota, Oklahoma, South Dakota and Texas and publishes yellow 
page directories covering certain markets in Oklahoma and Texas. The Company 
seeks to offer a bundle of "one stop" integrated telecommunications services 
tailored to its customers' specific requirements and billed on a single 
monthly invoice. As of November 30, 1997, the Company provided 
telecommunications services to almost 35,000 business customers and over 
10,000 residential customers in small to mid-sized markets. The Company has 
recently experienced substantial growth in its base of local customers. The 
Company's local customer access lines in service grew from approximately 
1,000 at June 30, 1997 to approximately 11,000 at September 30, 1997 and 
approximately 17,500 at November 30, 1997. In the fiscal year ended December 
31, 1996, the Company had pro forma combined revenues of $85.4 million and 
EBITDA of $11.5 million. For the nine months ended September 30, 1997, the 
Company had pro forma combined revenues of $69.1 million and EBITDA of $8.5 
million. 

   The Company owns and operates six digital tandem switches in Kansas, 
Oklahoma, South Dakota and Texas. It also owns a 49% interest in KINNET, the 
owner or operator of an approximately 880-route mile fiber optic network and 
a Northern Telecom DMS 500 switch in Kansas. KINNET currently has one of the 
largest fiber optic networks in the state of Kansas. As part of the KINNET 
transaction, the Company made a $10.0 million direct cash investment in 
KINNET, $5.0 million of which KINNET has agreed to apply to the buildout in 
1998 and 1999 of a 537-mile, $21.5 million network extension from Wichita, 
Kansas to the greater Kansas City metropolitan area, with a leg to Tulsa, 
Oklahoma, that will provide self-healing redundancy to its fiber optic 
network. KINNET has advised the Company that it expects to finance the 
balance of the expansion with loan proceeds from the RTFC. 

   The Company is also an independent publisher of yellow page directories, 
and in the twelve months ended November 30, 1997 published approximately 3.1 
million copies of its yellow page directories covering 20 markets in Oklahoma 
and Texas. These directories contained advertisements for approximately 
46,000 business customers. The Company anticipates expanding its yellow page 
operations into additional markets in the Region. The Company believes that 
the advertisers in its yellow page directories provide a significant 
opportunity to cross-sell its bundle of telecommunications services through 
its direct sales force of approximately 255 persons, including approximately 
40 telemarketers, as of November 30, 1997. Through a strategic relationship 
with Feist Publications, Inc., an affiliate of one of the Acquired Companies, 
the Company also has the opportunity to cross-sell its telecommunications 
services to an additional 29,000 yellow page advertising customers. 

   The Company is pursuing a growth strategy that it believes will enable it 
to minimize its initial capital expenditures relative to many other CLECs 
that constructed facilities-based networks at a very early stage in their 
development. The Company currently utilizes its own network facilities 
combined with the leased network facilities of several long distance 
providers and ILECs within the Region, including Southwestern Bell and U S 
WEST. By reselling the local service of Southwestern Bell and U S WEST, the 
Company has achieved a rapid penetration of the local telephone markets in 
Wichita, Kansas and Sioux Falls, South Dakota. Ultimately, the Company will 
only construct significant local network infrastructure in those markets 
where a critical mass of customers makes it economically justifiable to do 
so. 

   The Company has executed comprehensive local exchange resale agreements 
with Southwestern Bell, U S WEST and affiliates of Sprint and GTE covering 
eight states within the Region. Additionally, the Company has entered into 
agreements with several interexchange carriers to provide "off-net" switching 
and network transmission services for its long distance traffic. The Company 
has also entered into agreements to resell cellular service in selected areas 
in the Region. These agreements allow the Company initially to offer a bundle 
of telecommunications services without the necessity of substantial 
expenditures for the construction of network facilities. 

                               54           
<PAGE>
   The Telecommunications Act of 1996 has created significant opportunities 
for telecommunications service providers, particularly regional CLECs. 
According to publicly available estimates, in 1996 total revenues from local 
and long distance telecommunications services in the United States were 
approximately $192.0 billion, of which approximately $107.0 billion were 
derived from local exchange services and approximately $85.0 billion from 
long distance services. In recent years, these telecommunications service 
revenues have grown approximately 6% per year. Although the U.S. long 
distance and local exchange industries are dominated by a few companies, 
including AT&T, MCI (which has entered into a merger agreement to be acquired 
by WorldCom), Sprint, WorldCom and the RBOCs, there are over 5,000 additional 
providers of long distance, local and other telecommunications-related 
services. In many of the small to mid-sized cities that are the Company's 
primary target markets, there are independent telecommunications companies 
which have significant market penetration, many of which the Company believes 
represent attractive acquisition candidates. 

   The Company believes that it has significant opportunities to increase its 
revenues and reduce elements of its cost structure that were not available to 
the Acquired Companies prior to the Acquisitions and the Offering. The 
Company's new senior management team brings extensive prior CLEC, ILEC and 
public company experience, and its members have held senior operational, 
strategic planning, financial and sales positions with their prior employers. 
The Company intends to leverage this extensive management experience in the 
centralizing of selected areas of operations where it can benefit from its 
larger size such as the purchasing of minutes over its leased network and 
consolidating its management information, selling and other administrative 
functions. The Company also intends to permit the strong management teams of 
the Acquired Companies to conduct the customer sensitive aspects of their 
operations on a decentralized basis. In order to increase the revenues 
provided by its existing customer base, the Company plans to train its sales 
force to cross-sell all of the Company's services, with an increased emphasis 
on selling local services. The Company believes that a personalized approach 
to sales and customer service will enhance its ability to attract and retain 
customers who desire the convenience of a fully integrated product offering. 
To further enhance its marketing efforts, the Company intends to establish 
the "ACG" brand name through co-branding with the established names of the 
Acquired Companies. 

BUSINESS STRATEGY 

   The Company's objective is to become a leading provider of integrated 
telecommunications services primarily to businesses in Kansas, Minnesota, 
Nebraska, North Dakota, Oklahoma, South Dakota and Texas and a significant 
provider of such services in Arkansas, Colorado and Montana. The Company 
believes that it can achieve its goal of becoming a leading 
telecommunications service provider in its target markets by adhering to the 
following five-fold strategy: 

o  Plan Smart -- Focus on small and medium-sized businesses and residential 
   customers and select vertical market segments in small to mid-sized cities 
   in the Region. The Company believes that competition from other CLECs and 
   ILECs is less intense in these areas because, in many cases, the ILECs 
   have reduced their efforts to serve and defend these territories in 
   response to the competitive threat in their major market cities. In 
   addition, by focusing its sales efforts in territories served by ILEC 
   central offices where collocation is a viable economic alternative, the 
   Company can build a loyal customer base through the resale of local 
   services prior to committing to build the infrastructure necessary to 
   support facilities-based local service. 

o  Sell Smart -- 

   - Sell into established customer relationships by marketing local 
     telephone services to the Company's existing yellow page and long 
     distance customers. Because the Company only recently began to offer 
     additional telecommunications services to its long distance customers, 
     only a small portion of these customers has been targeted to subscribe 
     to the Company's local, Internet access or cellular services. In 
     addition, the Company has not yet offered its bundle of 
     telecommunications services to the approximately 75,000 yellow page 
     customers to which it has access. The Company therefore believes that it 
     has a substantial reservoir of prospective business customers that is 
     already familiar with some aspects of the Company's services. 

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   - Bundle services to bring value to the Company's customers, increase 
     total revenue per customer, reduce selling costs and minimize customer 
     churn. The Company currently bundles and bills local, long distance, and 
     cellular services and believes it can enhance its overall margins by 
     combining its yellow page and Internet services with these traditional 
     telecommunications services. 

   - Offer enhanced services that have less competition and higher margin 
     potential, such as high speed data transport, Internet access, Web Page 
     design and support, and integrated voice, data and video communications 
     services. 

o  Build Smart -- Predicate growth strategies on the recognition that network 
   capacity is increasingly becoming a commodity. By first focusing on 
   acquiring customers through resale of local, long distance, cellular and 
   Internet services, the Company believes that it can secure customer 
   relationships, produce a consistent revenue stream, and evolve an economic 
   strategy for serving customers. The Company's serving strategy includes 
   not only developing network facilities to directly serve customers, but 
   also enhancing its OSS to provide network monitoring and control, flow 
   through provisioning, customer care, and enhanced billing functionality. 
   During 1998, the Company will resell the network facilities of ILECs to 
   provide local service to its customers. During 1999 and thereafter, the 
   Company will continue to focus on reselling local service, while at the 
   same time implementing a substantial effort to acquire unbundled loops and 
   local fiber. By interconnecting with the ILEC in the central office and 
   acquiring unbundled loops, the Company should be able to reduce its cost 
   of providing service and capture the additional revenue paid by IXCs for 
   local access. The Company should also be able to further reduce its local 
   and long distance costs by acquiring rights to local and intercity fiber 
   and other high bandwidth capacity within the Region. By adding its own 
   circuit and packet switches to this bandwidth, the Company can add value, 
   offer new products, and better control the quality of service. Finally, 
   where economically advantageous, the Company intends to construct fiber 
   and other network facilities. 

o  Grow Smart -- 

   - Increase the Company's sales force to rapidly market the Company's 
     services in all targeted service areas and thereafter to expand into 
     other areas within the Region. The Company recognizes it has an 
     opportunity to expand its yellow page base into other market areas as 
     well as to expand its service offering with World Pages, a specialized 
     Web site development and hosting service to which ACG has the exclusive 
     marketing rights in its service area. 

   - Evaluate attractive acquisition candidates in the Region. The Company 
     initially intends to target leading local companies whose customers can 
     be added to the Company's existing network without significant 
     expenditures for infrastructure additions. By aggregating the traffic of 
     several companies onto its existing network, the Company expects to 
     increase the utilization of equipment, consolidate its buying power and 
     increase its ability to negotiate more attractive contracts with 
     third-party suppliers of network services. 

   - Pursue the formation of additional strategic alliances with other yellow 
     page publishers, utility companies, cooperatives and others in order to 
     create marketing alliances that give the Company access to large, stable 
     customer bases in its market areas to which it can sell its bundle of 
     telecommunications services. The Company currently has a five-year 
     strategic relationship with FPI, a 20-year publisher of yellow page 
     directories in 15 markets in the Region. The Company's 
     telecommunications sales force will have access to FPI's 29,000 yellow 
     page advertisers in the Region. Because of one of the Acquired 
     Companies' purchase of PAM COMM, a division of PAM Oil, Inc., the 
     Company has another strategic relationship that will allow it to solicit 
     PAM Oil, Inc.'s approximately 15,000 business customers primarily in 
     Idaho, Minnesota, Montana, North Dakota and South Dakota. Finally, the 
     Company and Northwestern have entered into an agreement regarding the 
     possible creation of a strategic alliance that would permit ACG to 
     market its telecommunications services to that utility's approximately 
     100,000 electric and natural gas business and residential customers in 
     South Dakota and Nebraska. See "The Company -- Strategic Relationships." 

o  Serve Smart -- Provide not only the highest quality customer service but 
   also become an industry leader in the deployment of innovative technology 
   and services. The Company believes that by prudently 

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   using new technology and by offering new services, especially enhanced 
   data applications, it can become a low cost provider, maintain high value 
   for its customers and differentiate itself from other commodity providers. 
   These services will include data transport services such as frame relay, 
   transparent LAN, Internet content, and other packet-based integrated 
   multimedia services. Certain members of the Company's senior management 
   team have considerable experience in developing and deploying these 
   services. 

PRODUCTS AND SERVICES 

   The Company primarily provides retail telecommunications services 
principally to business customers in the Region. Currently, the Company 
offers long distance, local, Internet access, cellular and other enhanced 
services to customers primarily in Kansas, Minnesota, Nebraska, North Dakota, 
Oklahoma, South Dakota and Texas and to a lesser extent in Arkansas, Colorado 
and Montana. The Company currently provides its local services on a resale 
basis through Southwestern Bell and U S WEST. The Company's other services 
include private lines, and the sale, installation and service of telephone 
equipment. The Company also publishes yellow page directories serving 23 
market areas in Texas, Oklahoma and California. 

   Long Distance. The Company offers a full range of retail long distance 
services, including traditional switched and private line long distance, toll 
free (800/888), and operator services, to almost 35,000 business and over 
10,000 residential customers. The Company's long distance service is 
generally accessed from the customer's location using "1+" dialing, and the 
Company primarily targets business customers because of the greater volume 
and relatively higher profitability of their business. Residential customers 
are desirable, however, because they frequently use the Company's network 
during off-peak hours. High volume customers may lease dedicated access lines 
in order to reduce their costs of service. Toll-free services are utilized by 
customers who have a substantial number of incoming long distance calls. 

   Local Services. In early 1997, the Company began to resell the local 
exchange services primarily of Southwestern Bell and U S WEST. At November 
30, 1997, the Company was providing approximately 17,500 local access lines 
to customers in Kansas, North Dakota, South Dakota and Texas and was 
authorized to resell local service in four other states in the Region. The 
Company plans to promptly seek authorization to resell such services in the 
remainder of the Region. Once the Company generates a critical mass of 
customers in a market area and outstanding regulatory issues are resolved, 
the Company may expand its facilities to provide local service over its own 
network, supplemented by other local exchange carriers' unbundled facilities. 

   Cellular Services. As of November 30, 1997 the Company provided cellular 
service on a resale basis to more than 2,200 customers in Iowa, Nebraska, 
North Dakota and South Dakota. 

   Telephone Equipment and Maintenance Services. The Company sells and 
installs customer premise equipment such as telephones, office switchboard 
systems and, to a lesser extent, PBXs, manufactured by Toshiba America 
Information Systems, Panasonic, Inc., Harris Corporation and others. As of 
November 30, 1997, the Company serviced over 2,800 customers in the Wichita, 
Kansas market. The Company intends to offer these services in additional 
markets in the future, with the goals of enhancing and supporting the 
Company's sale of local and long distance services and facilitating customer 
retention. 

   Wholesale Services. The Company currently resells leased line capacity to 
other carriers and owns a 49% interest in KINNET, the owner or operator of an 
approximately 880-route mile fiber optic network in Kansas. The Company's 
investment in KINNET is accounted for on the equity method of accounting. See 
"--Network Facilities and Carrier Agreements -- KINNET." 

   Yellow Page Publishing. During the twelve months ended November 30, 1997, 
the Company produced and distributed an aggregate of approximately 3.1 
million copies of 20 annual yellow page telephone directories in Oklahoma and 
Texas, including many of the Company's target telecommunications markets. 
These locations served include: Alvin/Friendswood/Pearland, Amarillo, 
Arlington, Baytown, Clear Lake City, Denton, Fort Worth, Grand Prairie, 
Humble/Kingwood, Irving, Killeen, Lufkin/Nacodoches, Northeast Tarrant 
County, Pasadena, Temple/Belton, Waco, and Wichita Falls, Texas; Enid, Lawton 
and Tulsa, Oklahoma. The Company has published six annual yellow page 

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directories in California, including Monterey Peninsula-Salinas, Santa Cruz 
and Palo Alto, California. The Company will not continue to publish the other 
three directories in California after 1997. The Company is at present 
evaluating the publication of additional yellow page directories covering 
other portions of the Region, but is contractually prohibited from publishing 
a yellow page directory in Oklahoma City or its metropolitan area until after 
the fifth anniversary date of the acquisition of Feist Long Distance. The 
start-up costs associated with the development of a new directory for a 
typical population center are substantial. See "Management's Discussion and 
Analysis of Financial Condition and Results of Operations of Certain Acquired 
Companies -- Great Western Directories, Inc." Great Western derives its 
revenue primarily from the sale of advertising space in its directories. It 
contracts with third parties for the printing of its directories. The Company 
believes that the telephone directories provide valuable marketing 
opportunities for its bundle of telecommunications services. The Company 
intends to utilize Great Western's sales force of approximately 170 direct 
sales personnel, including approximately 20 telemarketers, to sell both 
advertising space in Great Western's telephone directories and the Company's 
telecommunications services. 

   Enhanced Services. The Company believes that it can significantly increase 
its revenues and margins and reduce customer churn by offering enhanced 
telecommunications services to its customers. By buying bandwidth in bulk and 
acquiring rights to fiber, the Company believes that it can use its own 
switching resources to provide multiple services to each individual customer 
while at the same time enabling many customers to use the same network 
resources simultaneously. In addition, these network resources can be 
monitored and controlled effectively from a central location. This efficiency 
creates value for the customers and enhanced profitability potential for the 
Company. The Company intends to further develop and offer the following 
enhanced services: 

 o  Transparent LAN Service -- using leased and acquired high bandwidth 
    networks the Company will provide business customers seamless native 
    speed point-to-point Ethernet, Token Ring, or other high speed transport 
    service. 

 o  Fast Packet Service -- using its switches and unbundled local loops, tail 
    circuits, and its intercity capacity, the Company will offer customers 
    Frame Relay, ATM and other packet services for local point-to-point 
    connections, intercity connections, or access to national and 
    international packet switched networks. 

 o  Internet Access -- in conjunction with one or more highly qualified 
    Internet service providers ("ISPs"), the Company will offer Internet 
    access as a bundled service to its business and residential customers. 
    The Company may seek to acquire an ISP and thereby provide Internet 
    content as well as access. 

 o  Web Hosting and Enhanced Internet Business Services -- Great Western is 
    currently marketing World Pages, a specialized Web Page service, to its 
    yellow pages customers in its target markets. World Pages provides an 
    opportunity not only to provide customers with Web page design and 
    support, but also to expand into Web based advertising and electronic 
    commerce. The Company will aggressively enhance and market its Web based 
    product offerings with World Pages as a cornerstone of that service. 

 o  Integrated Communications Services -- by early 1999, the Company intends 
    to market a new type of integrated telecommunications service to small 
    and medium-sized businesses in the Region. The Company intends to use 
    advanced packet switching technology to integrate voice, data, and 
    multimedia onto one network. This service will feature full LAN support 
    using virtual LAN technology, telephone and video over LAN, local 
    calling, long distance calling, Internet access, LAN to LAN access for 
    E-commerce as well as help desk and software upgrade service. Customer 
    assistance will be expedited with "reach through" technology for 
    downloading software and trouble resolution. Through central software 
    management, applications "metering" (paying only for the number of 
    applications in use) and similar arrangements with software vendors, the 
    Company expects to enhance the profitability of its integrated 
    communications services. Full help desk services will be available under 
    various billing plans as will off-line storage, data image retrieval and 
    similar services. The foregoing services may be offered in conjunction 
    with strategic partners. 

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 o  Specialize Vertical Market Applications -- because the Company's markets 
    include many smaller communities, the Company will use its intercity 
    capabilities to deliver integrated solutions to specially targeted 
    institutions and businesses. The Company will leverage its expertise in 
    telephony, data, and network management by partnering or acquiring 
    companies with specific solutions with high demand in a given market 
    segment. For example, the Company may seek to partner with a company 
    offering tele-medicine and records management software by jointly 
    marketing these services in its serving area. The Company will develop 
    and support these products through a centralized group. 

NETWORK FACILITIES AND CARRIER AGREEMENTS 

   On-Net. The Company has an extensive communications network within the 
Region and upon which the Company can transmit its customer's long distance 
calls. The Company's "on-net" facilities consist of (i) the Company's 
switches, (ii) leased access trunks that connect the Company's switches to 
the ILEC central offices, (iii) leased lines that connect the Company's high 
volume business customers directly to its switches, and (iv) leased lines and 
access trunks that connect the Company's switches to certain points of 
presence and central offices in the Region. Once a long distance call reaches 
one of the Company's switches, it can be routed "on-net" over the Company's 
network of leased lines to a point of presence in the city of its 
destination; or, if the Company does not have an "on-net" connection, the 
call can be routed over the network of another carrier from which the Company 
purchases access, generally on a usage basis, for the transmission of the 
calls on that carrier's system. Transmissions on facilities owned by others 
are referred to as "off-net" transmissions. 

   To provide its services, the Company offers various types of dedicated 
fiber optic lines that operate at different speeds and handle varying amounts 
of traffic to provide appropriate solutions to its customers' needs. 

 o  DS-0 -- A dedicated line service that meets the requirements of everyday 
    business communications, with transmission capacity of up to 64 kilobits 
    of bandwidth per second (a voice grade equivalent circuit). This service 
    offers a basic low capacity dedicated digital channel for connecting 
    telephones, fax machines, personal computers and other telecommunications 
    equipment. 

 o  T-1 or DS-1 -- A high speed channel typically linking high volume 
    customer locations to ILECs or other customer locations. Used for voice 
    transmissions as well as the interconnection of local area networks, T-1 
    or DS-1 service accommodates transmission speeds of up to 1.544 megabits 
    per second, the equivalent of 24 DS-0 circuits. The Company offers this 
    high-capacity service for customers who need a larger communications 
    pipeline. 

 o  DS-3 -- This service provides a very high capacity digital channel with 
    transmission capacity of 45 megabits per second, which is equivalent to 
    28 DS-1 circuits or 672 DS-0 circuits. This is a digital service used by 
    ILECs for central office connections and by some large commercial users 
    to link multiple sites. 

   The Company owns and operates six digital switches: one Harris 2020LX 
digital tandem and local switch located in Dallas, Texas; three Harris 2020 
digital tandem switches located in Sioux Falls, South Dakota; one Northern 
Telecom DMS 250 digital tandem switch located in Wichita, Kansas; and one 
Stromberg Carlson digital tandem switch located in Oklahoma City, Oklahoma. 
Furthermore, KINNET owns a Northern Telecom DMS 500 with local and long 
distance switching capability located in Moundridge, Kansas. 

   Following the Offering the Company believes that it can enhance the 
functionality and reduce the costs of its "on-net" facilities by (i) 
centralizing network management in a single location, (ii) connecting its 
various switches with leased high capacity fiber optic cables to increase 
least cost routing flexibility, (iii) installing digital access cross 
connects or other types of nodes that permit the Company to access local 
exchange carriers' switches without installing a switch and (iv) leveraging 
the higher traffic volume of the Acquired Companies to secure rate reductions 
on the cost of usage-based leased lines because of materially increased 
traffic volume available for transmission over such leased lines. 

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   Off-net. MCI and WorldCom provide the majority of the Company's long 
distance "off-net" transmission services. The Company has two off-net carrier 
agreements with one of the Dominant Long Distance Carriers that expire in 
February 1998 and September 1999 and provide for minimum monthly commitments 
of $225,000 and $200,000, respectively. If the minimum usage level is not 
met, an additional amount is due, although the aggregate will not exceed the 
monthly minimum. Since the inception of the agreements, the minimum usage 
levels under these contracts have been met and the Company has not incurred 
any cash payments in lieu of minimum usage requirements under these 
contracts. The Company's contracts with these companies contain terms and 
conditions that are customary in the industry, do not impose unusual burdens 
and can be readily replaced upon comparable terms and conditions by 
arrangements with other carriers. 

   FirstTel entered into a long distance resale agreement with Total Network 
Services in July 1996 with an initial term of 24 months. This agreement 
provides for a minimum monthly payment obligation of $75,000, rising to 
$100,000 per month in the last six months of the agreement. The minimum usage 
levels under this contract prior to October 1, 1997 have been waived and 
subsequent levels have been reduced to $25,000 per month to the end of the 
contract. Through an acquisition, FirsTel has also recently assumed a 
take-or-pay contract with WorldCom with a $25,000 per month minimum through 
July 1999. The Company has no other take-or-pay contracts. 

   The Company believes that the aggregate traffic volume of the Acquired 
Companies will enable the Company to negotiate more favorable "off-net" 
carrier agreements than any individual Acquired Company could negotiate based 
upon its individual traffic volume. 

   KINNET. The Company owns 49% of the outstanding capital stock of KINNET, 
the owner or operator of an approximately 880-route mile fiber optic network 
in Kansas. KINNET is a carriers' carrier and currently serves 26 counties, 
105 communities and over 60,000 end users in Kansas. It also sells private 
line services of DS-1 and DS-3 capacity to interexchange carriers, cellular 
telephone carriers, independent local telephone companies, business and 
government accounts and other long distance telephone service providers such 
as the Company. KINNET operates a Northern Telecom DMS 500 switch located in 
Moundridge, Kansas. In 1996, this switch provided approximately 104 million 
minutes of equal access time or "1+" dialing services for approximately 18 
independent local telephone companies in Kansas. KINNET also provides 
wholesale termination services for other long distance telephone companies. 
Feist Long Distance, one of the Acquired Companies, intends to transfer its 
entire customer base of switched long distance minutes to the KINNET switch 
after the Offering. KINNET has agreed to apply $5.0 million of the $10.0 
million direct cash investment by the Company to the buildout in 1998 and 
1999 of a 537-mile, $21.5 million network extension from Wichita, Kansas to 
the greater Kansas City metropolitan area with a leg to Tulsa, Oklahoma that 
will provide self-healing redundancy to its fiber optic network. KINNET has 
advised the Company that it expects to finance the balance of the expansion 
with loan proceeds from the RTFC. In 1996, the KINNET network operated at 
99.9% reliability. The network is regularly tested and serviced and is 
monitored 24 hours per day. 

   The remaining 51% of KINNET is owned by Liberty, and the shares owned by 
Liberty and ACG are subject to a 10-year stockholders' agreement. Under that 
agreement ACG is entitled to elect four directors and Liberty is entitled to 
elect five directors. After the Offering, KINI, L.C. will continue to manage 
KINNET pursuant to a management agreement. KINI, L.C. is owned by, among 
others, independent Kansas telephone companies that are significant customers 
of KINNET. E. Clarke Garnett, President of KINNET, KINI, L.C. and Liberty, 
has agreed to become a director of ACG effective upon the Offering. 

SALES AND MARKETING 

   The Company intends to focus its sales efforts primarily on business 
customers in the Region. The Company's marketing strategy is built upon the 
belief that small to mid-sized business customers prefer one supplier for all 
of their telecommunications services. The Company believes that it can 
effectively compete for business customers based upon price, accurate billing 
of a bundle of services on a single invoice, quality of service, and existing 
relationships with yellow page advertisers of the Company or one of its 
strategic partners. The Company's management believes that high quality 
training is a prerequisite 

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for customer focused selling and superior customer service, and as a result 
the Company intends to initiate an intensive training program for each member 
of the Company's sales force. 

   Sales and marketing of the Company's telecommunications services were 
conducted, as of November 30, 1997, by approximately 85 direct sales 
personnel including approximately 20 telemarketers. As of the same date, 
advertising space in the Company's yellow page directories was sold by Great 
Western's direct sales force of approximately 170 persons, including 
approximately 20 telemarketers, which the Company plans to train to 
cross-sell the Company's telecommunications services in conjunction with the 
sale of advertising space in its directories. The Company intends in 1998 to 
increase its direct sales force by approximately 150 new direct sales 
personnel as well as expand its staff of telemarketers. Additional directory 
sales personnel will be needed to expand into new markets and also to call on 
existing customers, since the marketing of telecommunications services will 
increase the length of time of each sales call. The Company's expanded direct 
sales force will focus on increasing revenues from existing business 
customers by offering an integrated bundle of telecommunications services and 
emphasizing the marketing of competitive local service to customers who have 
not previously been offered this service. 

   The Company believes the addition of Great Western's sales force in 
selling telecommunications services will greatly enhance the Company's sales 
and marketing efforts. It will provide the Company with an immediate presence 
in Great Western's markets where it does not yet provide integrated 
telecommunications services, but where the Company expects to do so in the 
future. The Company's sales force will begin marketing telecommunications 
services to existing directory customers in Great Western's current markets, 
and as Great Western enters new markets, the sales force will jointly market 
directory advertising and telecommunications services. The directories will 
contain detailed descriptions of the Company's services, and instructions on 
how to order the Company's bundle of services. In effect, the directories 
will serve as advertising for the Company's telecommunications services. The 
Company believes that directories are commonly used sources of information 
that will provide the Company with a long-term marketing presence in the 
businesses and residences that receive and review the Great Western 
directories. 

   In addition to the field marketing sales force in the Region, the Company 
plans to develop a small group of highly experienced and technologically 
proficient major accounts sales persons and sales engineers. This group will 
market more complex solutions, including enhanced services, to targeted large 
customers in the Region. The Company believes that in this way it can 
continue the focus of its local sales forces on the primary target segment of 
small and mid-sized businesses while at the same time availing itself of the 
opportunity to serve specific large customers. 

COMPETITION 

 Telecommunications 

   The telecommunications industry is highly competitive. The Company 
competes primarily on the basis of pricing, accurate billing of a bundle of 
services on a single invoice, quality of service and customer dissatisfaction 
with the service provided by existing carriers. The ability of the Company to 
compete effectively will depend on its ability to maintain high quality 
services at prices generally equal to or below those charged by its 
competitors. In particular, price competition in the long distance market has 
generally been intense and is expected to increase. Many of the Company's 
competitors (such as the Dominant Long Distance Carriers on an interLATA 
basis and Southwestern Bell and U S WEST on an intraLATA basis) have 
substantially greater financial, personnel, technical, marketing and other 
resources, significantly larger numbers of established customers and more 
prominent name recognition than the Company and utilize extensive 
transmission networks. Certain of the Company's competitors may have lower 
overhead cost structures and, consequently, may be able to provide their 
services at lower rates than the Company. In addition, the Company will also 
increasingly face competition in the long distance market from local exchange 
carriers, switchless resellers and satellite carriers and may eventually 
compete with public utilities and cable companies. In particular, RBOCs such 
as Southwestern Bell and U S WEST are now allowed to provide interLATA long 
distance services outside their home regions, as well as interLATA mobile 
services within their regions. They will be allowed to provide interLATA long 
distance 

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services within their regions after meeting certain requirements of the 
Telecommunications Act intended to foster opportunities for local telephone 
competition. The RBOCs already have extensive fiber optic cable, switching, 
and other network facilities in their respective regions that can be used for 
their long distance services. 

   The Company's principal competitor for local exchange services will be the 
ILEC in each particular market, including either Southwestern Bell or U S 
WEST in virtually all of the Company's initial market areas. The ILECs will 
enjoy substantial competitive advantages arising from their historical 
monopoly position in the local telephone market, including their preexisting 
customer relationship with all or virtually all end users. Furthermore, the 
Company will be highly dependent on the competing ILEC for local network 
facilities and wholesale services required in order for the Company to 
assemble its own local retail products. The Company will also face 
competition from CLECs, some of whom have already established local 
operations in the Company's target markets. 

   The Company generally prices its services at a discount to the primary 
carrier (or carriers) in each of its target markets. The Company has 
experienced, and expects to continue experiencing, declining revenue per 
minute in many of its markets as a result of increased competition, although 
due to technological innovation and substantial available transmission 
capacity, transmission costs in the industry have historically declined at a 
more rapid rate than prices. There can be no assurance that this cost trend 
will continue. Some industry observers have predicted that, early in the next 
decade, telephone charges will no longer be based on the distance a call is 
carried and hence the Company's results of operations may be adversely 
affected. See "Management's Discussion and Analysis of Financial Condition 
and Results of Operations of Certain Acquired Companies -- Overview of the 
Acquired Companies Sources of Revenues and Expenses." 

   Large long distance carriers, such as some of the Dominant Long Distance 
Carriers, have begun to offer both local and long distance telecommunications 
services. In addition, ILECs are expected to compete in each other's markets 
in some cases. For example, in the future RBOCs may provide local services 
within their respective geographic regions in competition with independent 
telephone companies, as well as outside their regions. Wireless 
telecommunications providers may develop into effective substitutes for 
wireline local telephone service. Certain long distance companies are also 
considering using this strategy. In addition, if local access carriers expand 
their toll free calling areas, traffic which might otherwise have been 
carried by the Company as long distance traffic may be carried by the Company 
as local traffic, or carried by the other carrier. Utilities companies are 
also entering into the telecommunications business. The Company also competes 
with numerous direct marketers and telemarketers and equipment vendors and 
installers with respect to certain portions of its business. 

 Yellow Page Directories 

   Great Western competes for advertising dollars to finance the publication 
of its yellow pages directories with the RBOCs, other ILECs and independent 
publishers of yellow page directories, many of whom have substantially 
greater resources than the Company. Based upon independent surveys, Great 
Western believes that between 40% and 60% of the users of yellow page 
directories in most of its market areas generally use Great Western's 
publications when they consult yellow page directories. The Company believes 
that Great Western is among the four largest publishers of independent yellow 
page directories in the United States. Southwestern Bell is Great Western's 
principal competitor in its market areas. 

REGULATION 

   Overview. The Company's services are subject to federal, state and local 
regulation. The Company, through its wholly owned subsidiaries, holds various 
federal and state regulatory authorizations. The FCC exercises jurisdiction 
over telecommunications common carriers to the extent they provide, originate 
or terminate interstate or international communications. The FCC also 
establishes rules and has other authority over certain issues related to 
local telephone competition. State regulatory commissions retain jurisdiction 
over telecommunications carriers to the extent they provide, originate or 
terminate intrastate 

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communications. Local governments may require the Company to obtain licenses, 
permits or franchises in order to use the public rights-of-way necessary to 
install and operate portions of its networks. 

   Federal Regulation. The Company is categorized as a non-dominant carrier 
by the FCC, and as a result is subject to relatively limited regulation of 
its interstate and international services. Certain general policies and rules 
apply (such as a current requirement for the filing of tariffs, which may be 
eliminated for domestic interstate service), as well as certain reporting 
requirements, but the Company's rates and practices are not routinely 
reviewed. Each of ACG and the Acquired Companies engaged in providing long 
distance telephone services has obtained or is seeking all authority required 
by the FCC to conduct its international long distance business and expects to 
have all authority, the lack of which would be material, prior to the 
consummation of the Offering. As a non-dominant carrier, the Company may 
install and operate wireline facilities for the transmission of domestic 
interstate communications without prior FCC authorization. 

   The FCC also imposes prior approval requirements on transfers of control 
of regulated companies and assignments of operating authorizations. The FCC 
has the authority generally to condition, modify, cancel, terminate or revoke 
operating authority for failure to comply with federal laws or the rules, 
regulations and policies of the FCC. Fines or other penalties also may be 
imposed for such violations. There can be no assurance that the FCC or third 
parties will not raise issues with regard to the Company's compliance with 
applicable laws and regulations. 

   Under the Communications Act of 1934 as amended, and the rules, 
regulations and policies of the FCC, the Company is required to provide its 
services pursuant to just, reasonable and non-discriminatory rates and 
practices. This includes the requirement that the Company's rates for 
interexchange service to rural and high cost areas be no higher than those 
charged to urban areas and that the same rates for the same interstate 
interexchange services be applied in every state in which the Company offers 
such communications services. In addition, as a communications common carrier 
engaged in the provision of interstate communications, the Company is 
required to pay annual regulatory fees to the FCC (in an amount based on its 
proportionate share of gross interstate revenues), provide Telecommunications 
Relay Service ("TRS") for the hearing and speech impaired in its operating 
areas (either directly, through designees, or in concert with other 
carriers), and make annual contributions to the TRS Fund (also based upon the 
Company's share of gross interstate revenues) and, in the near future, the 
Universal Service Fund. 

   The FCC also regulates the interstate access rates charged by ILECs for 
the origination and termination of interstate long distance traffic. Those 
access rates make up a significant portion of the cost of providing long 
distance service. The FCC has recently announced changes to its interstate 
access rules that will result in restructuring of the access charge system 
and changes in access charge rate levels. These changes will reduce 
per-minute access charges and substitute new per-line flat-rate monthly 
charges. These actions are expected to reduce access rates, and hence the 
cost of providing long distance service, especially to business customers. 
However, the full impact of the FCC's new decisions will not be known until 
those decisions are implemented over the next several years, during which 
time parties may ask the FCC to reconsider its decision. AT&T has committed 
to reduce its long distance rates to reflect access cost reductions, and 
other competitors of the Company are likely to make similar reductions. In 
such event, the Company may need to reduce its rates in response to 
competitive pressures. In a related proceeding, the FCC has adopted changes 
to the methodology by which access has been used in part to subsidize 
universal telephone service and other public policy goals. 

   The Telecommunications Act also gives the FCC a substantial role in 
establishing rules for the implementation of local telephone competition. The 
Telecommunications Act imposes a variety of new duties on ILECs in order to 
promote competition in local exchange and access services, and the FCC has 
authority to develop rules to implement these duties. Some smaller 
independent ILECs may seek suspension or modification of these obligations, 
and some companies serving rural areas are exempt from them. 

   In that regard, on August 8, 1996, the FCC adopted the Interconnection 
Decision to implement the interconnection, resale and number portability 
provisions of the Telecommunications Act. The Intercon- 

                               63           
<PAGE>
nection Decision established rules pursuant to which ILECs would interconnect 
their networks with the networks of CLECs on the basis of reasonable and 
non-discriminatory rates. The Interconnection Decision also established rules 
governing the rights of CLECs to obtain and use elements of the ILECs' 
networks at cost-based rates either to supplement or substitute for 
alternative local network facilities that the CLECs would otherwise be 
required to install. In addition, the Interconnection Decision sets rules 
governing a CLEC's access to wholesale versions of the ILECs' retail local 
services for resale. The ILECs were required to establish administrative 
support systems so that these services and functionalities could be made 
available to other carriers on a nondiscriminatory basis. The Interconnection 
Decision also created rules to deal with reciprocal compensation for the 
transport and termination of local telecommunications, non-discriminatory 
access to rights of way, and related matters. A related FCC order adopted the 
same day established rules implementing the Telecommunications Act with 
respect to local and toll dialing parity among competitors; nondiscriminatory 
access to telephone numbers, operator services, directory assistance and 
listings, network information; and reform of numbering administration. 

   Some of these rules have yet to be implemented, while others have been 
struck down on appeal. The Telecommunications Act provides that ILECs and 
other carriers will attempt to negotiate interconnection agreements pursuant 
to the rules developed by the FCC. Where those negotiations are not 
successful, state public utility commissions ("PUCs") act as arbitrators, 
subject to the rights of the parties to seek further appeals. To date a 
number of interconnection agreements have been negotiated or arbitrated, but 
nevertheless important pricing and operational issues remain to be resolved 
in future proceedings. 

   In addition, the U.S. Court of Appeals for the Eighth Circuit has 
responded to appeals from the ILECs by vacating certain portions of the 
Interconnection Decision, including rules governing the rates that ILECs may 
charge for use of their network elements and services. The court had 
initially granted a stay of certain provisions of the Interconnection 
Decision, including the pricing rules and a rule that would have permitted 
new entrants to "pick and choose" among various provisions of existing 
interconnection agreements. All other provisions of the Interconnection 
Decision and related FCC orders were to remain in effect pending resolution 
of the appeal on the merits. Although the judicial stay of the 
Interconnection Decision did not prevent the Company from attempting to 
negotiate other interconnection agreements with local exchange carriers, it 
did create uncertainty about the rules governing pricing, terms and 
conditions of interconnection agreements, and could have made negotiating 
such agreements more difficult and protracted. The FCC applied unsuccessfully 
to the U.S. Supreme Court to vacate the judicial stay, but on July 18, 1997, 
the Eighth Circuit issued an opinion which, among other things, held that the 
stay had expired. The decision also invalidated key elements of the 
Interconnection Decision and stated that the law grants the state 
commissions, not the FCC, the authority to determine rates involved in the 
implementation of the local competition provisions of the Telecommunications 
Act. More specifically, the court overturned the FCC's pricing guidelines, 
the "pick and choose" rule, and some portions of the FCC unbundling rules, 
including the requirement that ILECs recombine network elements that are 
purchased by CLECs on an unbundled basis. The court upheld, however, the 
FCC's view of the network elements that ILECs must unbundle, found that 
nothing in the Telecommunications Act requires a CLEC to own or control a 
telecommunications network before being able to purchase unbundled elements, 
and affirmed certain other aspects of the Interconnection Decision. Several 
interexchange carriers (including AT&T, MCI and Sprint) filed petitions for 
rehearing with the Eighth Circuit, requesting the court to reinstate certain 
of the FCC rules that were found unlawful. Various ILECs filed petitions of 
their own regarding aspects of the court's decision that they found 
objectionable. On October 14, 1997, the court denied the petitions of the 
interexchange carriers, granted those of the ILECs and struck down an 
additional FCC rule established in the Interconnection Decision that, it 
held, would have the effect of permitting a CLEC access to an ILEC's network 
elements on a bundled as well as on an unbundled basis. The court's decision 
thereby prevented CLECs from acquiring bundled network elements at cost-based 
rates, and made only unbundled elements available at those rates. In a 
separate decision on August 22, 1997, the Eighth Circuit held that the FCC 
exceeded the scope of its jurisdiction by issuing rules concerning dialing 
parity that affect essentially intrastate services and local, interstate 
calls within a single LATA. 

   The FCC, AT&T, MCI, Sprint, WorldCom and a large number of CLECs and 
others filed petitions for certiorari requesting the United States Supreme 
Court to overturn both of the Eight Circuit's 

                               64           
<PAGE>
decisions. The petitions asserted, among other things, that the Eighth 
Circuit erred in finding the FCC lacked jurisdiction to promulgate rules 
implementing the local competition pricing provisions of the 
Telecommunications Act of 1996 and in rejecting the "pick and choose" 
provisions of the FCC's Rules. On January 26, 1998, the United States Supreme 
Court granted the petitions for certiorari filed by the FCC, various IXCs, 
CLECs and others challenging the Eighth Circuit's decision. In addition, the 
Supreme Court granted conditional petitions for certiorari filed by the ILECs 
that, among other things, challenged the Eighth Circuit's decisions to uphold 
FCC rules that would give new competitors cost-based access to ILECs' 
unbundled network elements. These petitions have been consolidated, and one 
hour of oral argument has been allotted during the Supreme Court's next term. 
There can be no assurance that the stricken portions of the FCC's rules will 
be reinstated on appeal or on further consideration by the FCC, or that the 
Company will be able to obtain interconnection agreements on terms acceptable 
to the Company. There can also be no assurance that the FCC's rules will 
prove sufficient, as implemented in the negotiation and arbitration process, 
to permit local telephone competition to develop as a general matter. In this 
latter regard, on July 2, 1997, SBC Communications Inc. ("SBC"), the parent 
of Southwestern Bell, filed suit in United States District Court, Northern 
District of Texas (Wichita Falls) challenging the constitutionality of the 
Telecommunications Act. SBC alleged that Sections 271 through 275 of the Act, 
which govern the entry by a regional holding company ("RHC") into long 
distance markets and certain other lines of business, are unconstitutional in 
four ways: (i) the sections deny a RHC's First Amendment free speech rights 
by imposing a four-year separate subsidiary requirement for entry into 
electronic publishing; (ii) the provisions violate the separation of powers 
clause by revoking the legally protected monopolies that were established in 
the Divestiture; (iii) the sections infringe on the equal protection clause 
of the Fifth Amendment by restricting long distance entry for RBOCs and not 
their competitors; and (iv) the provisions violate the "Bill of Attainder" 
clause by employing legislative means to tread on judicial boundaries and 
bring about a loss of civil rights and business opportunities. SBC filed a 
motion for summary judgment with the Court on July 30, 1997. SBC's motion 
alleged that the Act is "causing irreparable harm, including denial of 
significant business opportunities, the loss of customer goodwill and 
infringement of First Amendment rights." 

   On December 31, 1997, the Court granted SBC's motion. The Court found that 
the Special Provisions constitute a "bill of attainder" and are therefore 
unconstitutional because they (i) identify the Bell Operating Companies 
("BOCs") as a specific group; (ii) inflict punishment on that group; and 
(iii) do so without giving the BOCs the benefit of a judicial trial. The 
Court devoted the bulk of its analysis to the second of these points, 
concluding that (a) the Special Provisions are comparable to burdens that the 
U.S. Supreme Court has historically identified as punitive (observing that 
they prevent the BOCs from entering lucrative markets that are open to their 
competitors, and reinstate certain restrictions on BOC activities that were 
imposed by the consent decree that broke up AT&T but had long since been 
removed); (b) they cannot reasonably be said to further non-punitive 
legislative purposes (on grounds that they presume the BOCs' guilt for 
anticompetitive conduct that has not yet taken place); and (c) the 
legislative history of the Special Provisions evidences an intent to punish 
the BOCs (in that the Special Provisions perpetuate constraints on the BOCs 
that were imposed by the AT&T consent decree, which was crafted in response 
to alleged anticompetitive conduct by AT&T and not by the BOCs themselves). 
The Court saw no need to address SBC's equal protection and First Amendment 
arguments. 

   The Court's decision is considered to be controversial by many, and the 
United States Department of Justice has joined AT&T, MCI and Sprint in asking 
the Court for a stay of the decision's effectiveness pending the filing of an 
appeal to the United States Court of Appeals for the Fifth Circuit. MCI has 
since filed a notice of appeal with the Fifth Circuit urging that it overturn 
the Court's decision. In the meantime, the court has approved a December 30, 
1997 request by Bell Atlantic that it be covered by the effect of the 
December 31 ruling. The Court has also rejected the request of Ameritech to 
join the case, on grounds that it was filed after the ruling. On February 11, 
1998, the Court temporarily stayed its order, pending appeal. 

   The Company has executed comprehensive local exchange resale agreements 
with Southwestern Bell, U S West, Sprint and GTE covering eight states in the 
Region. These agreements do not completely resolve all pricing and 
operational issues for the resale of local services or access to the 
unbundled 

                               65           
<PAGE>
network elements. Some of such terms may be affected by legal proceedings 
regarding FCC regulatory requirements, the outcome of which will apply to the 
industry as a whole. However, the Company believes that these agreements 
represent a reasonable initial step in the process of establishing local 
service on a commercial basis. 

   The Company expects to negotiate similar agreements with other ILECs. 
However, other carriers who have preceded the Company in the negotiation 
process have expressed dissatisfaction with some of the terms of their 
agreements, or with the operational support systems by which they obtain the 
interconnection they require to provide local services to end users. No 
assurance is possible regarding how quickly or how adequately the Company 
will be able to take advantage of the opportunities created by the 
Telecommunications Act. The Company could be adversely affected if the court 
decision reversing some of the new FCC rules, or problems in the related 
arbitration and negotiation process, result in increasing the cost of using 
ILEC network elements or services, or if such actions otherwise resulted in 
delays in the implementation of the Telecommunications Act. 

   In addition, the Company's plans to provide local telephone service are 
heavily dependent upon implementation of provisions of the Telecommunications 
Act. The Telecommunications Act preempted state and local laws to the extent 
that they prohibited local telephone competition, and imposed a variety of 
new duties on ILECs intended to advance such competition, including the duty 
to negotiate in good faith with competitors requesting interconnection to an 
ILEC's network. However, negotiations with ILECs have sometimes involved 
considerable delays and the resulting negotiated agreements may not 
necessarily be obtained on terms and conditions that are acceptable to the 
Company. In such instances, the Company may petition the proper state 
regulatory agency to arbitrate disputed issues. There can be no assurance 
that the Company will be able to negotiate acceptable new interconnection 
agreements with ILECs or that if state regulatory authorities impose terms 
and conditions on the parties in arbitration, such terms will be acceptable 
to the Company. 

   The Telecommunications Act also imposes certain duties on non-ILECs, such 
as the Company. These duties include the obligation to complete calls 
originated by competing carriers under reciprocal arrangements or through 
mutual exchange of traffic without explicit payment; the obligation to permit 
resale of their telecommunications services without unreasonable restrictions 
or conditions; and the duty to provide dialing parity, number portability, 
and access to rights of way. The Company does not anticipate that these 
obligations will impose a material burden on its operations. However, given 
that local telephone competition is still in its infancy and implementation 
of the Telecommunications Act has just begun, there can be no assurance in 
this regard. 

   The Telecommunications Act also establishes the foundation for substantial 
additional competition to the Company's long distance operations through 
elimination or modification of previous prohibitions on the provision of 
interLATA long distance services by the RBOCs and General Telephone Operating 
Companies. The RBOCs are now permitted to provide interLATA long distance 
service outside those states in which they provide local exchange service 
("out-of-region long distance service") upon receipt of any necessary state 
or federal regulatory approvals that are otherwise applicable to the 
provision of intrastate or interstate long distance service. They also are 
allowed to provide long distance services for their cellular and other mobile 
services within the regions in which they also provide local exchange service 
("in-region service"). The RBOCs will be allowed to provide wireline 
in-region service upon specific approval of the FCC and satisfaction of other 
conditions, including a checklist of interconnection requirements. (Many of 
these additional conditions to entry will be eliminated if the Court's 
decision in the SBC case discussed above is affirmed on appeal.) The General 
Telephone Operating Companies are permitted to enter the long distance market 
without regard to limitations by region. The General Telephone Operating 
Companies are also subject to the provisions of the Telecommunications Act 
that impose interconnection and other requirements on local exchange 
carriers. 

   The FCC has granted ILECs certain flexibility in pricing their interstate 
special and switched access services. Under this pricing scheme, local 
exchange carriers may establish pricing zones based on access traffic density 
and charge different prices for access provided in each zone. The Company 
anticipates that the FCC will grant ILECs increasing pricing flexibility as 
the number of interconnection agreements and 

                               66           
<PAGE>
competitors increases. In a pending rulemaking proceeding scheduled for 
completion soon, the FCC is expected to announce new and more specific 
policies regarding the conditions and timing under which ILECs will be 
eligible for such increased pricing flexibility. There can be no assurance 
that such pricing flexibility will not place the Company at a competitive 
disadvantage, either as a purchaser of access for its long distance 
operations, or as a vendor of access to other carriers or end user customers. 

   Effective January 1, 1998, ILECs became entitled to assess PICC charges 
upon switching a customer's service from one provider to another. At the 
present time, the Company expects to pay a blended rate of approximately 
$5.00 per business and residential customer as a PICC charge. Unless all 
interexchange carriers elect to pass these charges along to their customers, 
those carriers that elect to absorb the PICC charge will enjoy a competitive 
advantage over those that attempt to pass the charge along to their 
customers. The Company believes that larger carriers will be better able to 
absorb the PICC charges over the short term, and hence will enjoy a 
competitive advantage until market conditions drive the cost of the PICC 
charge to lower levels. The Company will determine whether to absorb or pass 
along the PICC charge once it assesses the action taken by its competitors. 
Absorption of the PICC charge would increase the Company's cost of providing 
telecommunication services and consequently would adversely impact the 
Company's results of operations. 

   State Regulation. The Company is also subject to various state laws and 
regulations. Most PUCs require providers such as the Company to obtain 
authority from the commission prior to the initiation of service. In most 
states, including Texas, Kansas, Oklahoma, North Dakota, South Dakota and 
Nebraska, the Company also is required to file tariffs setting forth the 
terms, conditions and prices for services that are classified as intrastate. 
The Company also is required to update or amend its tariffs when it adjusts 
its rates or adds new products, and is subject to various reporting and 
record-keeping requirements. 

   Many states also require prior approval for transfers of control of 
certified carriers, corporate reorganizations, acquisitions of 
telecommunications operations, assignment of carrier assets, carrier stock 
offerings and incurrence by carriers of significant debt obligations. 
Certificates of authority can generally be conditioned, modified, canceled, 
terminated or revoked by state regulatory authorities for failure to comply 
with state law or the rules, regulations and policies of state regulatory 
authorities. Fines or other penalties also may be imposed for such 
violations. There can be no assurance that state utilities commissions or 
third parties will not raise issues with regard to the Company's compliance 
with applicable laws or regulations. 

   The Company initially will provide CLEC services in the Region through 
resale of the retail local services of the respective ILECs. Certain of the 
Acquired Companies have obtained CLEC certification in eight states and are 
currently reselling local services in portions of Texas, Kansas, North Dakota 
and South Dakota. ACG has initiated proceedings to secure regulatory 
approvals for the Acquisitions, and expects to have all approvals the absence 
of which would be material prior to the consummation of the Offering. The 
Company intends to seek CLEC certification in other states throughout the 
Region. 

   Many issues remain open regarding how new local telephone carriers will be 
regulated at the state level. For example, although the Telecommunications 
Act preempts the ability of states to forbid local service competition, it 
preserves the ability of states to impose reasonable terms and conditions of 
service and other regulatory requirements. However, these statutes and 
related questions arising from the Telecommunications Act will be elaborated 
further through rules and policy decisions made by PUCs in the process of 
addressing local service competition issues. 

   The Company also will be heavily affected by state PUC decisions related 
to the ILECs. For example, PUCs have significant responsibility under the 
Telecommunications Act to oversee relationships between ILECs and their new 
competitors with respect to such competitors' use of the ILECs' network 
elements and wholesale local services. PUCs arbitrate interconnection 
agreements between the ILECs and new competitors such as the Company when 
necessary. PUCs are considering ILEC pricing issues in major proceedings now 
underway. PUCs will also determine how competitors can take advantage of the 
terms and conditions of interconnection agreements that ILECs reach with 
other carriers. It is too early to evaluate how these matters will be 
resolved, or their impact on the ability of the Company to pursue its 
business plan. 

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<PAGE>
   States also regulate the intrastate carrier access services of the ILECs. 
The Company is required to pay such access charges to such carriers that 
originate and terminate its intrastate long distance traffic. The Company 
could be adversely affected by high access charges, particularly to the 
extent that the ILECs do not incur the same level of costs with respect to 
their own intrastate long distance services. A related issue is used by 
certain ILECs, with the approval of PUCs, of extended local area calling that 
converts otherwise competitive intrastate toll service to local service. 
States also are or will be addressing various intraLATA dialing parity issues 
that may affect competition. It is unclear whether state utility commissions 
will adopt changes in their rules governing intrastate access charges similar 
to those recently approved by the FCC for interstate access. The Company's 
business could be adversely affected by such changes. 

   The Company also will be affected by how states regulate the retail prices 
of the ILECs with which it competes. The Company believes that, as the degree 
of intrastate competition increases, the states will offer the local exchange 
carriers increasing pricing flexibility. This flexibility may present the 
local exchange carriers with an opportunity to subsidize services that 
compete with the Company's services with revenues generated from 
non-competitive services, thereby allowing ILECs to offer competitive 
services at lower prices than they otherwise could. The Company cannot 
predict the extent to which this may occur or its impact on the Company's 
business. 

   Valu-Line has been providing intrastate long distance services to 
customers in Arkansas since 1992 without the requisite permit from the state 
utility commission. Valu-Line has initiated steps to secure the requisite 
permit for such activities and no penalties have been assessed to date. While 
the Arkansas regulatory authorities have the power to require the forfeiture 
of the revenues generated by Valu-Line's unlicensed intrastate activities in 
Arkansas (approximately $270,000 through September 30, 1997), Valu-Line is 
endeavoring to negotiate a reduced penalty. The Company is negotiating an 
appropriate escrow arrangement with the stockholders of Valu-Line or a 
reduction in the purchase price to cover such penalty. See also Notes to 
Financial Statements of Feist Long Distance for information relating to a 
potential liability of approximately $250,000 arising from the provision of 
long distance services in Missouri without the requisite state permits. 

   Local Government Authorizations. In the event the Company determines to 
construct any portion of its network, it will be required to obtain 
easements, street use and construction permits and licenses or franchises to 
install its network using municipal rights-of-way. In some municipalities 
where the Company might elect to construct a network, it might be required to 
pay license or franchise fees based on a percentage of gross revenues or on a 
per linear foot basis. In many markets, the ILECs do not pay such franchise 
fees or pay fees that are substantially less than those that might be 
required to be paid by the Company, although the Telecommunications Act 
requires that in the future such fees be applied in a competitively neutral 
manner. To the extent that, notwithstanding the Telecommunications Act, 
competitors do not pay the same level of fees as the Company, the Company 
could be at a competitive disadvantage. 

   General. The telecommunications market is in a period of substantial 
change and uncertainty. As the Telecommunications Act and related FCC and 
state actions are implemented, new issues are likely to arise that can affect 
the Company and its business plan. No assurance can be given that future 
regulatory developments will not have a materially adverse impact on the 
Company or on the value of the Common Stock. 

RECENTLY INSTITUTED LITIGATION AGAINST AN ACQUIRED COMPANY 

   In early February 1998, Valu-Line was served with a petition by four 
plaintiffs (including the lawyer filing the suit) which alleged, among other 
things, that Valu-Line billed the plaintiffs for services never provided and 
intentionally "bumped up" the actual time of services used by plaintiffs in 
order to increase Valu-Line's charges to them. The plaintiffs purported to 
bring the suit as a class action and alleged violations of the Texas 
Deceptive Trade Practices Act, fraud, breach of contract, negligence and 
gross negligence. They sought damages in an unspecified amount, further 
damages under the Deceptive Trade Practices Act (which could be as much as 
triple the actual damages), interest, attorney's fees and such other relief 
to which they may have been entitled. The petition contained no details with 
respect to 

                               68           
<PAGE>
Valu-Line's alleged conduct. While representatives of Valu-Line advised ACG 
that they believe Valu-Line's billing practices have and do conform generally 
to industry standards and FCC rate filings and that the plaintiffs' 
allegations were without merit, Valu-Line, in order to avoid protracted 
litigation, entered into a settlement, a nominal portion of which will be 
paid by the Company, and an agreed confidential dismissal with prejudice, 
with the four named plaintiffs prior to the certification of the suit as a 
class action. The former stockholders of Valu-Line have agreed, severally, to 
indemnify the Company for a period of six months after the closing of the 
Offering against liabilities, costs and expenses, including legal fees, 
relating to similar claims which others may bring in the future. In order to 
fund this indemnity obligation, the former stockholders have deposited in 
escrow an aggregate of 71,428 shares of Common Stock, and their obligation is 
limited to the value of those shares. 

REAL PROPERTY AND LEASES 

   The Company leases its corporate headquarters space in St. Louis, Missouri 
from an unaffiliated third party on a month-to-month basis. 

   The Company owns office buildings in Amarillo and Longview, Texas and 
leases office space and facilities in Dallas, Texas; Oklahoma City, Oklahoma; 
Wichita, Kansas; Sioux Falls, South Dakota and several other locations. The 
leases for these offices expire at various times through January 2002. 

   The Company may lease or purchase additional office space and switching 
and other network facilities in connection with an expansion of its business. 

EMPLOYEES 

   As of November 30, 1997, the Company had over 580 full-time employees, 
none of whom is represented by a union or covered by a collective bargaining 
agreement. The Company believes that its relationship with its employees is 
good. 

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<PAGE>
                                  MANAGEMENT 

DIRECTORS AND EXECUTIVE OFFICERS 

   The following table sets forth certain information concerning each of 
ACG's directors and executive officers (ages as of November 30, 1997). The 
Board of Directors (the "Board") will consist of twelve directors, divided 
into three classes of directors serving staggered terms. Directors and 
executive officers of ACG are elected to serve until they resign or are 
removed, or are otherwise disqualified to serve, or until their successors 
are elected and qualified. Directors of ACG are elected at annual meetings of 
the stockholders. Executive officers of ACG generally are appointed by the 
Board shortly after each annual meeting of stockholders. 

<TABLE>
<CAPTION>
                                                                                              TERM 
                                                                                               AS 
                                                                                            DIRECTOR 
              NAME              AGE(1)               POSITION(S) WITH COMPANY                EXPIRES 
              ----              ------               ------------------------                ------- 
<S>                             <C>    <C>                                                 <C>
Richard P. Anthony ............   49   Chairman of the Board, President and Chief             2000 
                                        Executive Officer 
James F. Cragg.................   46   Executive Vice President, Sales and Marketing and      1998 
                                        Director 
William H. Zimmer III .........   44   Executive Vice President, Chief Financial Officer,     1999 
                                        Treasurer, Secretary and Director 
Richard O'Neal(2) .............   57   President--Directory Services Group and Director       1999 
Fred L. Thurman(2) ............   47   President--Telecommunications Services Group  and      2000 
                                        Director 
Todd J. Feist(2) ..............   33   Vice President--Kansas/Telecommunications              1999 
                                        Services Group and Director 
Rod K. Cutsinger ..............   54   Director                                               2000 
Fentress                           
 Bracewell(2)(3)(4)(5).........   76   Director                                               1998
E. Clarke Garnett(2)(3)(6)  ...   37   Director                                               1999 
Reginald J.                        
 Hollinger(2)(3)(4)............   34   Director                                               2000
David M. Mitchell(2)(4)(6)  ...   49   Director                                               1998 
G. Edward Powell(6) ...........   61   Director                                               1998 
</TABLE>

- ------------ 
(1)    No person shall be nominated for election, nor elected, as a director 
       of ACG if such person (i) has attained the age of 80 as of such 
       nomination or election, or (ii) will attain the age of 80 prior to the 
       expiration of the term of office for which he is being nominated or 
       elected. 
(2)    Election will become effective on the closing of the Offering, and the 
       biographical information set forth herein assumes the consummation of 
       the Offering. 
(3)    Member of the Nominating Committee. 
(4)    Member of the Compensation Committee. 
(5)    Member of the Audit Committee. The Company intends to promptly identify 
       and appoint two additional independent directors to the Board and the 
       Audit Committee no later than the 1998 annual meeting of stockholders 
       in order to satisfy the requirements of the NYSE. 
(6)    Elected pursuant to an agreement with ACG or certain stockholders. See 
       "Certain Transactions -- Voting Arrangements." 

   Richard P. Anthony joined ACG in November 1997 and was elected Chairman of 
the Board, President and Chief Executive Officer of ACG in December 1997. 
Since 1993, Mr. Anthony had been employed by Brooks Fiber Properties, Inc. 
("Brooks Fiber"), a CLEC and a competitive access provider which has recently 
entered into a merger agreement to be acquired by WorldCom. Mr. Anthony 
joined Brooks Fiber as its seventh employee, and most recently served as 
Regional President of one of the two regions of Brooks Fiber. In that 
capacity he had responsibility for directing sales, construction and 
operations in 25 cities, including Oklahoma City, Tulsa, Houston, Austin, 
Dallas, San Antonio, Kansas City and Minneapolis. Mr. Anthony also chaired 
the Brooks Fiber Service Delivery Committee which was concerned with defining 
the business practices and recommending changes to the operational support 
systems supporting order processing, billing, provisioning, as well as 
network monitoring and asset 

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<PAGE>
administration. Earlier, from March 1993 until August 1996, Mr. Anthony was 
Brooks Fiber's Senior Vice President of Marketing and Strategy. From 1991 
until 1993, Mr. Anthony was Senior Vice President of Strategy, Marketing and 
Network of Intermedia Communications of Florida, Inc. ("ICI"), a competitive 
access provider that completed its initial public offering in 1992. From 1989 
through 1990, Mr. Anthony was Director, Data Communications, of Telcom USA, a 
large long distance company. From 1987, when ICI began operation, to 1989, 
Mr. Anthony was Vice President of Strategy, Marketing and Sales of ICI. Mr. 
Anthony had spent a number of years in the telecommunications industry prior 
to that time. 

   James F. Cragg was elected Executive Vice President, Sales and Marketing 
and Director in December 1997. Since January 1997 Mr. Cragg had been employed 
by Brooks Fiber. Mr. Cragg most recently served as Acting Regional President, 
Eastern Region, and also as General Manager and Regional Vice President, 
Mid-America Region. In these capacities, he had responsibilities for 
directing sales, construction and operations in Kansas, Minnesota, Missouri 
and Tennessee. From 1995 to 1996, Mr. Cragg was Senior Vice President, 
Business Markets for Snyder Communications Inc., an integrated marketing 
company. In this capacity, Mr. Cragg was responsible for managing a large 
outsourced sales channel (staffed by 650 sales representatives speaking 22 
foreign languages) representing MCI Business to Business Sales as an agent to 
MCI. From 1994 to 1995, Mr. Cragg was a Director of Sales and Marketing for 
Ernst & Young. From 1983 to 1994, Mr. Cragg held various responsibilities at 
MCI. His last position at MCI was Director of Sales and Service, Mid-America 
Region. 

   William H. Zimmer III was elected Executive Vice President, Chief 
Financial Officer, Treasurer, Secretary and a Director of ACG in December 
1997. Since 1991 Mr. Zimmer had been employed as Treasurer and Secretary of 
Cincinnati Bell Inc., ("CBI"), the holding company of an incumbent local 
exchange carrier. For more than nine years prior to that time, he served in a 
variety of finance positions with CBI. As Secretary and Treasurer of CBI, Mr. 
Zimmer was primarily responsible for that company's corporate financings, 
risk management, trust asset management, cash management, corporate 
investments and rating agency and exchange relationships. Mr. Zimmer has 
agreed to facilitate an orderly transition of his duties at CBI by consulting 
at mutually convenient times with officials of CBI through the first quarter 
of 1998. 

   Richard O'Neal is President -- Directory Services Group and a Director of 
ACG. He founded Great Western in 1984 and has served as its President since 
that time. Mr. O'Neal also has served as an officer and director of several 
publishing organizations such as the Yellow Page Publishers Association and 
the Association of Directory Publishers, two of the largest organizations in 
that industry. 

   Fred L. Thurman is President -- Telecommunications Services Group and a 
Director of ACG. He has been President of FirsTel since April 1994. Prior to 
that time he served as a consultant to FirstTel for six months. Between 1984 
and 1989, Mr. Thurman provided accounting, tax and management advisory 
services as a certified public accountant to Dial-Net, Inc., a long distance 
telephone company, which was acquired by LDDS, Inc. in 1993. Since 1979 Mr. 
Thurman has also been a partner in Thurman, Comes, Foley & Co. LLC, a public 
accounting firm in Sioux Falls, South Dakota, but in the last several years 
has not been active in the practice. 

   Todd J. Feist is Vice President -- Kansas/Telecommunications Services 
Group and a Director of ACG. He has been President of Feist Long Distance 
since February 2, 1996. Prior to that time he had been Network Manager for 
Feist Long Distance since April 1, 1994 and before that date had been 
Distribution Manager of Feist Publications, Inc. in Lubbock, Texas since 
1987. 

   Rod K. Cutsinger has been a Director of ACG and its predecessor since the 
organization of its predecessor in June 1996 and served as Chairman and Chief 
Executive Officer from June 1996 until Mr. Anthony assumed those positions in 
December 1997. Mr. Cutsinger, the founder of ACG, developed the Company's 
initial acquisition strategy and successfully negotiated the definitive 
acquisition agreements with the Acquired Companies. In early 1983 Mr. 
Cutsinger founded Advanced Telecommunications Corporation ("ATC") and by the 
end of that year ATC had acquired six companies and completed an initial 
public offering. After selling his interest in ATC, in 1986 Mr. Cutsinger 
founded American Funeral Services, Inc. ("AFS"), a publicly held death care 
company headquartered in Houston, Texas. In late 1992 AFS was acquired by 
Service Corporation International. Thereafter, Mr. Cutsinger founded and 

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<PAGE>
served as the principal officer of Vadacom, Inc., a switched based long 
distance company headquartered in Houston, that sold substantially all its 
assets in 1995. See "Certain Transactions -- Additional Background 
Information." Mr. Cutsinger is also an executive officer, director and equity 
interest owner of CPFF and Consolidation Partners. 

   Fentress Bracewell is primarily engaged in managing his personal 
investments in Houston. Prior to his retirement in 1991, Mr. Bracewell was a 
Senior Partner in the law firm of Bracewell & Patterson, L.L.P., having been 
one of the founders of that firm in 1945. Mr. Bracewell remains a Founding 
Partner and Special Counsel of Bracewell & Patterson, L.L.P., although he has 
no continuing equity participation in that firm. He also serves as a director 
of First Investors Financial Services, Inc., an automobile finance company. 

   E. Clarke Garnett has served as President of KINNET, KINI and Liberty, 
(the owner of 51%, after the Offering and prior owner of 100% of the 
outstanding capital stock of KINNET), since November 1996. Prior to that 
time, he had served as an Executive Vice President of these three companies 
since May 1994 and as Executive Director since September 1992. Between 1990 
and 1992, Mr. Garnett was the General Manager, Western Region, of CommNet 
Cellular, Inc. 

   Reginald J. Hollinger is a Managing Director and Group Head of the 
Telecommunications Investment Banking Group at PaineWebber Incorporated, one 
of the Representatives of the Underwriters. Mr. Hollinger serves as a member 
of the Investment Banking Division's Management Committee. Prior to joining 
PaineWebber in 1997, Mr. Hollinger worked at Morgan Stanley & Co. 
Incorporated for eight years and was most recently a Principal focusing 
exclusively on the telecommunications industry. Mr. Hollinger has a wide 
range of corporate finance and mergers and acquisitions experience in the 
telecommunications industry. 

   David M. Mitchell has been engaged primarily as an investor in the 
telephone business since 1982 when he founded National Telephone Exchange of 
Temple, Texas. Mr. Mitchell sold this and two other telephone companies in 
1991 to U.S. Long Distance. Mr. Mitchell owned a 50% interest in Valu-Line at 
the time Valu-Line was acquired by the Company. 

   G. Edward Powell served as Executive Vice President, Chief Financial 
Officer and Director of ACG and its predecessor between July and December 
1997, after having acted as a consultant to and a director of ACG's 
predecessor since September 1996. Mr. Powell joined the accounting firm of 
Price Waterhouse LLP in 1959 and served as managing partner of that firm's 
Houston office between 1982 and his retirement in 1994. Since his retirement, 
Mr. Powell has served as a director of and consultant to five emerging high 
technology companies in addition to his involvement with the Company. 

OTHER VICE PRESIDENTS 

   The following table sets forth certain information regarding other Vice 
Presidents of Services Groups of ACG who are not considered executive 
officers: 

<TABLE>
<CAPTION>
        NAME        AGE                  VICE PRESIDENT (1) 
        ----        ---                  ------------------ 
<S>                 <C>   <C>
Brad Van Leur ..... 41    Marketing/Telecommunications Services Group 
Donald R. Sarchet   48    Networks/Telecommunications Services Group 
Bill Rhodes ....... 49    Texas/Telecommunications Services Group 
Earle Brown ....... 40    Interconnect/Telecommunications Services Group 
Larry Baldwin ..... 52    Operations/Directory Services Group 
Mark Fields ....... 33    Finance/Directory Services Group 
Max Andrews ....... 39    Marketing/Directory Services Group 
</TABLE>

- ------------ 
(1)    Election will become effective upon the closing of the Offering, and 
       the biographical information set forth below assumes the consummation 
       of the Offering. 

   Brad Van Leur is Vice President -- Marketing/Telecommunications Services 
Group of ACG. Mr. Van Leur has been Vice President Sales & Marketing for 
FirsTel since 1995, and between 1993 and 1995 served 

                               72           
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as FirsTel's consultant for long distance. From 1989 to 1993, he served as 
regional sales manager for North Dakota, South Dakota, Minnesota, Iowa and 
Nebraska for Dial Net, and in 1993 he also served as Director of Operations 
in South Dakota for LDDS/WorldCom. From 1987 to 1989 he was Sales Manager for 
South Dakota for Computel, a long distance and interconnect company, which 
was acquired by Dial Net in 1989. From 1985 to 1987 he served in various 
positions for Long Line/Teletech, a long distance company. 

   Donald R. Sarchet is Vice President -- Networks/Telecommunications 
Services Group of ACG. Since 1992, Mr. Sarchet has been Vice President, 
Network Operations of Valu-Line. Between 1989 and 1992, he served as Area 
Manager -- Field Operations -- North of ATC. From 1984 to 1989, Mr. Sarchet 
served in various positions with Clay Desta Digital Corporation. Clay Desta 
was acquired by ATC in 1989. Prior to that time, from 1966 to 1982, Mr. 
Sarchet served in various positions with Southwestern Bell, including as 
Network Service Supervisor in several locations. 

   Bill Rhodes is Vice President -- Texas/Telecommunications Services Group. 
He has been President of Valu-Line since April 1996. Prior to that time, Mr. 
Rhodes was employed by Rockwell International, Inc. for more than 20 years in 
various engineering, program management, marketing and business development 
executive capacities. 

   Earle Brown is Vice President -- Interconnect/Telecommunications Services 
Group. He has served as President of Tele-Systems since January 1995 and 
prior to that time had served as Vice President-Operations of Tele-Systems 
since November 1989. 

   Larry Baldwin is Vice President -- Operations/Directory Services Group. 
Mr. Baldwin has served as Great Western's Executive Vice President, Secretary 
and Treasurer since its inception in 1984. Prior to that time he was involved 
in instant printing operations in Amarillo, Texas. 

   Mark Fields is Vice President -- Finance/Directory Services Group. Mr. 
Fields has been Controller of Great Western since December 1994. From August 
1990 until December 1994, he was a Manager with KPMG Peat Marwick LLP. 
Between August 1987 and August 1990, he was a Senior Auditor for Deloitte & 
Touche. 

   Max Andrews is Vice President -- Marketing/Directory Services Group. Mr. 
Andrews, whose sales experience dates back to 1982, has been a sales manager 
with Great Western since January 1994; most recently having served as the 
General Sales Manager for Texas and Oklahoma. From January 1989 to December 
1993, he was a district sales manager for Dun & Bradstreet/Donnelley 
Information Publishing in San Diego, California. 

DIRECTOR COMPENSATION 

   Directors of ACG who are also employees of the Company receive no 
directors' fees but are eligible to receive, and have received, grants of 
stock options under the Company's 1997 Stock Awards Plan. Non-employee 
directors receive fees of $1,000 for each board meeting in which they 
participate, are reimbursed for reasonable out-of-pocket travel expenditures 
incurred and receive options to purchase shares of Common Stock pursuant to 
the Directors' Plan upon election to the Board. 

   In October 1997 ACG adopted the Directors' Plan. The Directors' Plan 
provides for the grant of stock options to non-employee directors of the 
Company. The Directors' Plan is administered by the Board of Directors and 
authorizes the grant of options to purchase up to 300,000 shares of Common 
Stock for issuance as nonqualified options. Each director of the Company who 
is not an employee of the Company or any of the Company's subsidiaries (an 
"Eligible Director"), is granted options to acquire 15,000 shares of Common 
Stock on the first to occur of the date of consummation of the Offering or 
the date of such director's first election to the Board. Additional options 
to acquire 5,000 shares of Common Stock will thereafter be awarded to each 
Eligible Director on the date of the annual meeting of stockholders at which 
he or she is reelected to serve an additional three-year term as a Director 
of the Company. As of the date of the consummation of the Offering, each of 
Messrs. Fentress Bracewell, Rod K. Cutsinger, E. Clarke Garnett, Reginald J. 
Hollinger, G. Edward Powell and David M. Mitchell will be granted options to 
purchase 15,000 shares of Common Stock pursuant to the Directors' Plan at the 
initial public offering price. The option will vest in equal annual 
installments on the first, second and third anniversaries of the consummation 
of the Offering. 

                               73           
<PAGE>
EXECUTIVE COMPENSATION 

   Neither ACG nor its predecessor has conducted any operations other than 
related to the Acquisitions and the Offering, and ACG's predecessor did not 
pay any compensation prior to June 1996. The Company anticipates that during 
1997 its most highly compensated executive officer and his annualized base 
salary will be Mr. Rod K. Cutsinger (who served as Chairman and Chief 
Executive Officer until Mr. Richard P. Anthony assumed those positions in 
December 1997) -- $300,000. Mr. Cutsinger is no longer an officer or employee 
of ACG. In lieu of cash compensation from the Company, Mr. G. Edward Powell 
(who served as Executive Vice President and Chief Financial Officer of the 
Company until Mr. William H. Zimmer III assumed the position of Executive 
Vice President, Chief Financial Officer, Treasurer and Secretary in December 
1997) was afforded the opportunity to purchase an aggregate of 100,000 shares 
of common stock of the Company's predecessor in October 1996 and January 1997 
for an aggregate cash consideration of $5,000. In addition to Messrs. 
Anthony, Cragg and Zimmer, who served in their positions for a brief period 
in 1997, the only other person to serve as an officer of the Company during 
1997 was Brad K. Cutsinger, the son of Rod K. Cutsinger, who is no longer 
employed by ACG. No executive officer of ACG's predecessor received 
perquisites in 1997, the value of which exceeded the lesser of $50,000 or 10% 
of the salary and bonus of such executive. 

   The persons expected to be the five most highly compensated executive 
officers of ACG in 1998 and their expected base salaries are: 

<TABLE>
<CAPTION>
                                                                      EXPECTED 
          NAME                             TITLE                     BASE SALARY 
          ----                             -----                     ----------- 
<S>                     <C>                                        <C>
Richard P. Anthony  ... Chairman of the Board, President and Chief    $250,000 
                         Executive Officer 
James F. Cragg ........ Executive Vice President, Sales and            175,000 
                         Marketing 
William H. Zimmer III   Executive Vice President, Chief Financial      185,000 
                         Officer, Secretary and Treasurer 
Richard O'Neal ........ President--Directory Services Group            300,000 
Fred L. Thurman ....... President--Telecommunications Services         175,000 
                         Group 
</TABLE>

EMPLOYMENT AGREEMENTS 

   Mr. Richard P. Anthony has entered into a six-year employment agreement 
with the Company providing for his employment as Chairman of the Board, 
President and Chief Executive Officer of the Company at an annual base salary 
of $200,000, increasing to $250,000 after February 1, 1998, with a bonus 
potential equal to 50% of base salary. The agreement provides for a one time 
$50,000 cash bonus that was paid in December 1997, ten-year options to 
purchase 150,000 shares of Common Stock at $2.50 per share which vest three 
months after the date of grant, and ten-year options to purchase 350,000 
shares of Common Stock at the initial public offering price which vest in 
three equal increments on the first three anniversaries of the date of grant. 
The agreement also provides for the grant of options to purchase up to 75,000 
shares of Common Stock each year at the current market price on the date of 
grant, if certain targets set by the Compensation Committee are met. Mr. 
Anthony's options vest upon (i) his death or disability, (ii) his resignation 
following a change of control, or (iii) the termination of his employment 
other than "with cause," as defined in his employment agreement. In the event 
Mr. Anthony resigns after a change in ownership or management of the Company 
which significantly alters his job responsibilities or compensation, he will 
be entitled to his base salary for a period of two years. Unless either Mr. 
Anthony so resigns or the Company terminates his employment "with cause," as 
defined in the employment agreement, Mr. Anthony will be entitled to his base 
salary for a one year period upon his termination. The employment agreement 
also provides for a one year post-termination noncompetition obligation that 
is extended to three years upon his voluntary resignation under circumstances 
that do not involve a change in control. 

   Mr. James F. Cragg has entered into a six-year employment agreement with 
the Company providing for his employment as Executive Vice President, 
Marketing and Sales at an annual base salary of $175,000 with a bonus 
potential equal to 100% of base salary. The agreement provides for a one-time 
$100,000 cash bonus that was paid in December 1997, ten-year options to 
purchase 150,000 shares of Common Stock at $2.50 per share which vest three 
months after the date of grant, and ten-year options to purchase 275,000 

                               74           
<PAGE>
shares of Common Stock at the initial public offering price which vest in 
three equal increments on the first three anniversaries of the date of grant. 
The agreement also provides for the grant of options to purchase up to 50,000 
shares of Common Stock each year at the current market price on the date of 
grant, if certain targets set by the Compensation Committee are met. Mr. 
Cragg's options vest upon (i) his death or disability, (ii) his resignation 
following a change of control, or (iii) the termination of his employment 
other than "with cause," as defined in his employment agreement. In the event 
Mr. Cragg resigns after a change in ownership or management of the Company 
which significantly alters his job responsibilities or compensation, he will 
be entitled to his base salary for a period of two years. Unless either Mr. 
Cragg so resigns or the Company terminates his employment "with cause," as 
defined in the employment agreement, Mr. Cragg will be entitled to his base 
salary for a one year period upon his termination. The employment agreement 
also provides for a one year post-termination noncompetition obligation that 
is extended to three years upon his voluntary resignation under circumstances 
that do not involve a change in control. 

   Mr. William H. Zimmer III has entered into a six-year employment agreement 
with the Company providing for his employment as Executive Vice President, 
Chief Financial Officer, Secretary and Treasurer at an annual base salary of 
$185,000, with a bonus potential equal to 50% of base salary. The agreement 
provides for a one time $50,000 cash bonus that was paid in December 1997, 
ten-year options to purchase 350,000 shares of Common Stock at the initial 
public offering price which vest in three equal increments on the first three 
anniversaries of the date of grant. The agreement also provides for the grant 
of options to purchase up to 50,000 shares of Common Stock each year at the 
current market price on the date of grant, if certain targets set by the 
Compensation Committee are met. Mr. Zimmer's options vest upon (i) his death 
or disability, (ii) his resignation following a change of control, or (iii) 
the termination of his employment other than "with cause," as defined in his 
employment agreement. In the event Mr. Zimmer resigns after a change in 
ownership or management of the Company which significantly alters his job 
responsibilities or compensation, he will be entitled to his base salary for 
a period of two years. Unless either Mr. Zimmer so resigns or the Company 
terminates his employment "with cause," as defined in the employment 
agreement, Mr. Zimmer will be entitled to his base salary for a one year 
period upon his termination. The employment agreement also provides for a one 
year post-termination noncompetition obligation that is extended to three 
years upon his voluntary resignation under circumstances that do not involve 
a change in control. 

   In addition, Messrs. O'Neal, Feist and Thurman have entered into three, 
five and five-year employment agreements with the respective Acquired 
Companies of which they are president that provide for base salaries of 
$300,000, $110,000 and $175,000, respectively, and a bonus potential ranging 
from 50% to 63% of base salary. In the event that the Company terminates Mr. 
O'Neal's employment other than for cause (as defined in his agreement) or in 
the event that Mr. O'Neal resigns under circumstances that he reasonably 
believes were contrived by Great Western to force his resignation, or after a 
change in control of the Company, Mr. O'Neal shall be entitled to continue to 
receive his base salary until the scheduled expiration date of his employment 
agreement. Mr. Thurman shall be entitled to receive one year's salary in the 
event his employer terminates him for a reason other than with cause (as 
defined in his agreement) and two years' salary in the event that he resigns 
following a change in control of his employer. Mr. Feist is entitled to 
receive six months salary in the event his employer terminates him for a 
reason other than with cause (as defined in his agreement) and one year's 
salary in the event that he resigns following a change in control of his 
employer. These agreements contain three-year noncompetition covenants. Mr. 
Feist is also entitled to receive a bonus of $50,000 upon consummation of the 
Offering. 

   See "Option Grants" for information relating to stock options awarded to 
Messrs. O'Neal, Feist and Thurman. 

1997 STOCK AWARDS PLAN 

   In October 1997, the Board adopted and the stockholders subsequently 
approved the Plan in substitution of a substantially identical plan which its 
predecessor had adopted earlier in the year. The Plan is intended to provide 
key employees with an opportunity to acquire a proprietary interest in the 
Company and additional incentive and reward opportunities based on the 
profitable growth of the 

                               75           
<PAGE>
Company and to aid the Company in attracting and retaining outstanding 
personnel. The Plan provides for the granting of options (either incentive 
stock options within the meaning of Section 422(b) of the Code, or options 
that do not constitute incentive stock options ("nonqualified stock 
options")), restricted stock awards, stock appreciation rights, performance 
awards, and phantom stock awards, or any combination thereof. The Plan covers 
an aggregate of 3,500,000 shares of Common Stock (subject to certain 
adjustments in the event of stock dividends, stock splits and certain other 
events). 

   Administration. The Plan was administered by the entire Board prior to the 
closing of the Offering and will be administered by the Compensation 
Committee of the Board thereafter. The Compensation Committee has the power 
to determine which employees will receive an award, the time or times when 
such award will be made, the type of the award and the number of shares of 
Common Stock to be issued under the award or the value of the award. Only 
persons who at the time of the award are key employees of the Company or of 
any subsidiary of the Company are eligible to receive an award under the 
Plan. 

   Options. The Plan provides for two types of options: incentive stock 
options and nonqualified stock options. The Compensation Committee will 
designate the key employees to receive the options, the number of shares 
subject to the options, and the terms and conditions of each option granted 
under the Plan. The term of any option granted under the Plan shall be 
determined by the Compensation Committee; provided, however, that the term of 
any incentive stock option cannot exceed ten years from the date of the grant 
and any incentive stock option granted to an employee who possesses more than 
10% of the total combined voting power of all classes of stock of the Company 
or of its subsidiary within the meaning of Section 422(b)(6) of the Code must 
not be exercisable after the expiration of five years from the date of grant. 
No option may be exercised earlier than six months from the date of grant. 
The exercise price per share of Common Stock of options granted under the 
Plan will be determined by the Compensation Committee; provided, however, 
that an incentive stock option exercise price cannot be less than the fair 
market value of a share of Common Stock on the date such option is granted 
(subject to adjustments). Further, the exercise price of any incentive stock 
option granted to an employee who possesses more than 10% of the total 
combined voting power of all classes of stock of the Company or of its 
subsidiaries within the meaning of Section 422(b)(6) of the Code must be at 
least 110% of the fair market value of the share at the time such option is 
granted. The exercise price of options granted under the Plan will be paid in 
full in a manner prescribed by the Compensation Committee. 

   Restricted Stock Awards. Pursuant to a restricted stock award, shares of 
Common Stock may be issued to employees without any cash payment to the 
Company, except to the extent otherwise provided by the Compensation 
Committee or required by law; provided, however, that such shares will be 
subject to certain restrictions on the disposition thereof and certain 
obligations to forfeit such shares to the Company as may be determined in the 
discretion of the Compensation Committee. The restrictions on disposition may 
lapse based upon (a) the Company's attainment of specific performance targets 
established by the Compensation Committee that are based on (i) the price of 
a share of Common Stock, (ii) the Company's earnings per share, (iii) the 
Company's revenue, (iv) the revenue of a business unit of the Company 
designated by the Committee, (v) the return on stockholders' equity achieved 
by the Company, or (vi) the Company's pre-tax cash flow from operations, (b) 
the grantee's tenure with the Company, or (c) a combination of both factors. 
The Company retains custody of the shares of Common Stock issued pursuant to 
a restricted stock award until the disposition restrictions lapse. An 
employee may not sell, transfer, pledge, exchange, hypothecate, or otherwise 
dispose of such shares until the expiration of the restriction period. 
However, upon the issuance to the employee of shares of Common Stock pursuant 
to a restricted stock award, except for the foregoing restrictions, such 
employee will have all the rights of a stockholder of the Company with 
respect to such shares, including the right to vote such shares and to 
receive all dividends and other distributions paid with respect to such 
shares. 

   Stock Appreciation Rights. A stock appreciation right permits the holder 
thereof to receive an amount (in cash, Common Stock, or a combination 
thereof) equal to the number of stock appreciation rights exercised by the 
holder multiplied by the excess of the fair market value of Common Stock on 
the exercise date over the stock appreciation rights' exercise price 
(generally the fair market value of the Common Stock on the date of grant). 
Stock appreciation rights may or may not be granted in connection 

                               76           
<PAGE>
with the grant of an option and no stock appreciation right may be exercised 
earlier than six months from the date of grant. A stock appreciation right 
may be exercised in whole or in such installments and at such time as 
determined by the Compensation Committee. 

   Performance and Phantom Stock Awards. The Plan permits grants of 
performance awards and phantom stock awards, which may be paid in cash, 
Common Stock, or a combination thereof as determined by the Compensation 
Committee. Performance awards granted under the Plan will have a maximum 
value established by the Compensation Committee at the time of the grant. A 
grantee's receipt of such amount will be contingent upon satisfaction by the 
Company, or any subsidiary, division or department thereof, of future 
performance conditions established by the Compensation Committee prior to the 
beginning of the performance period. Such performance awards, however, are 
subject to later revisions as the Compensation Committee deems appropriate to 
reflect significant unforeseen events or changes. A performance award will 
terminate if the grantee's employment with the Company terminates during the 
applicable performance period except as otherwise provided by the 
Compensation Committee at the time of grant. Phantom stock awards granted 
under the Plan are awards of Common Stock or rights to receive amounts equal 
to share appreciation over a specific period of time. Such awards vest over a 
period of time or upon the occurrence of a specific event(s) (including, 
without limitation, a change of control ) established by the Compensation 
Committee, without payment of any amounts by the holder thereof (except to 
the extent required by law) or satisfaction of any performance criteria or 
objectives. A phantom stock award will terminate if the grantee's employment 
with the Company terminates during the applicable vesting period or, if 
applicable, the occurrence of a specific event(s), except as otherwise 
provided by the Compensation Committee at the time of grant. In determining 
the value of performance awards or phantom stock awards, the Compensation 
Committee must take into account the employee's responsibility level, 
performance, potential, other awards under the Plan, and other such 
consideration as it deems appropriate. Such payment may be made in a lump sum 
or in installments as prescribed by the Compensation Committee. Any payment 
made in Common Stock will be based upon the fair market value of the Common 
Stock on the payment date. 

   Option Grants. In mid-1997, the Board of Directors of the Company's 
predecessor granted ten-year options to purchase 350,000 shares and 175,000 
shares of its common stock to Messrs. G. Edward Powell and Brad K. Cutsinger, 
respectively, at an exercise price of $2.50 per share. One-third of these 
options vested immediately and the balance vested in equal increments on the 
first and second anniversaries of the date of grant and would have been 
accelerated in the event of a change in control of the Company. In mid-1997, 
the Board of the Company's predecessor granted a similar option to Todd J. 
Feist covering 250,000 shares of its common stock upon his employment by an 
acquisition subsidiary of the Company. Prior to the consummation of the 
Offering, Mr. Feist exchanged this option for a substantially identical 
option to purchase 250,000 shares of Common Stock issued under the Plan. 
Prior to the consummation of the Offering, Messrs. Powell and Brad Cutsinger 
also exchanged their options for ten-year, fully vested warrants to purchase 
a like number of shares of Common Stock at the same exercise price. In late 
1997, the Company granted options to purchase an aggregate of 1,275,000 
shares of Common Stock to Messrs. Richard P. Anthony, James F. Cragg and 
William H. Zimmer III as described under "--Employment Agreements." 
Contemporaneously with the closing of the Offering, the Board intends to 
grant (i) five year options to purchase 150,000 shares, and 150,000 shares, 
respectively, to Richard O'Neal and Fred L. Thurman, and (ii) an aggregate of 
approximately 500,000, shares of Common Stock to the other officers and 
employees of various Acquired Companies at an exercise equal to the initial 
public offering price per share. These options will vest in equal increments 
over three to five year periods from the date of grant. 

COMPREHENSIVE REVIEW OF BENEFITS PLAN 

   Following the Offering, the Compensation Committee will engage a qualified 
executive compensation consulting firm to evaluate the Company's overall 
compensation program for officers and directors and assist that committee in 
developing and implementing a program that properly motivates and rewards the 
program participants in a manner that is consistent with prevailing industry 
standards. 

                               77           
<PAGE>
                             CERTAIN TRANSACTIONS 

THE ACQUISITIONS 

   Simultaneously with the consummation of the Offering, ACG will acquire by 
merger, stock purchase or asset acquisition a 49% interest in KINNET and all 
of the issued and outstanding stock (or in four cases, substantially all of 
the assets) of the Acquired Companies and its predecessor, at which time each 
Acquired Company and ACG's predecessor will become a wholly-owned subsidiary 
of the Company. The aggregate consideration to be paid by ACG in the 
Acquisitions includes approximately $83.3 million in cash, 3,392,644 shares 
of Common Stock, $17.4 million in promissory notes and 1,393,213 warrants or 
options to purchase Common Stock. Of the aggregate consideration, $30.8 
million, $0.2 million, $3.3 million and $1.4 million in cash, will be paid to 
Messrs. O'Neal, Feist, Mitchell and Thurman, respectively, 400,000, 71,429, 
175,714 and 190,735 shares of Common Stock will be issued to Messrs. O'Neal, 
Feist, Mitchell and Thurman, respectively; $8.4 million in subordinated notes 
will be issued to Mr. O'Neal; $552,983 in convertible subordinated notes will 
be issued to Mr. Thurman; and 280,000 and 13,513 five-year non-transferable 
warrants to purchase Common Stock at the initial public offering price will 
be issued to Mr. O'Neal and Mr. Thurman, respectively. 

   On June 16, 1997, ACG's predecessor issued to the five stockholders of 
Great Western, as consideration for their execution of a definitive 
acquisition agreement, three series of non-transferable, ten-year warrants to 
purchase an aggregate of 756,078 shares of Common Stock at an exercise price 
of $6.61 per share, subject to adjustment to protect against dilution. The 
warrants of each series become exercisable upon the first, second and third 
anniversary dates of the consummation of the Offering. Of these, Mr. O'Neal 
received warrants to purchase an aggregate of 567,059 shares of Common Stock. 

   For a description of the terms of the Acquisitions, the consideration 
payable and certain other matters, see "The Company -- Summary of Terms of 
the Acquisitions." 

OTHER ORGANIZATIONAL MATTERS 

   CPFF was organized in June 1996 with a five-year term for the purpose of 
financing consolidating transactions identified by Rod K. Cutsinger, 
including a possible transaction in the telecommunications industry. CPFF has 
two classes of equity interests: Class A interests and Class B interests. The 
holders of the Class A interests have no right to vote for the election and 
management of CPFF, such rights having been vested in the holders of the 
Class B Interests. CPFF was capitalized in September 1996 upon (i) the sale 
of an aggregate of $1,520,000 in Class A interests for cash to a limited 
number of investors, including $50,000 in Class A interests to G. Edward 
Powell, (ii) the issuance of $350,000 in Class A interests to Rod K. 
Cutsinger in exchange for his contribution of certain intangible personal 
property, including business plans, confidentiality agreements, 
organizational documents and economic projections relating to several 
consolidating company opportunities, (iii) the issuance of $250,000 in Class 
A interests to Rod K. Cutsinger in exchange for $5,000 in cash and a 
promissory note in the principal amount of $245,000, (iv) the issuance of 
$100,000 in Class A interests to Brad K. Cutsinger in exchange for $5,000 in 
cash and a promissory note in the principal amount of $95,000 and (v) the 
sale of 100% of the Class B interests to Consolidation Partners for $22,200 
in cash. The promissory notes issued by Messrs. Rod and Brad Cutsinger bear 
interest at 8% per annum, are payable upon the first to occur of the 
consummation of the Offering or December 31, 1998 and are secured by a pledge 
of the acquired interests. At November 30, 1997, the promissory note of Rod 
Cutsinger had been paid in full and the balance of the promissory note of 
Brad Cutsinger had declined to $22,500 as a result of the application of 
salaries from CPFF to which they were otherwise entitled to the reduction of 
the principal balances of these notes. CPFF used a portion of the proceeds of 
its initial capitalization to make loans to ACG in the amount of $1.2 millon. 

   In September 1997, November 1997 and January 1998, CPFF issued an 
aggregate of $1,880,000 of additional Class A Interests. At the same time, 
the holders of the Class B Interests contributed an additional $18,990 to the 
capital of CPFF. In consideration for the agreements of four Class A Interest 
owners to subscribe and oversubscribe for certain of these Class A Interests, 
Rod K. Cutsinger has agreed to transfer to such persons for nominal 
consideration an aggregate of 230,418 shares of his Common Stock. 
Additionally, in consideration for the subscription of three other existing 
Class A Interest owners for an aggregate of $200,000 of Class A Interests, 
Rod K. Cutsinger transferred to such persons for nominal consideration an 
aggregate of $44,400 of his Class A Interests. CPFF used the proceeds of the 
issuance of these additional Class A Interests to increase its loan to ACG to 
approximately $3.2 million. 

                               78           
<PAGE>
   Under the terms of the corporate regulations of CPFF, CPFF is obligated to 
distribute shares in a consolidating company such as ACG as soon as 
practicable after the consummation of that company's initial public offering. 
Shares of Common Stock in ACG will be distributed to the holders of the Class 
A and Class B Interests on a fifty-fifty basis until the holders of the Class 
A Interests have received shares of Common Stock of ACG (valued at the 
initial public offering price) equal to three times their aggregate 
investment in CPFF, or $12.3 million. Thereafter, the balance of the shares 
of Common Stock held by ACG will be distributed 25% to the holders of the 
Class A Interests and 75% to the holders of the Class B Interests. 
Accordingly, promptly following the Offering, CPFF will distribute shares of 
Common Stock to the holders of the Class A Interests (including shares to 
Messrs. Rod K. Cutsinger and G. Edward Powell) and shares of Common Stock to 
Consolidation Partners in respect of its Class B Interests. Rod K. Cutsinger 
and his wife own 80% of the beneficial interests of Consolidation Partners, 
and the remaining interests are owned by trusts for the benefit of their 
adult children, including Brad K. Cutsinger. See "Principal Stockholders." 
The shares of Common Stock distributed by CPFF will be entitled to certain 
registration rights and subject to certain lock-up arrangements with the 
Underwriters. See "Shares Eligible for Future Sale" and "Underwriting." 

   Prior to the pricing of this Offering, Richard O'Neal, the principal 
shareholder of Great Western, expressed disagreement with the effect of the 
reverse stock split on certain warrants that had been issued to the 
stockholders of Great Western at the time of the execution of the initial 
acquisition agreement between ACG and Great Western (the "Warrants"). CPFF 
and Mr. O'Neal agreed to engage in good faith negotiations to determine the 
type and amount of any consideration appropriately payable by CPFF to the 
holders of the Warrants following the consummation of the Offering. If a 
negotiated settlement cannot be reached within 45 days after the closing of 
the Offering, the matter will be referred to binding arbitration and the cost 
of such arbitration shall be borne by CPFF. CPFF agrees not to effect any 
distribution of ACG Common Stock to its interest owners prior to the 
resolution of these matters. The resolution of this matter is solely between 
CPFF and the principal shareholder of Great Western. ACG shall have no 
liability with respect to the resolution of this matter and no additional ACG 
Common Stock or equivalents will be issued in connection therewith. In no 
event shall any assets of ACG be used to satisfy any negotiated settlement or 
arbitration award. 

INITIAL CAPITALIZATION 

   In connection with its initial capitalization on September 17, 1996, ACG's 
predecessor issued and sold an aggregate of 8,227,736 (net of subsequent 
repurchases) shares of its common stock, of which 7,560,780 shares, 378,039 
shares, 47,255 shares, 94,510 shares, 7,561 shares and 1,890 shares were 
acquired by CPFF, Rod K. Cutsinger, Brad K. Cutsinger, Frank Bango (a former 
director of ACG), G. Edward Powell and Fentress Bracewell for $1,000, 
$10,000, $1,250, $2,500, $200 and $50, respectively. At the same time CPFF 
agreed to loan the Company $1.2 million (increased to $3.2 million through 
January 12, 1998) pursuant to an 8% promissory note payable upon the earlier 
of the effectuation of an initial public offering by ACG or December 31, 
1998. This promissory note, together with accrued interest thereon, will be 
repaid from the net proceeds of the Offering. 

   Between October 14, 1996 and January 3, 1997, ACG's predecessor issued and 
sold 39,694 shares of common stock at $0.05 per share, of which 37,804 shares 
were sold to G. Edward Powell for an aggregate of $5,000. During the same 
period, ACG's predecessor agreed to issue to eight persons for services 
rendered five year warrants to purchase an aggregate of 16,256 shares of 
Common Stock at the initial public offering price per share, subject to 
adjustments to protect against dilution. Additionally, on May 2, 1997 ACG's 
predecessor issued a ten-year non-transferrable warrant to purchase 7,560 
shares of its common stock at $2.65 per share, subject to adjustment to 
protect against dilution, to a consultant in consideration for services 
rendered to the Company. In July 1997, the Company agreed to issue a similar 
warrant to purchase 7,560 shares of Common Stock at $6.61 to another 
consultant. Pursuant to agreements entered into in May and July 1997, the 
Company has agreed to issue an aggregate of 4,540 shares of Common Stock, 
valued at $6.61 per share, to two consultants in lieu of compensation. With 
respect to certain other option and warrant grants, see "Management --1997 
Stock Awards Plan -- 

                               79           
<PAGE>
Option Grants." In December 1997 Rod K. Cutsinger privately placed an 
aggregate of 70,882 shares of his Common Stock with Richard P. Anthony and 
another investor at a price of $5.29 per share and agreed to privately place 
an additional 47,256 shares of Common Stock with James F. Cragg at the same 
price. 

VOTING ARRANGEMENTS 

   In the acquisition agreement relating to the investment in KINNET, Liberty 
(the former owner of 100%, and the present owner of the remaining 51%, of the 
stock of KINNET) agreed, until the tenth anniversary date of the consummation 
of the Offering, to be present in person or by proxy at all meetings of 
stockholders of ACG for quorum purposes. Additionally, Liberty has agreed, 
among other things, not to initiate or solicit stockholders to become 
participants in any proxy solicitation or induce or attempt to induce others 
to initiate a tender offer, exchange offer or other change in control of ACG. 
ACG's Board has also agreed, subject to its fiduciary obligations, to 
nominate as a director an individual designated by Liberty that is reasonably 
qualified to serve on the board of directors of a publicly held corporation. 
This obligation expires on the first to occur of the tenth anniversary of the 
closing of the consummation of the Offering or the reduction of Liberty's 
ownership of Common Stock below 100,000 shares. Mr. Rod K. Cutsinger has 
agreed to vote his shares of Common Stock in favor of Liberty's designee 
nominated by the Board. Mr. Garnett has been designated by Liberty as its 
initial director nominee. 

   In the acquisition agreement relating to Valu-Line, ACG's Board, subject 
to its fiduciary obligations, agreed to place David M. Mitchell on its Board 
and renominate Mr. Mitchell as a director from time to time as long as he 
owns at least 100,000 shares of Common Stock at the time of such 
renomination. 

OTHER TRANSACTIONS 

   Richard O'Neal is an officer, director and owner of 50% of the outstanding 
voting securities of Big Stuff, Inc. ("BSI"), a corporation that markets 
Internet home page development services to business customers and provides 
high quality yellow page colorizing services to Great Western and other 
yellow page publishers. During the two fiscal years ended January 31, 1995 
and 1996 and the year ended December 31, 1996, Great Western paid BSI 
approximately $94,000, $578,000 and $1.1 million, respectively, for yellow 
page colorizing services. Great Western and BSI have entered into a Sales 
Agreement pursuant to which BSI expects to continue to render the foregoing 
services to Great Western after the Offering upon terms and conditions that 
the Company considers reasonable under the circumstances. BSI has also agreed 
to give Great Western the exclusive right to market World Pages in its 
service areas. 

   KINI renders management services to KINNET pursuant to an evergreen 
Management Agreement dated January 1, 1997 ("Management Agreement") which is 
terminable at any time upon six months advance notice of termination. Under 
the Management Agreement, KINI receives a monthly payment equal to 100% of 
employee, equipment and other direct costs associated with its management of 
KINNET for the period plus 15% of such amount. During the three years in the 
period ended December 31, 1996, KINNET paid KINI, L.C. approximately $1.6 
million, $1.9 million and $2.4 million, respectively, pursuant to the 
Management Agreement. ACG does not own any outstanding voting securities of 
KINI, L.C. KINI, L.C. also renders management services to Liberty under a 
similar arrangement. E. Clarke Garnett is the President of KINI, KINNET and 
Liberty. 

   Pursuant to a network services agreement, Feist Long Distance transports 
traffic on KINNET's network. During the three years in the period ended 
December 31, 1996, Feist Long Distance paid KINNET approximately $46,300, 
$120,000 and $136,300, respectively, for such services. The Company expects 
that Feist Long Distance's payments to KINNET will increase after the 
Offering because Feist Long Distance intends to transfer additional traffic 
to the KINNET network. The Company also intends when practicable and economic 
to transport the long distance traffic of its other telecommunications 
subsidiaries over the KINNET network. 

ADDITIONAL BACKGROUND INFORMATION 

   In mid-1992, Rod K. Cutsinger formed Vadacom, Inc. ("Vadacom") as a 
switch-based long distance telephone company headquartered in Houston, Texas. 
In early 1995, Vadacom transferred its switch, 

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<PAGE>
computer and related billing software and customer base to Nationwide Long 
Distance, Inc. ("Nationwide"), a switchless long distance reseller with a 
substantial customer base, in exchange for cash, a subordinated promissory 
note and an opportunity to convert the note into a substantial equity 
position in Nationwide, with the expectation that an affiliate of Nationwide 
would promptly conclude an initial public offering. Although Mr. Cutsinger 
served as an officer and director of this affiliate for a brief period of 
time, he never served as an officer or director of Nationwide. The 
affiliate's anticipated public offering did not occur and the terms of the 
asset sale were restructured. 

   In late 1995 Nationwide and its three stockholders (collectively the 
"Plaintiffs") filed suit against Vadacom and Mr. Cutsinger (collectively, the 
"Defendants"), alleging, that the Defendants committed fraud in connection 
with the sale of Vadacom's assets to Nationwide and the anticipated initial 
public offering and that Vadacom breached its representations and warranties 
in its agreements with Nationwide (Nationwide Long Distance, Inc., Kim 
Wilhelm, Ellen Wilhelm and Chester M. Ranger v. Vadacom, Inc. and Rod K. 
Cutsinger, No. 95-051059, Dist. Ct. of Harris County, 215th Judicial District 
of Texas). The Plaintiffs seek in excess of $10 million in actual damages, 
punitive damages in an unspecified amount, and injunctive relief. The 
Defendants believe that the claims against them are without merit. The 
Defendants have filed counterclaims alleging that the Plaintiffs willfully 
violated the rules and regulations of the FCC by illegally switching 
customers' long distance service without their authorization, that the 
Plaintiffs breached their fiduciary duties to Defendants, and that the 
Plaintiffs defrauded Defendants in materially diminishing the value of the 
assets sold to Nationwide by Vadacom and frustrating the consummation of a 
public offering that potentially could have been substantially remunerative 
to Vadacom's shareholders. The Defendants have asked the court to impose a 
constructive trust over the shares of Nationwide stock owned by its three 
shareholders. All activity in the case has now been stayed by reason of 
Nationwide's Chapter 11 bankruptcy proceedings initiated in 1997. Mr. 
Cutsinger's efforts to settle the case earlier this year were not successful. 
On February 10, 1998, Nationwide filed a motion for expedited consideration 
of Nationwide's application to substitute counsel in order to facilitate the 
pursuit of claims against Mr. Cutsinger essentially similar to those asserted 
in the Lyle Cox litigation described below. 

   In addition, as a result of Mr. Cutsinger's substantial ownership position 
in Vadacom and Nationwide's operation of Vadacom's assets following the 
acquisition, both Mr. Cutsinger and Vadacom have been sued or threatened with 
suit for breach of contract claims by long distance carriers, customers and 
others, for failure to pay outstanding commercial accounts, ad valorem taxes 
and promissory notes and for other causes of action. Some of these claims 
relate directly to the operation of Vadacom's assets following their 
acquisition by Nationwide. Mr. Cutsinger believes that the claims against him 
personally are without merit, and he intends to contest them vigorously. 
While in the past Mr. Cutsinger has expended substantial sums of his own 
money financing Vadacom's defense of these claims, he reserves the right to 
cease doing so. In such event, Vadacom may seek protection from such 
litigants and its creditors under applicable bankruptcy law. 

   In early January 1998, legal counsel for the assignee of a defaulted 
promissory note issued by Vadacom in the original principal amount of 
approximately $80,000 which is the subject of a pending lawsuit (Lyle Cox v. 
Vadacom Inc., No. 97-25464, Dist. Ct. of Harris County, 152nd Judicial 
District of Texas) wrote Mr. Cutsinger's legal counsel a letter and alleged 
that Mr. Cutsinger "has transferred assets that constitute fraudulent 
transfers with respect to the creditors of Vadacom, Inc. These transfers have 
been to companies owned by Mr. Cutsinger and his family. One of these 
companies is [ACG]". Counsel for the plaintiff states that his client intends 
to either (i) place Vadacom in involuntary bankruptcy, (ii) sue Mr. 
Cutsinger, his family, ACG and Consolidation Partners, or (iii) seek a 
temporary injunction. Mr. Cutsinger categorically denies that any Vadacom 
assets were fraudulently transferred and believes that the foregoing 
allegations are wholly without merit. 

SUBSEQUENT MANAGEMENT CHANGES 

   In September 1997, the Company initiated a search for a President and 
Chief Executive Officer and a Chief Financial Officer, each with extensive 
experience in the local and long distance telephone business, to succeed 
Messrs. Rod K. Cutsinger, and G. Edward Powell. Accordingly, upon the 
Company's hiring of Richard P. Anthony and William H. Zimmer III, Mr. 
Cutsinger relinquished his position as 

                               81           
<PAGE>
Chairman and Chief Executive Officer of ACG and G. Edward Powell resigned as 
Executive Vice President and Chief Financial Officer of ACG. Messrs. 
Cutsinger and Powell are no longer officers or employees of ACG. 

   At the request of the Representatives of the Underwriters and in 
consideration of the Company's payment of $1.75 million from the proceeds of 
the Offering, Mr. Cutsinger intends to enter into a five-year non-competition 
agreement with the Company. Under this agreement, Mr. Cutsinger will agree 
not to engage in any business activity conducted by the Company as of the 
date of this Prospectus in those portions of the Region in which the Company 
operates at that date. See "Description of Capital Stock -- Standstill 
Agreement" for information regarding a three-year standstill agreement that 
Mr. Cutsinger has also entered into with the Company. 

COMPANY POLICY 

   Except as noted herein, any future transactions with directors, officers, 
employees or affiliates of the Company are anticipated to be minimal and 
will, in any case, be approved in advance by a majority of the Board of 
Directors, including a majority of disinterested members of the Board of 
Directors. 

                            PRINCIPAL STOCKHOLDERS 

   The following table sets forth certain information with respect to the 
beneficial ownership of the Company's Common Stock as of February 11, 1998 
and as adjusted to reflect the shares of Common Stock, options and warrants 
to be issued in the Acquisitions and the distribution of the 7,560,781 shares 
of Common Stock owned by CPFF to the beneficial owners of CPFF's outstanding 
equity interests and the sale of the shares of Common Stock in the Offering, 
by (a) each of the executive officers of the Company, (b) each of the 
Company's directors (including persons who will become directors upon 
consummation of the Offering), (c) all executive officers and directors of 
the Company as a group, and (d) each other person (or group of affiliated 
persons) who is known by the Company to own beneficially 5% or more of the 
Company's Common Stock. See "Certain Transactions." 

<TABLE>
<CAPTION>
                                         SHARES BENEFICIALLY OWNED     SHARES BENEFICIALLY OWNED 
                                             PRIOR TO OFFERING        AFTER OFFERING, AS ADJUSTED 
                                         -------------------------    ---------------------------
       NAME(1)                            NUMBER(2)   PERCENT(2)(3)    NUMBER(2)   PERCENT(2)(3) 
       -------                            ---------   -------------    ---------   ------------- 
<S>                                       <C>             <C>           <C>            <C>
Richard P. Anthony ...................      197,255(4)      2.4%         197,255(4)      1.0% 
James F. Cragg .......................      197,255(5)      2.4          197,255(5)      1.0 
William H. Zimmer III.................           --          --               --          -- 
Richard O'Neal .......................           --          --          680,000(6)      3.4 
Fred L. Thurman ......................           --          --          204,248(7)      1.0 
Todd J. Feist ........................           --          --           71,429          * 
Rod K. Cutsinger .....................    7,637,520(5)(8)  92.8        5,623,713(9)     28.7 
Fentress Bracewell ...................        1,890          *             1,890          * 
E. Clarke Garnett ....................           --          --          714,286(10)     3.6 
Reginald J. Hollinger ................           --          --               --         -- 
David M. Mitchell ....................           --          --          175,714          * 
G. Edward Powell .....................      238,984(11)     2.9          238,984(11)     1.2 
CPFF .................................    7,560,781        91.8               --          -- 
Consolidation Partners ...............    7,560,781(12)    91.8        5,231,300        26.7 
Executive officers and directors as a 
 group (6 persons and 12 persons, 
 respectively)........................    8,164,344(13)    94.2        8,044,006(13)    39.5 
</TABLE>

- ------------ 
 *       Percentage of shares beneficially owned is less than 1.0%. 
 (1)     The address of all executive officers and directors (other than 
         Messrs. Cutsinger and Powell) is 390 South Woods Mill Road, Suite 
         150, St. Louis, Missouri 63005; the address of Messrs. Cutsinger and 
         Powell, CPFF and Consolidation Partners is 3355 West Alabama, Suite 
         580, Houston, Texas 77098. 
 (2)     Beneficial ownership includes shares of Common Stock subject to 
         options, warrants, rights, conversion privileges or similar 
         obligations exercisable within 60 days for purposes of computing the 
         ownership percentage of the person or group holding such options, 
         warrants, rights, privileges or other obligations. Except as noted, 
         each stockholder has sole voting and dispositive power with respect 
         to all shares beneficially owned by such stockholder. 

                                       (Footnotes continued on following page) 

                               82           
<PAGE>
 (3)     The number of shares of Common Stock deemed outstanding after the 
         Offering consists of 19,624,920 shares outstanding as of February 
         11, 1998 (as adjusted for the shares of Common Stock issuable in the 
         Acquisitions and the shares of Common Stock being offered for sale 
         by the Company in the Offering (excluding 1,200,000 shares issuable 
         upon the exercise of the over-allotment option granted by the 
         Company to the Underwriters)). 
 (4)     Includes 150,000 shares of Common Stock subject to stock options 
         issued by the Company that are exercisable within 60 days after 
         consummation of the Offering. 
 (5)     Includes 47,255 shares of Common Stock that Mr. Cragg is entitled to 
         purchase from Mr. Cutsinger for $5.29 per share within 30 days after 
         the consummation of the Offering and, in the case of Mr. Cragg, 
         150,000 shares of Common Stock subject to stock options issued by 
         the Company that are exercisable within 60 days after consummation 
         of the Offering. 
 (6)     A trustee for Mr. O'Neal's children owns non-transferable, ten-year 
         warrants to purchase 567,059 shares of Common Stock, one-third of 
         which warrants become exercisable on the first, second and third 
         anniversaries of the consummation of the Offering. Includes warrants 
         to purchase 280,000 shares of Common Stock at the initial public 
         offering price. 
 (7)     Includes warrants to purchase 13,513 shares of Common Stock at the 
         initial public offering price. 
 (8)     Includes 7,560,781 shares of Common Stock owned by CPFF. Because all 
         of such shares will be distributed by CPFF to the holders of its 
         Class A and Class B Interests after the Offering, Mr. Cutsinger 
         disclaims beneficial ownership of all such shares except those which 
         he will receive by reason of his ownership of approximately 13.6% of 
         the Class A Interests in CPFF and those which will be received by 
         Consolidation Partners by reason of its ownership of all of the 
         Class B Interests. Also gives effect to an agreement to transfer an 
         aggregate of 230,418 shares of Common Stock to four unrelated owners 
         of interests in CPFF. 
 (9)     Includes 5,231,300 shares of Common Stock owned by Consolidation 
         Partners, a limited liability company in which Rod K. Cutsinger and 
         his wife beneficially own of record 80% of the interests. The 
         remaining interests are beneficially owned by trusts for the benefit 
         of the Cutsingers' two adult children, including Brad K. Cutsinger, 
         over which Rod K. Cutsinger has sole voting and dispositive power. 
(10)     Includes 714,286 shares of Common Stock owned by Liberty, the owner 
         of 51% of KINNET, after the Offering, as to which E. Clarke Garnett 
         disclaims any beneficial interest. 
(11)     Includes 132,314 shares of Common Stock which Mr. Powell has the 
         right to acquire upon the exercise of warrants which are fully 
         exercisable. 
(12)     Includes 7,560,781 shares of Common Stock owned by CPFF. Because all 
         of such shares will be distributed by CPFF to the holders of its 
         Class A and Class B Interests after the Offering, Consolidation 
         Partners disclaims beneficial ownership of all such shares except 
         those which it will receive by reason of its ownership of all of the 
         Class B Interests. 
(13)     Includes 725,827 shares of Common Stock which such persons will have 
         the right to acquire upon the exercise of options and warrants which 
         are exercisable within 60 days after consummation of the Offering. 

                               83           
<PAGE>
                         DESCRIPTION OF CAPITAL STOCK 

AUTHORIZED AND OUTSTANDING CAPITAL STOCK 

   At the date of this Prospectus, the authorized capital stock of the 
Company is 200,000,000 shares, consisting of 180,000,000 shares of Common 
Stock, par value $0.0001 per share, and 20,000,000 shares of Preferred Stock, 
par value $0.0001 per share ("Preferred Stock"). The following summary is 
qualified in its entirety by reference to the Company's Restated Certificate 
of Incorporation (the "Charter"), a copy of which is included as an exhibit 
to the Registration Statement of which this Prospectus is a part. 

   Common Stock. The holders of Common Stock are entitled to dividends in 
such amounts and at such times as may be declared by the Board of Directors 
out of funds legally available therefor. See "Dividend Policy." Holders of 
the Common Stock are entitled to one vote per share for the election of 
directors and other corporate matters. In the event of liquidation, 
dissolution or winding up of the Company, holders of Common Stock would be 
entitled to share ratably in all assets of the Company available for 
distribution to the holders of Common Stock. The Common Stock carries no 
preemptive rights. All outstanding shares of Common Stock are, and the shares 
of Common Stock to be sold by the Company in the Offering when issued will 
be, duly authorized, validly issued, fully paid and nonassessable. 

   Preferred Stock. The Board is authorized to issue from time to time, 
without stockholder authorization, in one or more designated series, 
20,000,000 shares of Preferred Stock with such dividend, redemption, 
conversion and exchange provisions as are provided in the particular series. 
Except as by law expressly provided, or except as may be provided by 
resolution of the Board, the Preferred Stock shall have no right or power to 
vote on any question or in any proceeding or to be represented at, or to 
receive notice of, any meeting of stockholders of the Company. The issuance 
of Preferred Stock, or the perception that such an issuance might occur, 
could have the effect of delaying or preventing a change in control of the 
Company. No shares of preferred stock are issued or outstanding and the Board 
of Directors has no present plans to issue any of the Preferred Stock other 
than the Series A Redeemable Convertible Preferred Stock (the "Series A 
Preferred") to be issued to NGC. See "The Company -- Strategic 
Relationships." The Company will issue to NGC 142,857 shares of Series A 
Preferred having an aggregate liquidation preference of $2.0 million. The 
Series A Preferred (i) will be senior to the Common Stock as to liquidation, 
(ii) will not be entitled to receive dividends, (iii) will become convertible 
into Common Stock at the initial public offering price (subject to customary 
adjustments to protect against dilution) 18 months after the consummation of 
the Offering, (iv) if the Northwestern Alliance has not been signed by the 
first anniversary date of the closing of the Offering, is redeemable in 
whole, but not in part, at an aggregate redemption price of $1.25 million on 
or prior to the thirteenth monthly anniversary of the closing of the 
Offering, (v) is not entitled to vote in the election of directors or 
otherwise except as required by law and (vi) may not be transferred until the 
earlier of the date occurring thirteen months after the closing of the 
Offering or the date of the execution and delivery of the Northwestern 
Alliance. 

POSSIBLE ANTI-TAKEOVER EFFECTS 

   General. Certain provisions of the Company's charter, as well as the 
concentration of ownership of the Common Stock, and the Company's ability to 
issue up to 20 million shares of "blank check" Preferred Stock and the 
anticipated terms of Proposed Credit Facility, may have the effect of 
discouraging a change in control of the Company, including transactions in 
which stockholders might receive a premium price for their Common Stock. See 
also "--Standstill Agreement." 

   Statutory Provisions. Section 203 ("Section 203") of the DGCL restricts 
certain transactions between a corporation organized under Delaware law (or 
its majority-owned subsidiaries) and any person holding 15% or more of the 
corporation's outstanding voting stock, together with the affiliates or 
associates of such person (an "Interested Stockholder"). Section 203 
generally prohibits a publicly held Delaware corporation from engaging in the 
following transactions with an Interested Stockholder, for a period of three 
years from the date the stockholder becomes an Interested Stockholder (unless 
certain conditions, described below, are met): (i) all mergers or 
consolidations, (ii) sales, leases, exchanges or other transfers of 10% or 
more of the aggregate assets of the corporation, (iii) issuances or transfers 
by the corporation of any stock of the corporation which would have the 
effect of increasing the Interested 

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<PAGE>
Stockholder's proportionate share of the stock of any class or series of the 
corporation, (iv) any other transaction which has the effect of increasing 
the proportionate share of the stock of any class or series of the 
corporation which is owned by the Interested Stockholder, and (v) receipt by 
the Interested Stockholder of the benefit (except proportionately as a 
stockholder) of loans, advances, guarantees, pledges or other financial 
benefits provided by the corporation. 

   The three-year ban does not apply if either the proposed transaction or 
the transaction by which the Interested Stockholder became an Interested 
Stockholder is approved by the board of directors of the corporation prior to 
the date such stockholder becomes an Interested Stockholder. Additionally, an 
Interested Stockholder may avoid the statutory restriction if, upon the 
consummation of the transaction whereby such stockholder becomes an 
Interested Stockholder, the stockholder owns at least 85% of the outstanding 
voting stock of the corporation without regard to those shares owned by the 
corporation's officers and directors or certain employee stock plans. 
Business combinations are also permitted within the three-year period if 
approved by the board of directors and authorized at an annual or special 
meeting of stockholders, by the holders of at least 66 2/3% of the 
outstanding voting stock not owned by the Interested Stockholder. In 
addition, any transaction is exempt from the statutory ban if it is proposed 
at a time when the corporation has proposed, and a majority of certain 
continuing directors of the corporation have approved, a transaction with a 
party which is not an Interested Stockholder of the corporation (or who 
becomes such with board approval) if the proposed transaction involves (i) 
certain mergers or consolidations involving the corporation, (ii) a sale or 
other transfer of over 50% of the aggregate assets of the corporation, or 
(iii) a tender or exchange offer for 50% or more of the outstanding voting 
stock of the corporation. 

   Prior to the effective date of Section 203, a corporation, by action of 
its board of directors, had the option of electing to exclude itself from the 
coverage of Section 203. Since the effective date of such section, a 
corporation may, at its option, exclude itself from the coverage of Section 
203 by amending its certificate of incorporation or bylaws by action of its 
stockholders to exempt itself from coverage, provided that such charter or 
bylaw amendment shall not become effective until 12 months after the date it 
is adopted. The Company has not adopted such a charter or bylaw amendment. 

   Charter Provisions. The Board is divided into three classes. Each class of 
directors consists, as nearly as possible, of one-third of the total number 
of directors constituting the entire Board. The Charter provides that, 
subject to the rights of the holders of any series of Preferred Stock, the 
number of directors may be fixed from time to time by resolution of the 
Board, but will consist of not less than three nor more than 14 members. The 
term for directors in the first class expires at the annual meeting of 
stockholders to be held in 1998; the initial term for directors in the second 
class expires at the annual meeting of stockholders to be held in 1999; and 
the initial term for directors in the third class expires at the annual 
meeting of stockholders to be held in 2000. A director of the Company may be 
removed only for cause and only upon the affirmative vote of the holders of a 
majority of the outstanding capital stock entitled to vote at an election of 
directors. 

   The Charter provides that the Company may, by action of its Board, provide 
for a sinking fund for the purchase or redemption of shares of any series of 
Preferred Stock and specify the terms and conditions governing the operations 
of any such fund. The Company does not currently have any such fund. 

   The Charter provides that the Board shall fix the number of directors 
within the range specified by the Charter, and number of directors has been 
currently fixed at 12. A stockholder may nominate directors only if written 
notice is delivered to the Company by such stockholder not less than 30 days 
nor more than 60 days prior to the meeting or no later than ten days after 
the date of notice by the Company of such meeting if such notice is given 
less than 90 days in advance of the meeting. The Charter also provides that 
any newly created directorship resulting from an increase in the number of 
directors or a vacancy on the Board shall be filled by vote of a majority of 
the remaining directors then in office, even though less than a quorum. The 
Charter also provides that special meetings of the stockholders may only be 
called by the Chairman of the Board or the Board, subject to the rights of 
the holders of any series of Preferred Stock, and that the stockholders may 
not act by written consent. The Charter provides that certain of these 
provisions of the Charter may not be amended without the approval of at least 
80% of the voting power of all shares of the Company entitled to vote 
generally in the election of directors, voting together as a single class. 

                               85           
<PAGE>
   The foregoing provisions of the Charter and of Section 203, together with 
the ability of the Board to issue Preferred Stock without further stockholder 
action, could delay or frustrate the removal of incumbent directors or the 
assumption of control by the holder of a large block of Common Stock even if 
such removal or assumption would be beneficial, in the short term, to 
stockholders of the Company. The provisions could also discourage or make 
more difficult a merger, tender offer or proxy contest even if such event 
would be favorable to the interests of stockholders. 

LIMITATION ON DIRECTORS AND OFFICERS LIABILITY 

   The DGCL authorizes corporations to limit or eliminate the personal 
liability of directors to corporations and their stockholders for monetary 
damages for breach of directors fiduciary duty of care. The duty of care 
requires that, when acting on behalf of the corporation, directors must 
exercise an informed business judgment based on all material information 
reasonably available to them. Absent the limitations authorized by such 
legislation, directors are accountable to corporations and their stockholders 
for monetary damages for conduct constituting gross negligence in the 
exercise of their duty of care. Although the DGCL does not change directors' 
duty of care, it enables corporations to limit available relief to equitable 
remedies such as injunction or rescission. The Charter limits the liability 
of the Company's directors to the Company or its stockholders (in their 
capacity as directors but not in their capacity as officers) to the fullest 
extent permitted by the DGCL. Specifically, directors of the Company will not 
be personally liable for monetary damages for breach of a director's 
fiduciary duty as a director, except for liability (i) for any breach of the 
director's duty of loyalty to the Company or its stockholders, (ii) for acts 
or omissions not in good faith or which involve intentional misconduct or a 
knowing violation of law, (iii) under Section 174 of the DGCL or (iv) for any 
transaction from which the director derived an improper personal benefit. 

   The inclusion of this provision in the Charter may have the effect of 
reducing the likelihood of derivative litigation against directors and may 
discourage or deter stockholders or management from bringing a lawsuit 
against directors for breach of their duty of care, even though such an 
action, if successful, might otherwise have benefited the Company and its 
stockholders. 

STANDSTILL AGREEMENT 

   The Company and Rod K. Cutsinger intend to enter into an agreement 
pursuant to which Mr. Cutsinger, among other things, will agree that, for 
three years after the completion of the Offering, he will not (i) acquire any 
voting securities of the Company other than the shares of Common Stock 
issuable as stock dividends or splits or upon exercise of his options under 
the Company's Directors' Plan, (ii) sponsor or participate in any proxy 
solicitations, (iii) enter into or form voting trusts, pooling agreements or 
"groups", (iv) vote any of his shares of Common Stock in opposition to the 
recommendation of the disinterested members of ACG's board of directors 
regarding the election or removal of directors and matters relating to a 
possible change in control of the Company, or (v) directly or indirectly 
assist, encourage or induce any person to bid or acquire any class of 
securities that is entitled to vote for the election of directors. Mr. 
Cutsinger's obligations under the standstill agreement will terminate if he 
is removed from the Board or not renominated for election as a director in 
2000. 

TRANSFER AGENT 

   The Transfer Agent for the Common Stock is Continental Stock Transfer & 
Trust Company. 

                               86           
<PAGE>
                       SHARES ELIGIBLE FOR FUTURE SALE 

   Upon completion of the Offering, there will be 19,624,920 shares of Common 
Stock outstanding. All of the 8,000,000 shares purchased in the Offering 
(9,200,000 shares if the Underwriters' over-allotment option is exercised in 
full), as well as 98,006 other outstanding shares, will be freely tradeable 
without registration or other restriction under the Securities Act, except 
for any shares purchased by an affiliate of the Company. All of the remaining 
shares of Common Stock outstanding are either subject to the resale 
restrictions referred to in "Underwriting" or may be sold only pursuant to an 
effective registration statement filed by the Company or pursuant to an 
applicable exemption, including an exemption under Rule 144 under the 
Securities Act (the "Restricted Shares"). In this regard, the remaining 
11,526,914 shares of the shares of Common Stock currently outstanding or 
issued in the Acquisitions will be eligible for resale pursuant to Rule 144 
no later than one year following the consummation of this offering. 

   In general, Rule 144 provides that if a person (including an affiliate) 
holds Restricted Shares (regardless of whether such person is the initial 
holder or a subsequent holder of such shares), and if at least one year has 
elapsed since the later of the date on which the Restricted Shares were 
issued or the date that they were acquired from an affiliate, then such 
person is entitled to sell within any three-month period a number of shares 
that does not exceed the greater of 1% of the then outstanding shares of 
Common Stock or the average weekly trading volume of such stock during the 
four calendar weeks preceding the sale. After Restricted Shares are held for 
two years, a person who is not deemed an "affiliate" of the Company would be 
entitled to sell such shares under Rule 144 without regard to the volume 
limitations described above. 

   The holders of substantially all the shares of Common Stock and Warrants 
issuable in the Acquisitions and the reverse triangular merger of the 
Company's predecessor have certain rights to require the Company (but may not 
exercise such registration rights for a period of one year following the 
closing of the Offering) to register sales of such shares, or shares acquired 
pursuant to such warrants, under the Securities Act. If, subsequent to the 
consummation of the Offering, the Company proposes to register any of its 
securities under the Securities Act, such holders are entitled to notice of 
such registration and to include their shares in such registration with their 
expenses borne by the Company, subject to the right of an underwriter 
participating in the offering to limit the number of shares included in such 
registration. In addition, the holders of a majority of such shares of Common 
Stock have the right to demand after one year from the closing of the 
Acquisitions, subject to certain limitations, that the Company file one 
registration statement covering sales of their respective shares, and the 
Company is obligated to pay the expenses of such registration. 

   The Company's directors, its executive officers, and substantially all of 
the stockholders of ACG prior to the Acquisitions, including CPFF, have 
agreed that, subject to certain exceptions, during the one-year Lock-up 
Period they will not, and the Company has agreed that for a period of 180 
days following the date of this Prospectus it will not, without the prior 
written consent of PaineWebber Incorporated, offer, sell, contract to sell or 
otherwise dispose of any shares of Common Stock, or any securities 
convertible into, or exercisable or exchangeable for, Common Stock, except 
that the Company may grant options under the Company's stock option and 
purchase plans, and may issue shares of Common Stock (i) in connection with 
acquisitions, (ii) pursuant to the exercise of options granted under the 
Company's stock option and purchase plans or (iii) pursuant to the exercise 
of options and warrants outstanding as of the closing of the Offering. 
Further, all persons who acquire shares of Common Stock in connection with 
the Acquisitions (other than the acquisition of ACG's predecessor) have 
agreed with the Company, subject to certain exceptions, not to offer or sell 
such shares during the Lock-Up Period, and the Company has agreed not to 
waive or amend these agreements without the prior written consent of 
PaineWebber Incorporated. In addition, Rod K. Cutsinger has agreed not to 
offer or sell any of his shares of Common Stock for a period ending 18 months 
after the closing of the Offering, subject to certain exceptions, in each 
case without the prior written consent of PaineWebber Incorporated. 

   The effect, if any, that future market sales of shares or the availability 
of shares for sale will have on the prevailing market prices for the Common 
Stock cannot be predicted. Nevertheless, sales of a substantial number of 
shares in the public market could adversely affect prevailing market prices 
for the Common Stock. 

                               87           
<PAGE>
                                 UNDERWRITING 

   The Underwriters named below, acting through PaineWebber Incorporated and 
CIBC Oppenheimer (the "Representatives"), have severally agreed, subject to 
the terms and conditions set forth in the Underwriting Agreement by and among 
the Company and the Representatives (the "Underwriting Agreement"), to 
purchase from the Company, and the Company has agreed to sell to the 
Underwriters, the number of shares of Common Stock set forth opposite the 
name of such Underwriters below: 

<TABLE>
<CAPTION>
                                                       NUMBER OF 
                     UNDERWRITERS                        SHARES 
                     ------------                        ------ 
<S>                                                   <C>
PaineWebber Incorporated ............................  3,500,000 
CIBC Oppenheimer ....................................  2,340,000 
ABN AMRO Chicago Corporation ........................    150,000 
Credit Lyonnaise Securities (USA) Inc. ..............    150,000 
Donaldson, Lufkin & Jenrette Securities Corporation      150,000 
Furman Selz LLC .....................................    150,000 
Goldman, Sachs & Co. ................................    150,000 
Morgan Stanley & Co. Incorporated ...................    150,000 
SBC Warburg Dillon Read Inc. ........................    150,000 
Salomon Smith Barney Inc. ...........................    150,000 
George K. Baum & Company ............................     80,000 
Fahnestock & Co. Inc. ...............................     80,000 
Gerard Klauer Mattison & Co., LLC ...................     80,000 
Kaufman Bros., L.P. .................................     80,000 
Ladenburg Thalmann & Co. Inc. .......................     80,000 
Brad Peery Inc. .....................................     80,000 
Ragen MacKenzie Incorporated ........................     80,000 
Sanders Morris Mundy Inc. ...........................     80,000 
Sands Brothers & Co., Ltd. ..........................     80,000 
Soundview Financial Group ...........................     80,000 
C.E. UNTERBURG, TOWBIN ..............................     80,000 
Wit Capital Corporation .............................     80,000 
                                                      ----------- 
  Total .............................................  8,000,000 
                                                      =========== 
</TABLE>

   The Underwriting Agreement provides that the obligations of the 
Underwriters to purchase the Shares listed above are subject to certain 
conditions. The Underwriting Agreement also provides that the Underwriters 
are committed to purchase, and the Company is obligated to sell, all of the 
Shares offered by this Prospectus, if any of the Shares being sold pursuant 
to the Underwriting Agreement are purchased (without consideration of any 
shares that may be purchased through the exercise of the Underwriters' 
over-allotment option). 

   The Representatives have advised the Company that the Underwriters propose 
to offer the Shares to the public initially at the public offering price set 
forth on the cover page of this Prospectus and to certain dealers at such 
price less a concession not in excess of $0.55 per share. The Underwriters 
may allow, and such dealers may reallow, a concession to other dealers not in 
excess of $0.10 per share. After the initial public offering of the Shares, 
the public offering price, the concessions to selected dealers and the 
reallowance to other dealers may be changed by the Representatives. 

   The Company has granted to the Underwriters an option, exercisable during 
the 30-day period after the date of this Prospectus, to purchase up to an 
additional 1,200,000 shares of Common Stock at the initial public offering 
price set forth on the cover page of this Prospectus, less underwriting 
discounts and commissions. The Underwriters may exercise such option only to 
cover over-allotments, if any, incurred in the sale of Shares. To the extent 
the Underwriters exercise such option, each of the Underwriters will become 
obligated, subject to certain conditions, to purchase such percentage of such 
additional shares of Common Stock as is approximately equal to the percentage 
of Shares that it is obligated to purchase as shown in the table set forth 
above. 

   The Company has agreed to indemnify the Underwriters against certain 
liabilities, including liabilities under the Securities Act, or to contribute 
to payments that the Underwriters may be required to make in respect thereof. 

                               88           
<PAGE>
   The Representatives have informed the Company that they do not intend to 
confirm sales to any account over which they exercise discretionary 
authority. 

   CIBC Oppenheimer or one of its affiliates will be the lender under the 
Company's proposed credit facility, and will receive certain fees with 
respect thereto. See "Management's Discussion and Analysis of Financial 
Condition and Results of Operations of Certain Acquired Companies -- Pro 
Forma Results of Operations -- Pro Forma Liquidity and Capital Resources." 
Reginald J. Hollinger, a Managing Director and Group Head of the 
Telecommunications Investment Banking Group at Paine Webber Incorporated, 
will become a director of the Company upon the consummation of the Offering. 
See "Management." 

   In the past six months, Howard Kra and Edward Sorkin, who are employees of 
PaineWebber Incorporated, and Ronald Ormand, who is a Managing Director of 
CIBC Oppenheimer, acquired, respectively, 152,176, 28,408 and 11,363 Class A 
Interests in CPFF for total consideration of $196,700, $50,000 and $20,000. 
The resulting differences between the purchase price they will have 
effectively paid for the shares of Common Stock they will receive from CPFF 
and the value of such shares based upon the Price to Public shown on the 
cover page of this prospectus are, respectively, $2,138,024, $397,712 and 
$159,082, which amounts are treated by the National Association of Securities 
Dealers, Inc. ("NASD") as underwriters' compensation. The shares of Common 
Stock they receive will be subject to a one year restriction on sale or 
disposition starting from the effective date of the Registration Statement
pursuant to the NASD's rules and regulations. 

   The Company's executive officers and directors and substantially all of 
the stockholders of ACG prior to the Acquisitions, including CPFF, have 
agreed that, subject to certain exceptions, during the one-year Lock-up 
Period they will not, and the Company has agreed that for a period of 180 
days following the date of this Prospectus, it will not, without the prior 
written consent of PaineWebber Incorporated, offer, sell, contract to sell or 
otherwise dispose of any shares of Common Stock, or any securities 
convertible into, or exerciseable or exchangeable for, Common Stock, except 
that the Company may grant options under the Company's stock option and 
purchase plans, and may issue shares of Common Stock (i) in connection with 
acquisitions, (ii) pursuant to the exercise of options granted under the 
Company's stock option and purchase plans or (iii) pursuant to the exercise 
of options and warrants outstanding as of the closing of the Offering. 
Further, all persons who acquire shares of Common Stock in connection with 
the Acquisitions (other than the acquisition of ACG's predecessor) have 
agreed with the Company not to offer or sell such shares during the Lock-Up 
Period, and the Company has agreed not to waive or amend these agreements 
without the prior written consent of PaineWebber Incorporated. In addition, 
Rod K. Cutsinger has agreed not to offer or sell any of his shares of Common 
Stock for a period ending 18 months after the closing of the Offering, 
subject to certain exceptions, without the prior written consent of 
PaineWebber Incorporated. 

   Prior to this Offering, there has been no public market for the Common 
Stock of the Company. The initial public offering price was determined 
pursuant to negotiations between the Company and the Representatives. Among 
the factors considered in determining the initial public offering price, in 
addition to prevailing market conditions, were certain financial information 
of the Company, the history of, and the prospects for, the Company and the 
industry in which it competes, an assessment of the Company's management, its 
past and present operations, the prospects for, and timing of, future 
revenues of the Company, the present state of the Company's development, and 
the above factors in relation to market values and various valuation measures 
of other companies engaged in activities similar to the Company. The initial 
public offering price set forth on the cover page of this Prospectus should 
not, however, be considered an indication of the actual value of the Common 
Stock. Such price is subject to change as a result of market conditions and 
other factors. There can be no assurance that an active trading market will 
develop for the Common Stock or that the Common Stock will trade in the 
public market subsequent to the Offering at or above the initial public 
offering price. 

   In connection with this Offering, certain Underwriters and selling group 
members and their respective affiliates may engage in transactions that 
stabilize, maintain or otherwise affect the market price of the Common Stock. 
Such transactions may include stabilization transactions effected in 
accordance with Rule 104 of Regulation M, pursuant to which such persons may 
bid for or purchase Common Stock for the purpose of stabilizing its market 
price. The Underwriters also may create a short 

                               89           
<PAGE>
position for the account of the Underwriters by selling more Common Stock in 
connection with the Offering than they are committed to purchase from the 
Company, and in such case may purchase Common Stock in the open market 
following completion of the Offering to cover all or a portion of such short 
position. The Underwriters may also cover all or a portion of such short 
position, up to 1,200,000 shares of Common Stock, by exercising the 
Underwriters' over-allotment option referred to above. In addition, 
PaineWebber Incorporated, on behalf of the Underwriters, may impose "penalty 
bids" under contractual arrangements with the Underwriters whereby it may 
reclaim from an Underwriter (or dealer participating in the Offering) for the 
account of the other Underwriters, the selling concession with respect to 
Common Stock that is distributed in the Offering but subsequently purchased 
for the account of the Underwriters in the open market. Any transactions 
described in this paragraph may result in the maintenance of the price of the 
Common Stock at a level above that which might otherwise prevail in the open 
market. None of the transactions described in this paragraph is required, 
and, if they are undertaken, they may be discontinued at any time. 

   The Common Stock has been approved for listing on the New York Stock 
Exchange, subject to official notice of issuance. 

                           VALIDITY OF COMMON STOCK 

   The validity of the Common Stock offered hereby will be passed upon for 
the Company by Bracewell & Patterson, L.L.P., Houston, Texas, and for the 
Underwriters by Morgan, Lewis & Bockius LLP, New York, New York. Bracewell & 
Patterson, L.L.P. will receive a premium over their normal hourly billing 
rates for the legal services performed by them in connection with the 
Offering if the Offering is completed and will accept a substantially reduced 
fee payment in the event that the Offering is not completed. 

                                   EXPERTS 

   The audited financial statements of Advanced Communications Group, Inc., 
Great Western Directories, Inc., Feist Long Distance Service, Inc. and 
FirsTel, Inc. have been included herein and in the Registration Statement in 
reliance upon the reports of KPMG Peat Marwick LLP, independent certified 
public accountants, appearing elsewhere herein, and upon authority of said 
firm as experts in accounting and auditing. 

   The audited financial statements of Valu-Line of Longview, Inc. and 
Related Companies included in this Prospectus and elsewhere in the 
Registration Statement have been audited by Hein + Associates LLP, 
independent public accountants, as indicated in their report with respect 
thereto, and are included herein in reliance upon the authority of said firm 
as experts in giving said report. 

   The audited financial statements of KIN Network, Inc. included in this 
Prospectus and elsewhere in the Registration Statement as of and for the year 
ended December 31, 1996 have been audited by Sartain Fischbein & Co., 
independent public accountants, as indicated in their reports with respect 
thereto, and are included herein in reliance upon the authority of said firm 
as experts in giving said reports. The audited financial statements of KIN 
Network, Inc. included in this Prospectus and elsewhere in the Registration 
Statement as of and for the years ended December 31, 1994 and 1995, have been 
audited by Kennedy and Coe LLC, independent public accountants, as indicated 
in their report with respect thereto, and are included herein in reliance 
upon the authority of said firm as experts in giving said reports. 

                            AVAILABLE INFORMATION 

   The Company has not previously been subject to the reporting requirements 
of the Exchange Act. The Company has filed with the Securities and Exchange 
Commission (the "Commission") a Registration Statement (which term shall 
include any amendments thereto) on Form S-1 under the Securities Act with 
respect to the shares of Common Stock offered hereby. This Prospectus, which 
constitutes a part of the Registration Statement, does not contain all of the 
information set forth in the Registration Statement, certain portions of 
which have been omitted as permitted by the rules and regulations of the 
Commission. For further information with respect to the Company and the 
Common Stock, reference is made to the Registration Statement, including the 
exhibits and schedules thereto, copies of which may be examined 

                               90           
<PAGE>
without charge at the Commission's principal office at 450 Fifth Street, 
N.W., Washington, D.C. 20549 and the regional offices of the Commission 
located at 7 World Trade Center, New York, New York 10048 and 500 West 
Madison Street, 14th Floor, Chicago, Illinois 60661. Copies of such materials 
may be obtained from the Public Reference Section of the Commission, 
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at its 
public reference facilities in New York, New York and Chicago, Illinois, at 
prescribed rates, or on the Internet at http://www.sec.gov. Statements 
contained in this Prospectus as to the contents of any contract or other 
document are not necessarily complete, and in each instance reference is made 
to the copy of such contract or other document filed as an exhibit to the 
Registration Statement, each statement being qualified in all respects by 
such reference. 

   Advanced Communications Group, Inc. is a Delaware corporation, 
incorporated as a subsidiary of its predecessor in September 1997, with 
principal executive offices located at 390 South Woods Mill Road, Suite 150, 
St. Louis, Missouri 63017. The Company's telephone number at that address is 
(314) 469-9488. The Company intends to furnish its stockholders annual 
reports containing consolidated financial statements examined by an 
independent public accounting firm. 

                               91           
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<PAGE>

                                   GLOSSARY 

   Access -- telecommunications services that permit long distance carriers 
to use local exchange facilities to originate and/or terminate long distance 
service. 

   Access Charges -- The fees paid by long distance carriers to local 
exchange carriers for originating and terminating long distance calls on 
their local network. 

   AT&T -- AT&T Corp. 

   ATM -- Asynchronous Transfer Mode is a packet switching technology in 
which all data is encapsulated in packets or cells of exactly the same size. 
By keeping all packets the same size, packets can be switched and transported 
at extremely high speeds with very low delay. Cells travel across the network 
in logical paths based on network addresses as permanent virtual circuits or 
switched virtual circuits. ATM is principally used for high speed backbones 
public and very large private networks. Because of high bandwidths, low delay 
and advances in quality of service techniques, ATM is useful for transmitting 
combined voice, data, and video. 

   Ameritech -- Ameritech Corporation. 

   Bps -- Bits per second; the basic measuring unit of speed in a digital 
transmission system; the number of bits that a transmission facility can 
convey between a sending location and a receiving location in one second. 

   Backbone -- The through-portions of a transmission network, as opposed to 
spurs which branch off the through-portions. 

   Bandwidth -- The range of frequencies that can be passed through a medium, 
such as glass fibers, without distortion. The greater the bandwidth, the 
greater the information-carrying capacity of such medium. For fiber optic 
transmission, electronic transmitting devices determine the bandwidth, not 
the fibers themselves. Bandwidth is measured in Hertz (analog) or Bps 
(digital). 

   Bell Atlantic -- Bell Atlantic Corporation. 

   CAP (competitive access provider) -- A company that provides its customers 
with an alternative to the local telephone company for local transport of 
private line, special access and interstate transport of switched access 
telecommunications services. 

   CLEC --A competitive local exchange carrier. 

   Collocation -- The ability of a CAP to connect its network to the LECs 
central office. Physical collocation occurs when a CAP places its network 
connection equipment inside the LEC's central offices. Virtual collocation is 
an alternative to physical collocation pursuant to which the LEC permits a 
CAP to connect its network to the local exchange company's central offices on 
comparable terms, even though the CAP's network connection equipment is not 
physically located inside the central offices. 

   Dedicated Lines -- Local telecommunications lines reserved for use by 
particular customers, generally for connection between the customer's 
location and on interexchange carrier POP. 

   Dialing Parity -- The ability of a competing local or toll service 
provider to provide telecommunications services in such a manner that 
customers have the ability to route automatically, without the use of any 
access code, their telecommunications to the service provider of the 
customer's designation. 

   Digital -- A method of storing, processing and transmitting information 
through the use of distinct electronic or optical pulses that represent the 
binary digits 0 and 1. Digital transmission and switching technologies employ 
a sequence of these pulses to represent information as opposed to the 
continuously variable analog signal. The precise digital numbers minimize 
distortion (such as graininess or snow in the case of video transmission, or 
static or other background distortion in the case of audio transmission). 

   DS-0, DS-1, DS-3 -- Standard telecommunications industry digital signal 
formats, which are distinguishable by bit rate (the number of binary digits 
(0 and 1) transmitted per second). DS-0 service has a bit rate of 64 kilobits 
per second, DS-1 service has a bit rate of 1.544 megabits per second and DS-3 
service has a bit rate of 45 megabits per second. 

   Enhanced Network Services -- Telecommunications services providing digital 
connectivity, primarily for data applications, via frame relay, ATM, or 
digital interexchange private line facilities. Enhanced network services also 
include applications on such networks, including Internet access and other 
Internet services. 

                               G-1           
<PAGE>
    Fast Packet Service -- Fast packet service is a transport service for 
moving data or digitized voice and video across a defined network. Fast 
packet services may include routed, switched or dedicated connections. It 
usually refers to frame relay, ATM, or other high bandwidth data transport. 

   FCC -- Federal Communications Commission. 

   Feist Long Distance -- Feist Long Distance Service, Inc. 

   Fiber mile -- The number of route miles installed along a 
telecommunications path multiplied by the number of fibers along that path. 

   FirsTel -- FirsTel, Inc. 

   Frame Relay -frame relay is a form of packet switching in which data or 
voice is converted to packets of varying sizes and routed through a digital 
network along permanent virtual circuits or logical paths between 
specifically defined network addresses. Frame relay has enjoyed commercial 
success as an effective means of connecting local and wide area networks, 
connecting business to the Internet, and providing combined voice and data 
services between remote locations. 

   GTE -- GTE Corporation. 

   General Telephone Operating Companies -- Local exchange carriers 
affiliated with GTE Corporation. 

   Great Western -- Great Western Directories, Inc. 

   Hertz -- The unit for measuring the frequency with which an 
electromagnetic signal cycles through the zero-value state between lowest and 
highest states. One Hz (Hertz) equals one cycle per second. kHz (kilohertz) 
stands for thousands of Hertz; MHz (megahertz) stands for millions of Hertz. 

   ILEC -- An incumbent local exchange carrier. 

   Interconnection -- Interconnection of facilities between or among local 
exchange carriers, including potential physical collocation of one carrier's 
equipment in the other carrier's premises to facilitate such interconnection. 

   Interconnection Decision -- The August 1996 order issued by the FCC 
implementing the interconnection provisions of the Telecommunications Act. 
Portions of this order have been reversed by the U.S. Eighth Circuit Court of 
Appeals. 

   InterLATA -- Telecommunications services originating in a LATA and 
terminating outside of that LATA. 

   IntraLATA -- Telecommunications services originating and terminating in 
the same LATA. 

   ISP -- An Internet service provider. 

   KINNET -- KIN Network, Inc. 

   LAN (Local Area Network) -- Computers and peripherals linked together by 
short distance facilities, such as wire, cable, fiber, radio signal or lasers 
under a common control program. LANs are usually confined to buildings or 
campuses. LANs allow users to share file, programs and messaging within the 
definition of the network. 

   LATA (local access and transport area) -- A geographic area composed of 
contiguous local exchanges, usually but not always within a single state. 
There are approximately 200 LATAs in the United States. 

   LEC (local exchange carrier) -- A company providing local telephone 
services. 

   Long distance carriers or IXCs (Interexchange carriers) -- Long distance 
carriers provide services between local exchanges on an interstate or 
intrastate basis. A long distance carrier may offer services over its own or 
another carriers' facilities. 

   Local exchange area -- A geographic area determined by the appropriate 
state regulatory authority in which calls generally are transmitted without 
toll charges to the calling or called party. 

   Local Loop -- The local loop is that portion of the local telephone 
network that connects the customer's premises to the local exchange carrier's 
central office or switching center. This includes all the facilities starting 
from the customer premise interface which connects to the inside wiring and 
equipment at the customer premise to a terminating point within the switching 
wire center. 

                               G-2           
<PAGE>
    MCI -- MCI Communications Corporation, a corporation that has entered 
into a merger agreement to be acquired by WorldCom. 

   Nodes -- Locations within the network housing electronic equipment and/or 
switches which serve as intermediate connection points to send and receive 
transmission signals. 

   Number portability -- The ability of an end user to change local exchange 
carriers while retaining the same telephone number. 

   Off-net -- a customer that is not physically connected to one of the 
Company's networks but who is accessed through interconnection with a LEC 
network. 

   On-net -- a customer that is physically connected to one of the Company's 
networks. 

   OSS or Operational Support System(s) -- An OSS is a combination of manual 
business procedures, automated systems, and electronic interfaces which 
support the delivery of telecommunications services. OSSs support functions 
including customer order management, order processing, facilities 
provisioning, customer care, trouble reporting and trouble ticket management, 
billing, sales analysis, and product management. 

   Other Acquired Companies -- Long Distance Management II, Inc., Long 
Distance Management of Kansas, Inc., The Switchboard of Oklahoma City, Inc., 
Tele-Systems, Inc. and National Telecom, a sole proprietorship. 

   Preferred Stock -- The Series A Redeemable Convertible Preferred Stock of 
Advanced Communications Group, Inc. 

   POPs (points of presence) -- Locations where a long distance carrier has 
installed transmission equipment in a service area that serves as, or relays 
calls to, a network switching center of that long distance carrier. 

   Private line -- A dedicated telecommunications connection between end user 
locations. 

   Public switched network -- That portion of a local exchange company's 
network available to all users generally on a shared basis (i.e., not 
dedicated to a particular user). Traffic along the public switched network is 
generally switched at the local exchange company's central offices. 

   "PUC" or Public Utilities Commission -- A state regulatory body, 
established in most states, which regulates utilities, including telephone 
companies providing intrastate services. 

   Reciprocal compensation -- The same compensation of a new competitive 
local exchange carrier for termination of a local call by the local exchange 
carrier on its network, as the new competitor pays the local exchange carrier 
for termination of local calls on the local exchange carrier network. 

   Resale -- Resale by a provider of telecommunications services (such as a 
local exchange carrier) of such services to other providers or carriers on a 
wholesale or a retail basis. 

   Route mile -- The number of miles of the telecommunications path in which 
fiber optic cables are installed as it would appear on a network map. 

   Rural Telephone Finance Cooperative or RTFC -- A not-for-profit 
association, having between 300 and 400 members, that makes loans for 
telecommunications purposes to its members and others eligible for loans from 
the Rural Utility Services department of the Department of Agriculture. 

   SBC --Parent company of Southwestern Bell. 

   Self-healing ring -- A self-healing ring is a network design in which the 
network backbone consists of a continuous ring connecting a central hub 
facility with one or more network nodes (such as customer premises). Traffic 
is routed between the hub and each of the nodes simultaneously in both a 
clockwise and a counterclockwise direction. In the event of a cable cut or 
component failure along one of these paths, traffic will continue to flow 
along the alternate path so no traffic is lost. In the event of a 
catastrophic node failure, other nodes will be unaffected because traffic 
will continue to flow along whichever path (primary or alternate) does not 
pass through the affected node. The switch from the primary to the alternate 
path will be imperceptible to most users. 

   Southwestern Bell -- Southwestern Bell Telephone Company. 

   Special access services -- The lease of private, dedicated 
telecommunications lines or "circuits" along the network of a local exchange 
company or a CAP, which lines or circuits run to or from the long distance 

                               G-3           
<PAGE>
carrier POPs. Examples of special access services are telecommunications 
lines running between POPs of a single long distance carrier, from one long 
distance carrier POP to the POP of another long distance carrier or from an 
end user to a long distance carrier POP. 

   Sprint -- Sprint Corporation. 

   Switch -- A device that opens or closes circuits or selects the paths or 
circuits to be used for transmission of information. Switching is a process 
of interconnecting circuits to form a transmission path between users. 

   Switched access transport services -- Transportation of switched traffic 
along dedicated lines between the local exchange company central offices and 
long distance carrier POPs. 

   Switched traffic -- Telecommunications traffic along the public switched 
network. This traffic is generally switched at the local exchange company's 
central offices. 

   Tele-Systems -- Tele-Systems, Inc. 

   Trunk -- A telephone circuit with a switch at both ends. 

   Unbundled Access -- Access to unbundled elements of a telecommunications 
services provider's network, including network facilities, equipment, 
features, functions and capabilities, at any technically feasible point 
within such network. 

   U S WEST -- U S WEST Communications, Inc. 

   Valu-Line -- Valu-Line of Longview, Inc. 

   Virtual LAN -- In general virtual local area networks are logical networks 
based on campus or public networks which allow users to share information, 
files, and send messages amongst each other based on rules permitting access 
by network address. Membership within a Virtual LAN may vary by applications, 
security level or other requirement, but may transcend location, 
organization, or carrier. 

   Web Page -- A Web page is a specific address on the Internet supporting 
inquiries from Internet users. Web pages usually display to an inquiring 
party sophisticated graphics, interactive text, and the ability to link and 
download to additional information or data bases maintained either by the Web 
page provider or another party. Web pages are used to provide company 
information, advertising and to conduct electronic commerce. 

   WorldCom -- WorldCom, Inc. 

                               G-4           
<PAGE>
                        INDEX TO FINANCIAL STATEMENTS 

<TABLE>
<CAPTION>
                                                                                              PAGE 
                                                                                            -------- 
<S>                                                                                         <C>
ADVANCED COMMUNICATIONS GROUP, INC. UNAUDITED 
 PRO FORMA COMBINED FINANCIAL STATEMENTS 
  Basis of Presentation of Unaudited Pro Forma Combined Financial Statements ..............    F-3 
  Unaudited Pro Forma Combined Balance Sheet as of September 30, 1997......................    F-4 
  Unaudited Pro Forma Combined Statements of Operations for the year ended 
   December 31, 1996 and the nine months ended September 30, 1997..........................    F-5 
  Notes to Pro Forma Combined Financial Statements.........................................    F-7 
ADVANCED COMMUNICATIONS GROUP, INC. 
  Report of Independent Auditors...........................................................   F-15 
  Consolidated Balance Sheets as of December 31, 1996 and September 30, 1997 (unaudited) ..   F-16 
  Consolidated Statements of Operations for the period from inception to December 31, 1996 
   and the nine months ended September 30, 1997 (unaudited)................................   F-17 
  Consolidated Statements of Stockholders' Deficit for the period from inception to 
   December 31, 1996 and the nine months ended September 30, 1997 (unaudited) .............   F-18 
  Consolidated Statements of Cash Flows for the period from inception to December 31, 1996 
   and the nine months ended September 30, 1997 (unaudited)................................   F-19 
  Notes to Consolidated Financial Statements...............................................   F-20 
GREAT WESTERN DIRECTORIES, INC. FINANCIAL STATEMENTS 
  Report of Independent Auditors...........................................................   F-24 
  Balance Sheets as of January 31, 1996, December 31, 1996 and September 30, 1997 
   (unaudited).............................................................................   F-25 
  Statements of Operations for the two years ended January 31, 1995 and 1996, the year 
   ended December 31, 1996, and the nine months ended September 30, 1996 and 1997 
   (unaudited).............................................................................   F-26 
  Statements of Stockholders' Equity for the two years ended January 31, 1995 and 1996, 
   the eleven months ended December 31, 1996, and the nine months ended 
   September 30, 1997 (unaudited)..........................................................   F-27 
  Statements of Cash Flows for the two years ended January 31, 1995 and 1996, the year 
   ended December 31, 1996, and the nine months ended September 30, 1996 and 1997 
   (unaudited).............................................................................   F-28 
  Notes to Financial Statements............................................................   F-29 
VALU-LINE OF LONGVIEW, INC. FINANCIAL STATEMENTS 
  Report of Independent Auditors...........................................................   F-34 
  Combined Balance Sheets as of December 31, 1995 and 1996 and September 30, 1997 
   (unaudited).............................................................................   F-35 
  Combined Statements of Income for the three years ended December 31, 1994, 1995 and 
   1996, and the nine months ended September 30, 1996 and 1997 (unaudited) ................   F-36 
  Combined Statements of Stockholders' Equity for the three years ended December 31, 1994, 
   1995 and 1996, and the nine months ended September 30, 1997 (unaudited) ................   F-37 
  Combined Statements of Cash Flows for the three years ended December 31, 1994, 1995 and 
   1996, and the nine months ended September 30, 1996 and 1997 (unaudited) ................   F-38 
  Notes to Combined Financial Statements...................................................   F-39 

                               F-1           
<PAGE>
                                                                                              PAGE 
                                                                                            -------- 
FEIST LONG DISTANCE SERVICE, INC. FINANCIAL STATEMENTS 
  Report of Independent Auditors...........................................................   F-45 
  Balance Sheets as of December 31, 1996 and September 30, 1997 (unaudited) ...............   F-46 
  Statements of Operations for the year ended December 31, 1996, and the nine months ended 
   September 30, 1996 and 1997 (unaudited).................................................   F-47 
  Statements of Stockholders' Equity for the year ended December 31, 1996, and the nine 
   months ended September 30, 1997 (unaudited).............................................   F-48 
  Statements of Cash Flows for the year ended December 31, 1996, and the nine months ended 
   September 30, 1996 and 1997 (unaudited).................................................   F-49 
  Notes to Financial Statements............................................................   F-50 
FIRSTEL, INC. FINANCIAL STATEMENTS 
  Report of Independent Auditors...........................................................   F-53 
  Balance Sheets as of December 31, 1995 and 1996 and September 30, 1997 
   (unaudited).............................................................................   F-54 
  Statements of Operations for the two years ended December 31, 1995 and 1996, and the 
   nine months ended September 30, 1996 and 1997 (unaudited)...............................   F-55 
  Statements of Stockholders' Deficit for the two years ended December 31, 1995 and 1996, 
   and the nine months ended September 30, 1997............................................   F-56 
  Statements of Cash Flows for the two years ended December 31, 1995 and 1996, and the 
   nine months ended September 30, 1996 and 1997 (unaudited)...............................   F-57 
  Notes to Financial Statements............................................................   F-58 
KIN NETWORK, INC. FINANCIAL STATEMENTS 
  Reports of Independent Auditors..........................................................   F-62 
  Balance Sheets as of December 31, 1995 and 1996 and September 30, 1996 and 1997 
   (unaudited).............................................................................   F-64 
  Statements of Operations for the three years ended December 31, 1994, 1995 and 1996, and 
   the nine months ended September 30, 1996 and 1997 (unaudited)...........................   F-65 
  Statements of Stockholders' Equity for the three years ended December 31, 1994, 1995 and 
   1996, and the nine months ended September 30, 1997 (unaudited)..........................   F-66 
  Statements of Cash Flows for the three years ended December 31, 1994, 1995 and 1996, and 
   the nine months ended September 30, 1996 and 1997 (unaudited)...........................   F-67 
  Notes to Financial Statements............................................................   F-69 
</TABLE>

                               F-2           
<PAGE>
                     ADVANCED COMMUNICATIONS GROUP, INC. 
              UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS 
                            BASIS OF PRESENTATION 

   The following unaudited pro forma combined financial statements give 
effect to the acquisitions by Advanced Communications Group, Inc. 
(collectively with its predecessor, which it is acquiring in conjunction with 
the acquisitions described below, "ACG") of the outstanding capital stock or, 
in certain cases, the assets of Great Western Directories, Inc. ("Great 
Western"), Valu-Line of Longview, Inc. and Related Companies ("Valu-Line"), 
Feist Long Distance Service, Inc. ("Feist Long Distance"), FirsTel, Inc. 
("FirsTel"), Long Distance Management II, Inc. and Long Distance Management 
of Kansas, Inc. (collectively, "LDM"), The Switchboard of Oklahoma City, Inc. 
("Switchboard"), Tele-Systems, Inc. ("Tele-Systems"), and National Telecom 
("National Telecom") and ACG's acquisition of 49% of the outstanding shares 
of KIN Network, Inc. ("KINNET") (Great Western, Valu-Line, Feist Long 
Distance, FirsTel, LDM, Switchboard, Tele-Systems and National Telecom 
collectively, the "Acquired Companies", and LDM, Switchboard, Tele-Systems 
and National Telecom collectively, the "Other Acquired Companies"). These 
acquisitions (the "Acquisitions") will occur concurrently with and are 
conditioned upon the closing of the Offering. The Acquisitions are accounted 
for using the purchase method of accounting. With respect to the 
Acquisitions, ACG is identified as the accounting acquirer for financial 
statement presentation purposes. 

   The unaudited pro forma combined balance sheet gives effect to the 
Acquisitions and the Offering as if they had occurred on September 30, 1997. 
The unaudited pro forma combined statements of operations for the year ended 
December 31, 1996, and for the nine months ended September 30, 1997, give 
effect to these transactions as if they had occurred on January 1, 1996. 

   The pro forma adjustments are based on estimates, available information 
and certain assumptions and may be revised as additional information becomes 
available. The pro forma financial data do not purport to represent what 
ACG's financial position or results of operations would actually have been if 
such transactions in fact had occurred on the dates stated above and are not 
necessarily representative of ACG's financial position or results of 
operations for any future period. Since the Acquired Companies were not under 
common control or management, historical combined results of operations may 
not be comparable to, or indicative of, future performance. The unaudited pro 
forma combined financial statements should be read in conjunction with the 
other financial statements and notes thereto included elsewhere in this 
Prospectus. See "Risk Factors" included elsewhere herein. 

                               F-3           
<PAGE>
                     ADVANCED COMMUNICATIONS GROUP, INC. 
                  UNAUDITED PRO FORMA COMBINED BALANCE SHEET 
                              September 30, 1997 
                                (In thousands) 

<TABLE>
<CAPTION>
                                                                                OTHER 
                                        GREAT             FEIST LONG           ACQUIRED 
                                       WESTERN  VALU-LINE  DISTANCE   FIRSTEL COMPANIES 
                                       ------- ---------  ---------- -------  --------- 
<S>                                    <C>     <C>          <C>       <C>       <C>
                ASSETS 

Cash and cash equivalents............. $ 1,318   $  313     $  149    $   62    $  457 
Accounts receivable...................  24,490    1,415      1,769     1,282     1,190 
  Less allowance......................  (9,628)     (25)      (143)      (29 )    -- 
                                       ------- ---------  ---------- -------  --------- 
Accounts receivable, net .............  14,862    1,390      1,626     1,253     1,190 
Deferred costs........................   2,461     --         --        --        -- 
Prepaid expenses and other............     391        4         23       801       222 
                                       ------- ---------  ---------- -------  --------- 
  Total current assets................  19,032    1,707      1,798     2,116     1,869 
Property and equipment, net ..........   1,223    1,226        370       869       262 
Intangible assets, net................    --       --         --        --          65 
Equity investment in KINNET...........    --       --         --        --        -- 
Other noncurrent assets...............      19        7       --          84         4 
                                       ------- ---------  ---------- -------  --------- 
  Total assets........................ $20,274   $2,940     $2,168    $3,069    $2,200 
                                       ======= =========  ========== =======  ========= 
            LIABILITIES AND 
          STOCKHOLDERS' EQUITY 

Current maturities of long-term 
 debt................................. $  --     $  424     $   17    $  147    $  203 
Accounts payable and accrued 
 expenses.............................   3,568      963      1,108     1,863       391 
Current portion of notes payable to 
 related parties......................    --       --          659     1,040      -- 
Obligation for cash portion of 
 consideration for the Acquisitions ..    --       --         --        --        -- 
Other.................................   2,453       10       --           7      -- 
                                       ------- ---------  ---------- -------  --------- 
  Total current liabilities...........   6,021    1,397      1,784     3,057       594 
Notes payable to related parties, net 
 of current maturities................    --       --         --        --        -- 
Long-term debt, net of current 
 maturities...........................    --      1,082       --        --         234 
                                       ------- ---------  ---------- -------  --------- 
  Total liabilities...................   6,021    2,479      1,784     3,057       828 
                                       ------- ---------  ---------- -------  --------- 
Stockholders' equity: 
 Preferred stock......................    --       --         --        --        -- 
 Common stock.........................       1        3        100         1       354 
 Additional paid-in capital...........    --       --          939      --        -- 
 Retained earnings....................  14,252      458       (655)       11     1,018 
                                       ------- ---------  ---------- -------  --------- 
  Total stockholders' equity 
   (deficit)..........................  14,253      461        384        12     1,372 
                                       ------- ---------  ---------- -------  --------- 
  Total liabilities and stockholders' 
   equity............................. $20,274   $2,940     $2,168    $3,069    $2,200 
                                       ======= =========  ========== =======  ========= 
</TABLE>

                    (RESTUBBED TABLE CONTINUED FROM ABOVE) 

<TABLE>
<CAPTION>
                                                                                     POST 
                                                            PRO FORMA            ACQUISITION 
                                                HISTORICAL ADJUSTMENTS   PRO    ADJUSTMENTS 
                                                  BASIS       (SEE      FORMA       (SEE        AS 
                                         ACG     COMBINED    NOTE 3)   COMBINED    NOTE 3)   ADJUSTED 
                                       ------- ----------  ----------- --------  ----------- -------- 
<S>                                   <C>       <C>         <C>        <C>        <C>        <C>
                ASSETS 

Cash and cash equivalents............. $  --     $ 2,299     $ (1,745)  $    554   $ 11,308   $ 11,862 
Accounts receivable...................    --      30,146        --        30,146      --        30,146 
  Less allowance......................    --      (9,825)       --        (9,825)     --        (9,825) 
                                       ------- ----------  ----------- --------  ----------- -------- 
Accounts receivable, net .............    --      20,321        --        20,321      --        20,321 
Deferred costs........................    --       2,461        --         2,461      --         2,461 
Prepaid expenses and other............    --       1,441        --         1,441      --         1,441 
                                       ------- ----------  ----------- --------  ----------- -------- 
  Total current assets................    --      26,522       (1,745)    24,777     11,308     36,085 
Property and equipment, net ..........       7     3,957        --         3,957      --         3,957 
Intangible assets, net................    --          65      105,816    105,881      --       105,881 
Equity investment in KINNET...........    --        --         18,041     18,041      --        18,041 
Other noncurrent assets...............   1,184     1,298         (561)       737      2,253      2,990 
                                       ------- ----------  ----------- --------  ----------- -------- 
  Total assets........................ $ 1,191   $31,842     $121,551   $153,393   $ 13,561   $166,954 
                                       ======= ==========  =========== ========  =========== ======== 
            LIABILITIES AND 
          STOCKHOLDERS' EQUITY 

Current maturities of long-term 
 debt................................. $  --     $   791     $    194   $    985   $   (985)  $  -- 
Accounts payable and accrued 
 expenses.............................   1,551     9,444          101      9,545     (1,322)     8,223 
Current portion of notes payable to 
 related parties......................   1,856     3,555       (1,582)     1,973     (1,856)       117 
Obligation for cash portion of 
 consideration for the Acquisitions ..    --        --         83,336     83,336    (83,336)     -- 
Other.................................    --       2,470        --         2,470      --         2,470 
                                       ------- ----------  ----------- --------  ----------- -------- 
  Total current liabilities...........   3,407    16,260       82,049     98,309    (87,499)    10,810 
Notes payable to related parties, net 
 of current maturities................    --        --         17,233     17,233      --        17,233 
Long-term debt, net of current 
 maturities...........................    --       1,316        --         1,316     (1,316)     -- 
                                       ------- ----------  ----------- --------  ----------- -------- 
  Total liabilities...................   3,407    17,576       99,282    116,858    (88,815)    28,043 
                                       ------- ----------  ----------- --------  ----------- -------- 
Stockholders' equity: 
 Preferred stock......................    --        --          --         --         1,122      1,122 
 Common stock.........................    --         459         (459)     --             1          1 
 Additional paid-in capital...........      47       986       37,812     38,798    101,253    140,051 
 Retained earnings....................  (2,263)   12,821      (15,084)    (2,263)     --        (2,263) 
                                       ------- ----------  ----------- --------  ----------- -------- 
  Total stockholders' equity 
   (deficit)..........................  (2,216)   14,266       22,269     36,535    102,376    138,911 
                                       ------- ----------  ----------- --------  ----------- -------- 
  Total liabilities and stockholders' 
   equity............................. $ 1,191   $31,842     $121,551   $153,393   $ 13,561   $166,954 
                                       ======= ==========  =========== ========  =========== ======== 
</TABLE>

                               F-4           
<PAGE>
                      ADVANCED COMMUNICATIONS GROUP, INC. 
             UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS 
                         Year Ended December 31, 1996 
               (In thousands, except shares and per share data) 

<TABLE>
<CAPTION>
                                            GREAT                 FEIST LONG 
                                           WESTERN    VALU-LINE    DISTANCE     FIRSTEL 
                                          --------- -----------  ------------ --------- 
<S>                                      <C>          <C>          <C>         <C>
Revenues: 
  Telecommunications services............ $    --      $11,181      $10,028     $10,355 
  Yellow page publishing.................   44,324        --           --          -- 
                                          --------- -----------  ------------ --------- 
    Total revenues.......................   44,324      11,181       10,028      10,355 
Cost of services.........................   21,394       6,036        6,854       7,066 
Depreciation and amortization............      223         819          237         248 
                                          --------- -----------  ------------ --------- 
  Gross profit...........................   22,707       4,326        2,937       3,041 
Selling, general and administrative 
 expenses................................   14,987       3,572        2,470       2,147 
                                          --------- -----------  ------------ --------- 
  Income (loss) from operations..........    7,720         754          467         894 
Other income (expense): 
  Other income and expense, net..........    6,375          73           (2)         35 
  Interest expense.......................     (504)       (186)         (60)       (191) 
  Equity in earnings (loss) of KINNET ...       --        --           --          -- 
                                          --------- -----------  ------------ --------- 
Income (loss) before income taxes .......   13,591         641          405         738 
Provision for income taxes...............    5,295        --           --          -- 
                                          --------- -----------  ------------ --------- 
Net income (loss)........................  $ 8,296     $   641      $   405     $   738 
                                          ========= ===========  ============ ========= 
Pro forma net income .................... 
Accretion of preferred stock (2)  ....... 
Pro forma net income available to common 
 stockholders ........................... 
Pro forma net income per share available 
 to common stockholders ................. 
Shares used in computing pro forma 
 net income per share ................... 
</TABLE>

                    (RESTUBBED TABLE CONTINUED FROM ABOVE) 

<TABLE>
<CAPTION>
                                             OTHER               HISTORICAL     PRO FORMA 
                                            ACQUIRED                BASIS      ADJUSTMENTS   PRO FORMA 
                                           COMPANIES    ACG(1)    COMBINED    (SEE NOTE 4)    COMBINED 
                                          ----------- --------  ------------ -------------  ----------- 
<S>                                       <C>         <C>       <C>          <C>            <C>
Revenues: 
  Telecommunications services............    $7,798       --       $39,362       $ 1,728    $    41,090 
  Yellow page publishing.................      --         --        44,324          --           44,324 
                                          ----------- --------  ------------ -------------  ----------- 
    Total revenues.......................     7,798       --        83,686         1,728         85,414 
Cost of services.........................     4,693       --        46,043         1,044         47,087 
Depreciation and amortization............        84       --         1,611         4,500          6,111 
                                          ----------- --------  ------------ -------------  ----------- 
  Gross profit...........................     3,021       --        36,032        (3,816)        32,216 
Selling, general and administrative 
 expenses................................     2,484       649       26,309           657         26,966 
                                          ----------- --------  ------------ -------------  ----------- 
  Income (loss) from operations..........       537      (649)       9,723        (4,473)         5,250 
Other income (expense): 
  Other income and expense, net..........       (30)      --         6,451            (3)         6,448 
  Interest expense.......................       (44)      (10)        (995)          221           (774) 
  Equity in earnings (loss) of KINNET ...      --         --          --          (1,069)        (1,069) 
                                          ----------- --------  ------------ -------------  ----------- 
Income (loss) before income taxes .......       463      (659)      15,179        (5,324)         9,855 
Provision for income taxes...............        36       --         5,331           821          6,152 
                                          ----------- --------  ------------ -------------  ----------- 
Net income (loss)........................    $  427     $(659)     $ 9,848       $(6,145)   $     3,703 
                                          =========== ========  ============ =============  =========== 
Pro forma net income ....................                                                         3,703 
Accretion of preferred stock (2)  .......                                                           112 
                                                                                             ----------- 
Pro forma net income available to common 
 stockholders ...........................                                                   $     3,591 
                                                                                            =========== 
Pro forma net income per share available 
 to common stockholders .................                                                   $      0.18 
                                                                                            =========== 
Shares used in computing pro forma 
 net income per share ...................                                                    20,190,864 
                                                                                            =========== 
</TABLE>

- ------------ 
(1)     For the period from inception (June 6, 1996) through December 31, 
        1996. 
(2)     Represents accretion of the excess of the liquidation preference over 
        the carrying value of the Preferred Stock. 

                               F-5           
<PAGE>
                      ADVANCED COMMUNICATIONS GROUP, INC. 
             UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS 
                     Nine Months Ended September 30, 1997 
               (In thousands, except shares and per share data) 

<TABLE>
<CAPTION>
                                            GREAT                 FEIST LONG 
                                           WESTERN    VALU-LINE    DISTANCE     FIRSTEL 
                                          --------- -----------  ------------ --------- 
<S>                                       <C>         <C>          <C>         <C>
Revenues: 
  Telecommunications services............  $  --       $9,058       $8,965      $9,488 
  Yellow page publishing.................   35,624       --           --          -- 
                                          --------- -----------  ------------ --------- 
    Total revenues.......................   35,624      9,058        8,965       9,488 
Cost of services.........................   16,690      5,070        6,044       6,864 
Depreciation and amortization............      168        399          142         202 
                                          --------- -----------  ------------ --------- 
  Gross profit...........................   18,766      3,589        2,779       2,422 
Selling, general and administrative 
 expenses................................   12,647      2,875        2,404       1,968 
                                          --------- -----------  ------------ --------- 
  Income (loss) from operations..........    6,119        714          375         454 
Other income (expense): 
  Other income and expense, net..........       58         64            1          34 
  Interest expense.......................      (50)      (103)         (33)       (116) 
  Equity in earnings (loss) of KINNET ...     --         --           --          -- 
                                          --------- -----------  ------------ --------- 
Income (loss) before income taxes .......    6,127        675          343         372 
Provision for income taxes...............    2,048       --           --          -- 
                                          --------- -----------  ------------ --------- 
Net income (loss)........................  $ 4,079     $  675       $  343      $  372 
                                          ========= ===========  ============ ========= 
Pro forma net income .................... 
Accretion of preferred stock (1)  ....... 
Pro forma net income available to common 
 stockholders ........................... 
Pro forma net income per share available 
 to common stockholders ................. 
Shares used in computing pro forma 
 net income per share.................... 
</TABLE>

                    (RESTUBBED TABLE CONTINUED FROM ABOVE) 

<TABLE>
<CAPTION>
                                             OTHER                 HISTORICAL     PRO FORMA 
                                            ACQUIRED                  BASIS      ADJUSTMENTS   PRO FORMA 
                                           COMPANIES      ACG       COMBINED    (SEE NOTE 4)    COMBINED 
                                          ----------- ----------  ------------ -------------  ----------- 
<S>                                         <C>        <C>          <C>           <C>        <C>
Revenues: 
  Telecommunications services............    $5,944     $  --        $33,455       $  --      $    33,455 
  Yellow page publishing.................      --          --         35,624          --           35,624 
                                          ----------- ----------  ------------ -------------  ----------- 
    Total revenues.......................     5,944        --         69,079          --           69,079 
Cost of services.........................     2,969        --         37,637          --           37,637 
Depreciation and amortization............        84           2          997         3,342          4,339 
                                          ----------- ----------  ------------ -------------  ----------- 
  Gross profit...........................     2,891          (2)      30,445        (3,342)        27,103 
Selling, general and administrative 
 expenses................................     1,816       1,462       23,172          --           23,172 
                                          ----------- ----------  ------------ -------------  ----------- 
  Income (loss) from operations..........     1,075      (1,464)       7,273        (3,342)         3,931 
Other income (expense): 
  Other income and expense, net..........        96        --            253          --              253 
  Interest expense.......................       (13)       (140)        (455)         (126)          (581) 
  Equity in earnings (loss) of KINNET ...      --          --           --            (657)          (657) 
                                          ----------- ----------  ------------ -------------  ----------- 
Income (loss) before income taxes .......     1,158      (1,604)       7,071        (4,125)         2,946 
Provision for income taxes...............      --          --          2,048           730          2,778 
                                          ----------- ----------  ------------ -------------  ----------- 
Net income (loss)........................    $1,158     $(1,604)     $ 5,023       $(4,855)   $       168 
                                          =========== ==========  ============ =============  =========== 
Pro forma net income ....................                                                             168 
Accretion of preferred stock (1)  .......                                                              16 
                                                                                              ----------- 
Pro forma net income available to common 
 stockholders ...........................                                                     $       152 
                                                                                              =========== 
Pro forma net income per share available 
 to common stockholders .................                                                     $      0.01 
                                                                                              =========== 
Shares used in computing pro forma 
 net income per share....................                                                      20,190,864 
                                                                                              =========== 
</TABLE>

- ------------ 
(1)     Represents accretion of the excess of the liquidation preference over 
        the carrying value of the Preferred Stock. 

                               F-6           
<PAGE>
                     ADVANCED COMMUNICATIONS GROUP, INC. 
               NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS 

1. GENERAL: 

   ACG was founded to create a regional competitive local exchange carrier 
that primarily provides a portfolio of telecommunications services primarily 
to business customers in selected service areas of Southwestern Bell and U S 
WEST and publishes yellow page directories in selected markets in the Region. 
ACG has conducted no operations to date and will consummate the Acquisitions 
concurrently with and as a condition to the closing of this Offering. 

   The historical financial statements reflect the financial position and 
results of operations of the Acquired Companies and were derived from the 
respective Acquired Companies' financial statements. The acquisition of the 
interest in KINNET is accounted for under the equity method of accounting, 
and the information with respect to KINNET was derived from its financial 
statements. The periods included in these pro forma financial statements for 
the individual Acquired Companies and KINNET are for the nine months ended 
September 30, 1997, and for the year ended December 31, 1996. The audited 
historical financial statements included elsewhere in this Prospectus have 
been included in accordance with Securities and Exchange Commission Staff 
Accounting Bulletin No. 80. 

2. ACQUISITION OF ACQUIRED COMPANIES: 

   Concurrently with and as a condition to the closing of the Offering, ACG 
will acquire all of the outstanding capital stock of Great Western, 
Valu-Line, Feist Long Distance, FirsTel and Tele-Systems, substantially all 
of the assets of LDM, Switchboard and National Telecom, and 49% of the 
outstanding capital stock of KINNET pursuant to the Acquisitions. The 
Acquisitions are accounted for using the purchase method of accounting with 
ACG being treated as the accounting acquirer. 

                               F-7           
<PAGE>
                     ADVANCED COMMUNICATIONS GROUP, INC. 
       NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 

    The consideration to be paid in the Acquisitions includes (a) cash, (b) 
Common Stock, (c) promissory notes, (d) a payable for reimbursement of cash 
paid to purchase two companies in September 1997, and (e) options and 
warrants to purchase shares of Common Stock. The number of shares of Common 
Stock to be issued in the Acquisitions was determined by dividing the agreed 
aggregate amount of $47.5 million by the initial public offering price of the 
Common Stock. In determining the amount to be recorded for accounting 
purposes for the component of the purchase price attributable to the shares 
of Common Stock issuable in the Acquisitions, the value of such shares was 
determined to be $38.0 million, which represents a discount of twenty percent 
due to restrictions on the sale and transferability of the shares issued. 

   The promissory notes issued in the Acquisitions consist of (a) $15.0 
million in notes payable two years from the closing of the Acquisitions and 
bearing an annual rate of interest of five percent (5%), which notes may be 
prepaid at any time and are subordinated to the Company's senior debt (as 
defined), (b) $2.0 million in notes convertible into shares of Common Stock 
at the initial public offering price, payable two years from the closing of 
the Acquisitions and bearing an annual rate of interest of ten percent (10%), 
which notes may be prepaid at any time and are subordinated to the Company's 
senior debt (as defined), and (c) a $350,000 promissory note payable in three 
equal annual installments and bearing an annual interest rate of seven 
percent (7%), which note may be prepaid at any time. Pursuant to the terms of 
the notes discussed in (a) and (b) above, an event of default would exist if 
the Company's senior debt (as defined) exceeds $50.0 million. 

   At the time the acquisition agreement with Great Western was executed, the 
Company issued warrants exercisable for a total of 756,078 shares of Common 
Stock. A value of $0.4 million (recorded in the table below under "Other") 
has been attributed to these warrants based on a valuation performed at the 
time of their issuance. In addition, the Company has agreed to issue at the 
closing of the Acquisitions options and warrants which are exercisable for a 
total of 637,135 shares of Common Stock. As 598,500 of these options and 
warrants (including 500,000 additional warrants which will be issued to 
shareholders of Great Western) are exercisable at the initial public offering 
price, preliminarily no value has been attributed to them. Upon completion of 
a Black-Scholes valuation, any additional value will be recorded as goodwill. 
A value of $0.4 million (recorded in the table below under "Other") has been 
attributed to the 38,635 other options, which are to be issued in connection 
with the closing of the Acquisition of Switchboard, that are exercisable at 
one-third of the initial public offering price, but which vest as an entirety 
in the 37th month following the Acquisitions. 

   The following table sets forth the components for accounting purposes of 
the consideration with respect to the Acquisitions. The total estimated 
purchase price for the Acquisitions of $139.5 million and the related 
allocations of the excess purchase price are based upon preliminary estimates 
and are subject to certain purchase price adjustments at and following the 
closing of the Acquisitions. The table does not reflect the distributions 
totaling $1.9 million representing substantially all of the undistributed 
earnings of the Acquired Companies that are S Corporations previously taxed 
to their stockholders (or in certain cases, amounts equal to the tax payable 
by the stockholders on those earnings) and distributable under the relevant 
acquisition agreements as of September 30, 1997 (the "S Corporation 
Distributions"). However, these amounts are reflected in the pro forma 
adjustments as further described in Note 3. 

<TABLE>
<CAPTION>
                                                                            OPTIONS AND
                                                                             WARRANTS  
                                           VALUE OF                         EXERCISABLE
                                            COMMON    PROMISSORY            FOR COMMON 
          ACQUISITION             CASH      STOCK        NOTES     OTHER       STOCK   
- -----------------------------  --------- ----------  ------------ ------- -------------
                                     (DOLLARS IN THOUSANDS)                            
<S>                            <C>       <C>         <C>          <C>     <C>          
Great Western.................  $55,000    $ 8,000      $15,000     $367     1,256,078 
Valu-Line.....................    6,600      4,160         --        --          --    
FirsTel.......................    5,000      8,878        2,000      101        50,000 
Feist Long Distance...........    1,500      8,000         --        --          --    
Minority investment in                                                                 
 KINNET.......................   10,000      8,000         --        --          --    
                               --------- ----------  ------------ ------- -------------
Subtotal......................   78,100     37,038       17,000      468     1,306,078 
                               --------- ----------  ------------ ------- -------------
OTHER ACQUIRED COMPANIES:                                                              
LDM...........................    3,475       --           --        --          --    
Switchboard...................    1,631       --           --        386        38,635 
Telesystems...................     --          960         --        --         36,000 
National Telecom..............      130       --            350      --         12,500 
                               --------- ----------  ------------ ------- -------------
  Subtotal....................    5,236        960          350     386         87,135 
                               --------- ----------  ------------ ------- -------------
Total.........................  $83,336    $37,998      $17,350     $854     1,393,213 
                               ========= ==========  ============ ======= =============
</TABLE>                                                          

                               F-8           
<PAGE>
                     ADVANCED COMMUNICATIONS GROUP, INC. 
       NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 

 3. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS: 

   (a)     Records the estimated S Corporation Distributions of $1.9 million 
           which are expected to be paid to the stockholders of certain of 
           the Acquired Companies using $1.7 million of cash on hand and a 
           $0.2 million payable which will be repaid out of proceeds of the 
           Offering. 

   (b)     Records the related party debt of $659,000 and $1,040,000 that 
           will be acquired by ACG in connection with the acquisitions of 
           Feist Long Distance and FirsTel, respectively, and which, as 
           intercompany debt, will not appear on the Company's consolidated 
           financial statements. 

   (c)     Records the purchase by ACG of the outstanding capital stock or 
           substantially all of the assets of the Acquired Companies and the 
           purchase of 49% of the outstanding capital stock of KINNET, for 
           consideration consisting of (i) $83.3 million payable in cash, 
           (ii) shares of Common Stock valued for purposes of computing the 
           estimated purchase price for accounting purposes at $38.0 million, 
           (iii) promissory notes for $17.4 million, (iv) other payables for 
           reimbursement of cash paid to purchase two companies by FirsTel in 
           September 1997 amounting to $0.1 million, and (v) options or 
           warrants valued for purposes of computing the estimated purchase 
           price for accounting purposes at $0.7 million, for a total 
           estimated purchase price of $139.5 million. In preliminarily 
           determining the purchase price for accounting purposes, warrants 
           issued in June 1997 to shareholders of Great Western to purchase 
           756,078 shares of Common Stock at an exercise price of $6.61 per 
           share were assigned a value of $0.4 million, based on an outside 
           appraisal obtained in the month of issuance. No value was assigned 
           to the options and warrants to be issued upon the consummation of 
           the Offering that are exercisable at the initial public offering 
           price (500,000 such warrants to be issued to shareholders of Great 
           Western, 50,000 such warrants to be issued to shareholders of 
           FirsTel, 36,000 such options to be issued to shareholders of 
           Telesystems, and 12,500 such options to be issued to shareholders 
           of National Telecom). Upon completion of a Black-Scholes 
           valuation, any additional value will be recorded as goodwill. A 
           value of $0.4 million was placed on the 38,635 options to be 
           issued to shareholders of Switchboard upon consummation of the 
           Offering that are exercisable at one-third of the initial public 
           offering price, but which vest as an entirety at the end of the 
           37th month following the Acquisitions. This aggregate purchase 
           price will result in an excess purchase price of $122.8 million 
           (including $0.6 million of deferred acquisition costs incurred by 
           ACG) over the fair value of the net assets acquired of $17.3 
           million. Of this $122.8 million, $105.8 million relates to the 
           Acquired Companies and $17.0 million relates to KINNET. The excess 
           cost has been preliminarily allocated to an undifferentiated pool 
           of intangible assets to be amortized over a period of 25 years for 
           pro forma purposes. The Company intends to obtain independent 
           appraisals of the Acquired Companies and the 49% interest in 
           KINNET. Upon completion of the appraisal and in accordance with 
           the terms thereof, the intangible assets in the pool will be 
           allocated to the appropriate asset classifications, including 
           customer lists and goodwill. The principal stockholder of Great 
           Western has recently objected to the impact of the reverse stock 
           split on the warrants issued in June 1997 upon the execution of 
           the original Great Western acquisition agreement. CPFF and such 
           prinicpal stockholder have agreed to negotiate in good faith to 
           determine the type and amount of any consideration appropriately 
           payable by CPFF to the holders of such warrants. While any payment 
           will be made solely by CPFF and will not involve the assets of ACG 
           or the issuance of additional ACG Common Stock or Common Stock 
           equivalents, such a payment may be construed for accounting 
           purposes as a capital contribution by CPFF and deemed a payment by 
           ACG of additional consideration for the Great Western acquisition. 
           This would increase the goodwill associated with the Great Western 
           acquisition and the related amortization charges. 

   (d)     Records assumed cash proceeds of $112.0 million from the issuance 
           of shares of ACG Common Stock net of estimated offering costs of 
           $11.3 million including amounts deferred and payable 

                               F-9           
<PAGE>
                     ADVANCED COMMUNICATIONS GROUP, INC. 
       NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 

           by ACG at September 30, 1997. Offering costs primarily consist of 
           underwriting discounts and commissions, accounting fees, legal 
           fees and printing expenses. 

   (e)     Records the payment of the cash portion of the total consideration 
           ($83.3 million). 

   (f)     Records the payment of debt of ACG and the Acquired Companies 
           which is expected to be paid from the proceeds of the Offering. 

   (g)     Records the payment of $1.75 million with respect to a five-year 
           noncompetition agreement between Rod K. Cutsinger and the Company 
           which will be amortized over its term beginning in the period in 
           which it is paid. 

   (h)     Records the issuance of 142,857 shares of Series A Redeemable 
           Convertible Preferred Stock in consideration of an agreement 
           entered into with Northwestern Public Service Company to negotiate 
           in good faith with respect to a strategic alliance. The Preferred 
           Stock has an aggregate liquidation preference of $2 million, is 
           convertible into shares of common stock at the initial public 
           offering price 18 months after the consummation of the initial 
           public offering and is redeemable, at the option of the Company, 
           for $1.25 million in the 13th month after the initial public 
           offering if no strategic alliance has been entered into. The 
           Preferred Stock has been assigned a value of $1,122,000 
           representing the estimated fair value on the date of grant based 
           on an imputed market interest rate of 10%. 

                              F-10           
<PAGE>
                     ADVANCED COMMUNICATIONS GROUP, INC. 
       NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 

    The following table summarizes the unaudited pro forma and 
post-acquisition combined balance sheet adjustments at September 30, 1997 (in 
thousands): 

<TABLE>
<CAPTION>
                                (A)        (B)        (C) 
                            ---------- ---------  ---------- 
<S>                           <C>        <C>       <C>
           ASSETS 
Cash and cash equivalents .   $(1,745)   $  --     $  -- 
Accounts receivable, net ..      --         --        -- 
Deferred costs.............      --         --        -- 
Prepaid expenses and 
 other.....................      --         --        -- 
                            ---------- ---------  ---------- 
  Total current assets ....    (1,745)      --        -- 
Property and equipment, 
 net.......................      --         --        -- 
Intangible assets, net ....      --         --      105,816 
Equity investment in 
 KINNET ...................      --         --       18,041 
Other noncurrent assets ...      --         --         (561) 
                            ---------- ---------  ---------- 
  Total assets.............   $(1,745)   $  --     $123,296 
                            ========== =========  ========== 
      LIABILITIES AND 
    STOCKHOLDERS' EQUITY 
Current maturities of 
 long-term debt ...........   $   194    $  --     $  -- 
Accounts payable and 
 accrued 
 expenses..................      --         --          101 
Current portion of notes 
 payable to 
 related parties...........      --       (1,699)       117 
Obligation for cash 
 portion of 
 consideration in the 
 Acquisitions..............      --         --       83,336 
                            ---------- ---------  ---------- 
  Total current 
 liabilities...............       194     (1,699)    83,554 
Notes payable to related 
 parties, net 
 of current maturities ....      --         --       17,233 
Long-term debt, net of 
 current 
 maturities................      --         --        -- 
                            ---------- ---------  ---------- 
  Total liabilities........       194     (1,699)   100,787 
                            ---------- ---------  ---------- 
Stockholders' equity 
  Preferred stock .........      --         --        -- 
  Common stock.............      --         --         (459) 
  Additional 
 paid-in-capital...........      --        1,699     36,113 
  Retained earnings........    (1,939)      --      (13,145) 
                            ---------- ---------  ---------- 
Total stockholders' equity 
 (deficit).................    (1,939)     1,699     22,509 
                            ---------- ---------  ---------- 
Total liabilities and 
 stockholders' 
 equity....................   $(1,745)   $  --     $123,296 
                            ========== =========  ========== 
</TABLE>

                    (RESTUBBED TABLE CONTINUED FROM ABOVE) 

<TABLE>
<CAPTION>
                                                                                                       TOTAL 
                                TOTAL                                                                  POST- 
                              PRO FORMA                                                             ACQUISITION 
                             ADJUSTMENTS      (D)         (E)         (F)         (G)       (H)     ADJUSTMENTS 
                            ------------- ----------  ----------- ----------  ---------- --------  ------------- 
<S>                           <C>          <C>         <C>         <C>         <C>        <C>        <C> 
           ASSETS 
Cash and cash equivalents .    $ (1,745)    $100,652    $(83,336)   $(4,258)    $(1,750)   $ --       $ 11,308 
Accounts receivable, net ..       --           --          --          --          --        --          -- 
Deferred costs.............       --           --          --          --          --        --          -- 
Prepaid expenses and 
 other.....................       --           --          --          --          --        --          -- 
                            ------------- ----------  ----------- ----------  ---------- --------  ------------- 
  Total current assets ....      (1,745)     100,652     (83,336)    (4,258)     (1,750)     --         11,308 
Property and equipment, 
 net.......................          --        --          --          --          --        --          -- 
Intangible assets, net ....     105,816        --          --          --          --        --          -- 
Equity investment in 
 KINNET ...................      18,041        --          --          --          --        --          -- 
Other noncurrent assets ...        (561)        (619)      --          --         1,750     1,122        2,253 
                            ------------- ----------  ----------- ----------  ---------- --------  ------------- 
  Total assets.............    $121,551     $100,033    $(83,336)   $(4,258)    $  --      $1,122     $ 13,561 
                            ============= ==========  =========== ==========  ========== ========  ============= 
      LIABILITIES AND 
    STOCKHOLDERS' EQUITY 
Current maturities of 
 long-term debt ...........    $    194     $  --       $  --       $  (985)    $  --      $ --       $   (985) 
Accounts payable and 
 accrued 
 expenses..................         101       (1,221)      --          (101)       --        --         (1,322) 
Current portion of notes 
 payable to 
 related parties...........      (1,582)       --          --        (1,856)       --        --         (1,856) 
Obligation for cash 
 portion of 
 consideration in the 
 Acquisitions..............      83,336        --        (83,336)      --          --        --        (83,336) 
                            ------------- ----------  ----------- ----------  ---------- --------  ------------- 
  Total current 
 liabilities...............      82,049       (1,221)    (83,336)    (2,942)       --        --        (87,499) 
Notes payable to related 
 parties, net 
 of current maturities ....      17,233        --          --          --          --        --          -- 
Long-term debt, net of 
 current 
 maturities................       --           --          --        (1,316)       --        --         (1,316) 
                            ------------- ----------  ----------- ----------  ---------- --------  ------------- 
  Total liabilities........      99,282       (1,221)    (83,336)    (4,258)       --        --        (88,815) 
                            ------------- ----------  ----------- ----------  ---------- --------  ------------- 
Stockholders' equity 
  Preferred stock .........       --           --          --          --          --       1,122        1,122 
  Common stock.............        (459)           1       --          --          --        --              1 
  Additional 
 paid-in-capital...........      37,812      101,253       --          --          --        --        101,253 
  Retained earnings........     (15,084)       --          --          --          --        --          -- 
                            ------------- ----------  ----------- ----------  ---------- --------  ------------- 
Total stockholders' equity 
 (deficit).................      22,269      101,254       --          --          --       1,122      102,376 
                            ------------- ----------  ----------- ----------  ---------- --------  ------------- 
Total liabilities and 
 stockholders' 
 equity....................    $121,551     $100,033    $(83,336)   $(4,258)    $  --      $1,122     $ 13,561 
                            ============= ==========  =========== ==========  ========== ========  ============= 
</TABLE>

                              F-11           
<PAGE>
                     ADVANCED COMMUNICATIONS GROUP, INC. 
       NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 

 4. UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS 
    ADJUSTMENTS: 

 Year Ended December 31, 1996 

   (a)     Reflects the amortization of excess purchase price relating to the 
           Acquired Companies which has been preliminarily allocated to an 
           undifferentiated pool of intangible assets to be amortized over a 
           period of 25 years for pro forma purposes. The Company intends to 
           obtain independent appraisals of the Acquired Companies. Upon 
           completion of the appraisals and in accordance with the terms 
           thereof, the intangible assets in the pool will be allocated to 
           the appropriate asset classifications, including customer lists 
           and goodwill. These appraisals may result in changes to the 
           estimated useful life noted above. 

   (b)     Reflects the equity in losses of KINNET of $388,000 and the 
           amortization of $681,000 of related excess purchase price which 
           has been recorded as intangible assets comprised of goodwill to be 
           amortized over 25 years. 

   (c)     Reflects an increase of $774,000 of interest expense attributable 
           to debt issued as consideration for the Acquisitions, net of a 
           reduction of $995,000 in interest expense on debt of the Acquired 
           Companies which is to be repaid from the proceeds of the Offering. 

   (d)     Reflects the revenue and expenses of two companies acquired by 
           FirsTel in September 1997. 

   (e)     Reflects the incremental provisions for federal and state income 
           taxes relating to the other pro forma adjustments and for income 
           taxes on heretofore S Corporation income. 

   (f)     Reflects the amortization of the five year, $1.1 million strategic 
           alliance and non-compete agreement entered into with Northwestern 
           Public Service Company. 

                              F-12           
<PAGE>
                     ADVANCED COMMUNICATIONS GROUP, INC. 
       NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 

    The following table summarizes unaudited pro forma combined statement of 
operations adjustments for the year ended December 31, 1996 (in thousands): 

<TABLE>
<CAPTION>
                                   (A)        (B)       (C) 
                               ---------- ----------  ------- 
<S>                             <C>        <C>       <C>
Revenues--Telecommunications 
 services.....................   $  --      $  --     $  -- 
Cost of services..............      --         --        -- 
Depreciation and 
 amortization.................     4,233       --        -- 
                               ---------- ----------  ------- 
  Gross profit................    (4,233)      --        -- 
Selling, general and 
 administrative 
 expenses.....................      --         --        -- 
                               ---------- ----------  ------- 
  Income (loss) from 
   operations.................    (4,233)      --        -- 
Other income (expense): 
  Other income and expense, 
   net........................      --         --        -- 
  Interest expense............      --         --        221 
  Equity in earnings of 
   KINNET.....................      --       (1,069)     -- 
                               ---------- ----------  ------- 
Income (loss) before income 
 taxes........................    (4,233)    (1,069)     221 
Provision for income taxes ...      --         --        -- 
                               ---------- ----------  ------- 
Net income (loss).............   $(4,233)   $(1,069)    $221 
                               ========== ==========  ======= 
</TABLE>

                    (RESTUBBED TABLE CONTINUED FROM ABOVE) 

<TABLE>
<CAPTION>
                                                                TOTAL 
                                                              PRO FORMA 
                                  (D)      (E)       (F)     ADJUSTMENTS 
                               -------- --------  -------- ------------- 
<S>                            <C>        <C>       <C>       <C>
Revenues--Telecommunications 
 services.....................  $1,728    $ --    $   --       $ 1,728 
Cost of services..............   1,044      --        --         1,044 
Depreciation and 
 amortization.................      43      --        224        4,500 
                               -------- --------  -------- ------------- 
  Gross profit................     641      --       (224)      (3,816) 
Selling, general and 
 administrative 
 expenses.....................     657      --        --           657 
                               -------- --------  -------- ------------- 
  Income (loss) from 
   operations.................     (16)     --       (224)      (4,473) 
Other income (expense): 
  Other income and expense, 
   net........................      (3)     --        --            (3) 
  Interest expense............    --        --        --           221 
  Equity in earnings of 
   KINNET.....................    --        --        --        (1,069) 
                               -------- --------  -------- ------------- 
Income (loss) before income 
 taxes........................     (19)     --       (224)      (5,324) 
Provision for income taxes ...    --        821       --           821 
                               -------- --------  -------- ------------- 
Net income (loss).............  $  (19)   $(821)    $(224)     $(6,145) 
                               ======== ========  ======== ============= 
</TABLE>

 Nine Months Ended September 30, 1997 

   (a)     Reflects the amortization of excess purchase price relating to the 
           Acquired Companies which has been preliminarily allocated to an 
           undifferentiated pool of intangible assets to be amortized over a 
           period of 25 years for pro forma purposes. 

   (b)     Reflects the equity in losses of KINNET of $146,000 and the 
           amortization of $511,000 of related excess purchase price which 
           has been recorded as intangible assets comprised of goodwill to be 
           amortized over 25 years. 

   (c)     Reflects an increase of $581,000 of interest expense attributable 
           to debt issued as consideration for the Acquisitions, net of a 
           reduction of $455,000 in interest expense on debt of the Acquired 
           Companies which is to be repaid from the proceeds of the Offering. 

   (d)     Reflects the incremental provisions for federal and state income 
           taxes relating to the other pro forma adjustments and for income 
           taxes on heretofore S Corporation income. 

   (e)     Reflects the amortization of the five year, $1.1 million strategic 
           alliance and non-competition agreement entered into with 
           Northwestern Public Service Company. 

   (f)     The Company estimates it will record compensation expense of 
           approximately $950,000 during the fourth quarter of 1997 related 
           to options issued in December 1997 to two officers to purchase 
           300,000 shares of common stock at an exercise price of $2.50 per 
           share. 

                              F-13           
<PAGE>
                     ADVANCED COMMUNICATIONS GROUP, INC. 
       NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 

    The following table summarizes unaudited pro forma combined income 
statement adjustments for the nine months ended September 30, 1997 (in 
thousands): 

<TABLE>
<CAPTION>
                                   (A)        (B)       (C) 
                               ---------- ---------  -------- 
<S>                            <C>         <C>      <C>
Revenues-- 
 Telecommunications services .   $  --     $   --   $    -- 
Cost of services..............      --         --        -- 
Depreciation and 
 amortization.................     3,174       --        -- 
                               ---------- ---------  -------- 
  Gross profit................    (3,174)      --        -- 
Selling, general and 
 administrative expenses......      --         --        -- 
                               ---------- ---------  -------- 
  Income (loss) from 
   operations.................    (3,174)      --        -- 
Other income (expense): 
  Other income and expense, 
   net........................      --         --        -- 
  Interest expense............      --         --       (126) 
  Equity in earnings of 
   KINNET.....................      --        (657)      -- 
                               ---------- ---------  -------- 
Income (loss) before income 
 taxes........................    (3,174)     (657)     (126) 
Provision for income taxes ...      --         --        -- 
                               ---------- ---------  -------- 
Net income (loss).............   $(3,174)    $ (657)   $(126) 
                               ========== =========  ======== 
</TABLE>

                    (RESTUBBED TABLE CONTINUED FROM ABOVE) 

<TABLE>
<CAPTION>
                                                      TOTAL 
                                                    PRO FORMA 
                                  (D)      (E)     ADJUSTMENTS 
                               -------- --------  ------------- 
<S>                              <C>        <C>      <C>
Revenues-- 
 Telecommunications services .   $ --     $ --      $   -- 
Cost of services..............     --       --          -- 
Depreciation and 
 amortization.................     --       168        3,342 
                               -------- --------  ------------- 
  Gross profit................     --      (168)      (3,342) 
Selling, general and 
 administrative expenses......     --       --          -- 
                               -------- --------  ------------- 
  Income (loss) from 
   operations.................     --      (168)      (3,342) 
Other income (expense): 
  Other income and expense, 
   net........................     --       --          -- 
  Interest expense............     --       --          (126) 
  Equity in earnings of 
   KINNET.....................     --       --          (657) 
                               -------- --------  ------------- 
Income (loss) before income 
 taxes........................     --      (168)      (4,125) 
Provision for income taxes ...     730      --           730 
                               -------- --------  ------------- 
Net income (loss).............   $(730)   $(168)     $(4,855) 
                               ======== ========  ============= 
</TABLE>

                                      F-14
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

The Board of Directors 
Advanced Communications Group, Inc. 

   We have audited the accompanying consolidated balance sheet of Advanced 
Communications Group, Inc. as of December 31, 1996, and the related 
consolidated statements of operations, stockholders' deficit, and cash flows 
for the period from inception (June 6, 1996) through December 31, 1996. These 
consolidated financial statements are the responsibility of the Company's 
management. Our responsibility is to express an opinion on these consolidated 
financial statements based on our audit. 

   We conducted our audit in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement. An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements. 
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation. We believe that our audit provides a 
reasonable basis for our opinion. 

   In our opinion, the consolidated financial statements referred to above 
present fairly, in all material respects, the financial position of Advanced 
Communications Group, Inc. as of December 31, 1996, and the results of its 
operations and its cash flows for the period from inception (June 6, 1996) 
through December 31, 1996, in conformity with generally accepted accounting 
principles. 

KPMG PEAT MARWICK LLP 
Houston, Texas 
September 15, 1997, 
except as to Footnote 5 
which is as of February 11, 1998 

                                      F-15
<PAGE>
                      ADVANCED COMMUNICATIONS GROUP, INC.
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                             DECEMBER 31,    SEPTEMBER 30, 
                                                                 1996            1997 
                                                            -------------- --------------- 
                                                                              (UNAUDITED) 
<S>                                                         <C>            <C>
                           ASSETS 
CURRENT ASSETS: 
  Cash and cash equivalents................................    $  33,450      $    -- 
  Employee advances........................................        1,388           -- 
                                                            -------------- --------------- 
    Total current assets...................................       34,838           -- 
  Office furniture and equipment, net......................        8,252            6,515 
  Other non-current assets.................................       48,480        1,184,230 
                                                            -------------- --------------- 
    Total assets...........................................    $  91,570      $ 1,190,745 
                                                            ============== =============== 
           LIABILITIES AND STOCKHOLDERS' DEFICIT 
CURRENT LIABILITIES: 
  Note payable to stockholder..............................    $ 565,047      $ 1,706,469 
  Accrued interest payable to stockholder..................        9,890          149,412 
  Accounts payable and accrued expenses....................      148,653        1,551,131 
                                                            -------------- --------------- 
    Total current liabilities..............................      723,590        3,407,012 
COMMITMENTS AND CONTINGENCIES 
STOCKHOLDERS' DEFICIT: 
  Common stock, $.00001 par, 180,000,000 shares 
   authorized, 8,232,276 shares issued and outstanding ....           82               82 
  Additional paid-in capital ..............................       26,718           46,718 
  Accumulated deficit .....................................     (658,820)      (2,263,067) 
                                                            -------------- --------------- 
    Total stockholders' deficit............................     (632,020)      (2,216,267) 
                                                            -------------- --------------- 
Total liabilities and stockholders' deficit................    $  91,570      $ 1,190,745 
                                                            ============== =============== 
</TABLE>

         See accompanying notes to consolidated financial statements. 

                                      F-16
<PAGE>
                      ADVANCED COMMUNICATIONS GROUP, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                       FOR THE PERIOD 
                                       FROM INCEPTION 
                                       (JUNE 6, 1996)      FOR THE NINE 
                                          THROUGH          MONTHS ENDED 
                                     DECEMBER 31, 1996  SEPTEMBER 30, 1997 
                                     ----------------- ------------------ 
                                                           (UNAUDITED) 
<S>                                  <C>               <C> 
Revenues............................      $  --             $   -- 
General and administrative 
 expenses...........................       648,930           1,462,172 
Depreciation and amortization ......         --                  2,481 
Interest expense....................         9,890             139,594 
Other (income) loss.................         --                 -- 
                                     ----------------- ------------------ 
  Loss before income tax benefit ...       658,820           1,604,247 
Income tax benefit..................         --                 -- 
                                     ----------------- ------------------ 
  Net loss..........................      $658,820          $1,604,247 
                                     ================= ================== 
  Net loss per share................      $    .08          $      .19 
                                     ================= ================== 
</TABLE>

         See accompanying notes to consolidated financial statements. 

                                      F-17
<PAGE>
                      ADVANCED COMMUNICATIONS GROUP, INC.
          CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
    For the Period From Inception (June 6, 1996) Through September 30, 1997
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                     
                                  COMMON STOCK       ADDITIONAL                        TOTAL
                              ---------------------   PAID-IN      ACCUMULATED     STOCKHOLDERS'
                                 SHARES     AMOUNT    CAPITAL        DEFICIT          DEFICIT
                              ----------- --------  ------------ ---------------  ---------------
<S>                           <C>         <C>       <C>          <C>              <C> 
Initial capitalization.......  8,232,276     $82       $26,718      $    --         $    26,800 
Net loss.....................      --        --           --           (658,820)       (658,820) 
                              ----------- --------  ------------ ---------------  --------------- 
BALANCES, December 31, 1996 .  8,232,276      82        26,718         (658,820)       (632,020) 
Issuance of stock warrants 
 (unaudited).................      --        --         20,000           --              20,000 
Net loss (unaudited).........      --        --           --         (1,604,247)     (1,604,247) 
                              ----------- --------  ------------ ---------------  --------------- 
BALANCES, September 30, 1997 
 (unaudited).................  8,232,276     $82       $46,718      $ (2,263,067)   $ (2,216,267) 
                              =========== ========  ============ ===============  =============== 
</TABLE>

         See accompanying notes to consolidated financial statements. 

                                      F-18
<PAGE>
                      ADVANCED COMMUNICATIONS GROUP, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                              FOR THE PERIOD 
                                                                              FROM INCEPTION 
                                                                              (JUNE 6, 1996)      FOR THE NINE 
                                                                                 THROUGH          MONTHS ENDED 
                                                                            DECEMBER 31, 1996  SEPTEMBER 30, 1997 
                                                                            ----------------- ------------------ 
                                                                                                  (UNAUDITED) 
<S>                                                                         <C>                <C>
Cash flows from operating activities: 
Net loss...................................................................     $(658,820)       $ (1,604,247) 
Adjustments to reconcile net loss to net cash used by operating 
 activities: 
  Depreciation and amortization............................................         --                  2,481 
  Stock-based compensation expense.........................................         --                 20,000 
  Changes in assets and liabilities: 
   (Increase) decrease in employee advances................................        (1,388)              1,388 
   Increase in property and equipment......................................        (8,252)             -- 
   Increase in other non-current assets....................................       (48,480)         (1,136,494) 
   Increase in accounts payable and accrued expenses.......................       148,653           1,402,478 
                                                                            ----------------- ------------------ 
    Net cash used by operating activities..................................      (568,287)         (1,314,394) 
                                                                            ----------------- ------------------ 
Cash flows from financing activities: 
  Increase in note payable to stockholder..................................       565,047           1,141,422 
  Increase in accrued interest payable to stockholder......................         9,890             139,522 
  Issuance of common stock.................................................        26,800              -- 
                                                                            ----------------- ------------------ 
    Net cash provided by financing activities..............................       601,737           1,280,944 
                                                                            ----------------- ------------------ 
Net increase (decrease) in cash and cash equivalents.......................        33,450             (33,450) 
Cash and cash equivalents: 
  Beginning of period......................................................         --                 33,450 
                                                                            ----------------- ------------------ 
  End of period............................................................     $  33,450        $     -- 
                                                                            ================= ================== 

</TABLE>

         See accompanying notes to consolidated financial statements. 

                                      F-19
<PAGE>
                      ADVANCED COMMUNICATIONS GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              December 31, 1996 and September 30, 1997 (Unaudited)

1. ORGANIZATION AND BUSINESS: 

   Advanced Communications Group, Inc. (the "Company") (formerly 1+USA, Inc.) 
was incorporated in the State of Delaware in June 1996 to create a regional 
competitive local exchange carrier that provides an integrated portfolio of 
telecommunications services principally to business customers in selected 
service areas of Southwestern Bell and U S WEST. As of September 30, 1997, 
the Company intended to acquire the stock or assets of nine operating 
companies (the "Acquired Companies") and a 49% interest in another operating 
company (collectively, the "Acquisitions") and complete an initial public 
offering of its common stock. The Company has not conducted any operations, 
and all activities to date have related to the offering and the Acquisitions. 

   The Company is dependent upon the public offering to complete the 
Acquisitions and to repay an obligation it has incurred under a promissory 
note made in favor of its major stockholder, Consolidation Partners Founding 
Fund, L.L.C. ("CPFF"). There can be no assurance that the Acquisitions will 
be completed or that the Company will be able to generate future operating 
revenues. 

2. ACQUISITIONS OF THE ACQUIRED COMPANIES: 

   Prior to September 1997, the Company signed definitive agreements pursuant 
to which it agreed to acquire in mergers, stock purchases or asset purchases, 
all of the outstanding capital stock of Great Western Directories, Inc., 
Valu-Line of Longview, Inc., Feist Long Distance Service, Inc., FirsTel, Inc. 
and Tele-Systems, Inc., substantially all of the assets of Long Distance 
Management II, Inc., Long Distance Management of Kansas, Inc., The 
Switchboard of Oklahoma City, Inc., and National Telecom, a proprietorship, 
and 49% of the outstanding capital stock of KIN Network, Inc. The 
consideration to be paid by the Company in the Acquisitions was to include 
cash, common stock of the Company, notes, and options or warrants to purchase 
common stock of the Company and the assumption of debt in the case of two 
companies. 

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: 

   Unaudited interim periods -- The interim consolidated financial statements 
as of September 30, 1997, and for the nine months then ended are unaudited. 
These interim consolidated financial statements have been prepared on the 
same basis as the annual financial statements included herewith. In the 
opinion of management, all adjustments, consisting only of normal recurring 
adjustments, necessary to fairly present the consolidated balance sheets, 
results of operations and cash flows with respect to the interim financial 
statements, have been included. The results of operations for the interim 
period are not necessarily indicative of the results for the entire fiscal 
year. 

   Principles of consolidation -- The consolidated financial statements 
include the accounts of Advanced Communications Group, Inc. and its 
wholly-owned subsidiaries which were formed for the sole purpose of acquiring 
the stock or assets of the Acquired Companies. 

   Deferred acquisition and deferred offering costs -- The Company has 
deferred certain legal, accounting, appraisal and other costs incurred in 
connection with the Acquisitions and the Offering. At December 31, 1996 and 
September 30, 1997, deferred acquisition costs amounted to approximately 
$40,900 and $560,000, respectively, and deferred offering costs amounted to 
$2,700 and $619,000, respectively. At such time as the Company completes the 
Acquisitions, deferred acquisition costs will be included in the 
determination of excess purchase price. Deferred offering costs will be 
charged to additional paid-in capital upon the closing of the Offering. 

                                      F-20
<PAGE>
                      ADVANCED COMMUNICATIONS GROUP, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

    Office furniture and equipment -- Office furniture and equipment are 
stated at cost. Depreciation is computed using the straight-line method over 
the respective lives of the assets. The estimated useful lives are as 
follows: 

<TABLE>
<CAPTION>
<S>                                  <C>
 Furniture and fixtures..............  7 years 
Computer equipment and software .....  3 years 
</TABLE>

   Income taxes -- No provision for Federal, state and local income taxes has 
been made because the Company has sustained cumulative losses since its 
inception in June 1996. A 100% valuation allowance has been established for 
the related deferred tax asset. 

   Net Loss Per Share -- Net loss per share is computed using the weighted 
average number of shares outstanding. The weighted average shares outstanding 
were 8,232,276 for the period from inception (June 6, 1996) through December 
31, 1996 and for the nine months ended September 30, 1997. 

   Use of Estimates -- The preparation of the financial statements in 
conformity with generally accepted accounting principles requires management 
to make estimates and assumptions that affect reported amounts of assets and 
liabilities at the date of the financial statements and the reported amounts 
of revenues and expenses during the reporting period. Actual results could 
differ from those estimates. 

   New Accounting Pronouncements -- Statement of Financial Accounting 
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," allows 
entities to choose between a new fair value based method of accounting for 
employee stock options or similar equity instruments and the current 
intrinsic, value-based method of accounting required by Accounting Principles 
Board Opinion No. 25 ("APB No. 25"). Entities electing to remain with the 
accounting in APB No. 25 must make pro forma disclosures of net income and 
earnings per share as if the fair value method of accounting had been 
applied. No employee stock options or similar equity instruments were issued 
by the Company prior to January 1, 1997. The Company will provide pro forma 
disclosure of net income and earnings per share, as applicable in the notes 
to future consolidated financial statements. 

   In February 1997, the Financial Accounting Standards Board issued SFAS No. 
128, "Earnings Per Share". For the Company, SFAS No. 128 will be effective 
for the year ended December 31, 1997, but not for any periods ended prior to 
that time. SFAS No. 128 simplifies the standards required under current 
accounting rules for computing earnings per share and replaces the 
presentation of primary earnings per share and fully diluted earnings per 
share with a presentation of basic earnings per share ("basic EPS") and 
diluted earnings per share ("diluted EPS"). Basic EPS excludes dilution and 
is determined by dividing income available to common stockholders by the 
weighted average number of common shares outstanding during the period. 
Diluted EPS reflects the potential dilution that could occur if securities 
and other contracts to issue common stock were exercised or converted into 
common stock. Diluted EPS is computed similarly to full diluted earnings per 
share under current accounting rules. The implementation of SFAS No. 128 is 
not expected to have a material effect on the Company's earnings per share as 
determined under current accounting rules. 

4. TRANSACTIONS WITH RELATED PARTIES: 

COMMON OWNERSHIP AND MANAGEMENT 

   At December 31, 1996 and September 30, 1997, a total of 7,986,074 shares 
of the Company's common stock was owned by CPFF and by two individuals who 
then served as directors and officers of both the Company and CPFF and who 
own the controlling interest in CPFF. 

SUBORDINATED PROMISSORY NOTE IN FAVOR OF CPFF 

   The Company's activities have been financed through a subordinated note 
agreement with CPFF. In September 1996, the Company executed a Subordinated 
Promissory Note (the "Note") in favor of CPFF 

                                      F-21
<PAGE>
                      ADVANCED COMMUNICATIONS GROUP, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

in the principal amount of $1,200,000 and bearing an annual interest rate of 
eight (8%) percent. Under its original terms, the principal and accrued 
interest under the Note were to be paid in full on the earlier of September 
15, 1997, or the date on which the Company's common stock becomes listed or 
quoted on a national basis. During the year ended December 31, 1996 and the 
nine months ended September 30, 1997, the Company incurred interest expense 
of $9,890 and $139,594, respectively, under the Note. In September 1997, the 
Company and CPFF amended the terms of the Note to provide for an increase in 
the principal balance from $1.2 million to $2.2 million, and to extend the 
maturity of the Note to the earlier of December 31, 1998 or the consummation 
of the Offering. 

STOCK OPTIONS AND WARRANTS 

   In May 1997 the Company granted to one of its consultants a warrant for 
the purchase of 7,561 shares of common stock at an exercise price of $2.65 
per share. This warrant is exercisable in whole or in part at any time up to 
its expiration date in May 2007. In connection with the issuance of this 
warrant, the Company recorded a non-recurring, non-cash compensation expense 
of $20,000 reflecting the difference between the exercise price for the 
shares and the estimated fair value of the shares at the date of grant. 

   In June 1997, the Company granted options for the purchase of 775,000 
shares of common stock at an exercise price equal to the fair value of a 
share of common stock at the date of grant, specifically $2.50 per share, to 
three individuals. In December 1997, two of these individuals exchanged their 
options to purchase 525,000 shares of common stock for ten-year, fully vested 
warrants to purchase a like number of shares of common stock at the same 
exercise price. 

   In June 1997, the Company's Board of Directors approved a Stock Awards 
Plan (the "Plan") which provides for the granting or awarding of incentive or 
non-qualified stock options, stock appreciation rights, restricted or 
deferred stock, dividend equivalents and other incentive awards to directors, 
officers, and key employees of the Company. The number of shares of common 
stock authorized and reserved for issuance under the Plan is 3,500,000 
shares. 

   Subsequent to September 30, 1997, the Company agreed to make various 
grants and awards under the Plan to employees and officers of the Acquired 
Companies, to outside directors, and to certain individuals who became 
officers of the Company after September 30, 1997. These options are 
exercisable at the initial public offering price, and they have various 
vesting and termination provisions. Also, the Company agreed to compensate 
each of its outside directors with annual option awards for 15,000 shares of 
common stock. Under this arrangement, options for 90,000 shares, exercisable 
at the initial public offering price, will be issued annually to six outside 
directors. In addition, three individuals who become officers of the Company 
after September 30, 1997, have been awarded ten-year options for the purchase 
of 1,275,000 shares of common stock, consisting of options for the purchase 
of 300,000 shares at a price of $2.50 per share and options for the purchase 
of 975,000 shares which are exercisable at the initial public offering price. 
The Company estimates that it will record compensation expense of 
approximately $950,000 during the fourth quarter of 1997 related to the 
300,000 options issued at $2.50 per share. Actual compensation expense to be 
recorded will be determined upon the completion of a third-party valuation of 
the fair value of these options on the date of grant. 

OPERATING LEASE AGREEMENT 

   In January 1997, the Company entered into a four year lease agreement with 
CPFF pursuant to which the Company leases furniture and office equipment. 
Under this agreement the Company is obligated to make monthly rental payments 
to CPFF of $1,163. For the nine months ended September 30, 1997, the Company 
recognized approximately $10,000 of rental expense related to this lease 
agreement. 

5. STOCK SPLIT 

   In February 1998, ACG's Board of Directors approved an approximately 
1-for-2.645 reverse stock split, subject to stockholder approval. This 
reverse stock split has been reflected retroactively for all periods 
presented. 

                                      F-22
<PAGE>
                      ADVANCED COMMUNICATIONS GROUP, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. SUBSEQUENT EVENT 

   On September 29, 1997, the Company incorporated a new wholly owned 
subsidiary under the laws of the State of Delaware. On October 6, 1997, the 
Company changed its name to Advanced Communications Corp. and subsequently 
the new subsidiary changed its name to Advanced Communications Group, Inc. 
("ACG"). As of October 6, 1997 and in order to facilitate securing requisite 
regulatory permits, ACG entered into new definitive agreements to acquire the 
stock or assets of the Acquired Companies and a 49% interest in a fiber optic 
network company that replaced the various definitive agreements that had been 
entered into earlier with the Acquired Companies. In the aggregate, the 
consideration to be paid by ACG in the Acquisitions includes $83.3 million in 
cash, shares of ACG's Common Stock valued for purposes of computing the 
estimated purchase price for accounting purposes at $37.9 million, $17.4 
million in promissory notes, and options and warrants to purchase 1,393,213 
shares of ACG's Common Stock. 

   Also as of October 6, 1997, the Company, ACG and a wholly owned subsidiary 
of ACG entered into an Agreement of Merger pursuant to which, after the 
consummation of a reverse stock split and concurrently with the closing of 
the Acquisitions, the Company will be merged with the subsidiary of ACG, with 
the Company as the surviving corporation. In the merger, each share of common 
stock of the Company will be converted into one share of Common Stock of ACG, 
ACG will succeed to all options and warrants of the Company, and the Company 
will become a wholly owned subsidiary of ACG. 

   On October 10, 1997, ACG filed with the Securities and Exchange Commission 
a Registration Statement on Form S-1 relating to the initial public offering 
of its Common Stock. The closing of the Acquisitions and the merger of the 
Company with the subsidiary of ACG will occur concurrently with, and are a 
condition to, the closing of that offering. A portion of the proceeds of that 
offering will be used to pay the cash portion of the consideration in the 
Acquisitions. ACG has not conducted any operations, and all of its activities 
to date have related to the public offering and the Acquisitions. 

   In January 1998, ACG entered into an agreement with a certain utility 
company regarding the possible creation of a strategic alliance. Under the 
terms of the agreement, which will be consummated contemporaneously with the 
closing of the initial public offering, ACG will issue 142,857 shares of 
Series A Redeemable Convertible Preferred Stock (Preferred Stock) with an 
aggregate liquidation preference of $2 million. The Preferred Stock is 
convertible into shares of common stock at the initial public offering price 
eighteen months after the consummation of the initial public offering. The 
Preferred Stock does not pay dividends and is not entitled to vote in the 
election of directors. If a strategic alliance has not been entered into by 
the 13th month after the initial public offering, ACG may, at its option, 
redeem the Preferred Stock for total proceeds of $1.25 million. 

   ACG is dependent on the public offering to complete the Acquisitions and 
to repay an obligation of the Company to CPFF. There can be no assurance that 
the Acquisitions will be completed or that ACG will be able to generate 
future operating revenues. 

                                      F-23
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

The Board of Directors 
Great Western Directories, Inc. 
Amarillo, Texas 

   We have audited the accompanying balance sheets of Great Western 
Directories, Inc. as of January 31, 1996 and December 31, 1996, and the 
related statements of operations and cash flows for the years ended January 
31, 1995 and 1996 and December 31, 1996, and the related statements of 
stockholders' equity for the years ended January 31, 1995 and 1996 and the 
eleven months ended December 31, 1996. These financial statements are the 
responsibility of the Company's management. Our responsibility is to express 
an opinion on these financial statements based on our audits. 

   We conducted our audits in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement. An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements. 
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation. We believe that our audits provide a 
reasonable basis for our opinion. 

   In our opinion, the financial statements referred to above present fairly, 
in all material respects, the financial position of Great Western 
Directories, Inc. as of January 31, 1996 and December 31, 1996, and the 
results of its operations and its cash flows for the years ended January 31, 
1995 and 1996 and December 31, 1996 in conformity with generally accepted 
accounting principles. 

KPMG PEAT MARWICK LLP 

Houston, Texas 
October 2, 1997 

                                      F-24
<PAGE>
                        GREAT WESTERN DIRECTORIES, INC.
                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                            JANUARY 31,    DECEMBER 31,   SEPTEMBER 30, 
                                                                1996           1996            1997 
                                                           ------------- --------------  --------------- 
                                                                                           (UNAUDITED) 
<S>                                                        <C>           <C>             <C>
                          ASSETS 
CURRENT ASSETS 
  Cash....................................................  $    31,693    $   719,268     $ 1,317,877 
  Accounts receivable.....................................   17,678,787     21,607,728      24,489,630 
  Less: Allowance for doubtful accounts...................   (6,590,847)    (8,282,945)     (9,628,295) 
                                                           ------------- --------------  --------------- 
      Net accounts receivable.............................   11,087,940     13,324,783      14,861,335 
                                                           ------------- --------------  --------------- 
  Income taxes receivable.................................    1,072,378        384,145         384,145 
  Deferred directory costs................................    3,436,346      3,052,944       2,460,618 
  Deferred income taxes...................................    1,085,748      1,627,821          -- 
  Other current assets....................................      423,400        377,275           7,209 
                                                           ------------- --------------  --------------- 
      Total current assets................................   17,137,505     19,486,236      19,031,184 
                                                           ------------- --------------  --------------- 
PROPERTY AND EQUIPMENT 
  Land....................................................       79,900         79,900          79,900 
  Building and improvements...............................      640,059        644,061         654,312 
  Furniture, fixtures and equipment.......................    1,722,500      1,991,215       2,253,623 
                                                           ------------- --------------  --------------- 
                                                              2,442,459      2,715,176       2,987,835 
  Less: Accumulated depreciation..........................   (1,400,578)    (1,597,008)     (1,764,584) 
                                                           ------------- --------------  --------------- 
      Net property and equipment..........................    1,041,881      1,118,168       1,223,251 
                                                           ------------- --------------  --------------- 
OTHER ASSETS..............................................        2,391          4,607          18,832 
                                                           ------------- --------------  --------------- 
TOTAL ASSETS..............................................  $18,181,777    $20,609,011     $20,273,267 
                                                           ============= ==============  =============== 
  LIABILITIES AND STOCKHOLDERS' EQUITY 
CURRENT LIABILITIES 
  Bank overdraft..........................................  $    33,114    $      --       $    -- 
  Accounts payable........................................    1,378,318      1,393,021       1,626,845 
  Payable to related parties..............................      270,246        483,311         172,271 
  Accrued liabilities.....................................      467,530      1,138,730       1,768,319 
  Note payable to bank....................................    2,100,000         --              -- 
  Current maturities of long-term debt....................    2,109,740      1,849,309          -- 
  Prepayments on directory advertising....................    3,690,261      3,170,840       2,452,723 
                                                           ------------- --------------  --------------- 
      Total current liabilities...........................   10,049,209      8,035,211       6,020,158 
LONG-TERM DEBT, less current maturities...................    3,531,051         --              -- 
                                                           ------------- --------------  --------------- 
      Total liabilities...................................   13,580,260      8,035,211       6,020,158 
                                                           ------------- --------------  --------------- 
STOCKHOLDERS' EQUITY 
  Common stock, $1 par value; authorized shares of 
    10,000, 1,250 shares issued and outstanding...........        1,250          1,250           1,250 
  Additional paid-in capital..............................            5              5               5 
  Retained earnings.......................................    4,600,262     12,572,545      14,251,854 
                                                           ------------- --------------  --------------- 
      Total stockholders' equity..........................    4,601,517     12,573,800      14,253,109 
                                                           ------------- --------------  --------------- 
TOTAL LIABILITIES AND 
 STOCKHOLDERS' EQUITY.....................................  $18,181,777    $20,609,011     $20,273,267 
                                                           ============= ==============  =============== 
</TABLE>

               See accompanying notes to financial statements. 

                                      F-25
<PAGE>
                        GREAT WESTERN DIRECTORIES, INC.
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                            YEARS ENDED            YEAR ENDED         NINE MONTHS ENDED 
                                            JANUARY 31,           DECEMBER 31,          SEPTEMBER 30, 
                                    ---------------------------- -------------- ---------------------------- 
                                         1995          1996           1996           1996           1997 
                                    ------------- -------------  -------------- -------------  ------------- 
                                                                                         (UNAUDITED) 
<S>                                 <C>           <C>            <C>            <C>            <C>
ADVERTISING REVENUES...............  $29,406,843    $36,469,094    $44,324,097    $33,463,165   $35,623,889 
COST OF REVENUES 
  Commissions and other sales 
   expenses........................    7,443,762      8,784,336      9,543,696      6,747,684     8,542,611 
  Publishing, related party........       94,448        578,223      1,077,795        635,557       843,021 
  Publishing, other................    8,807,084      8,944,754      9,333,705      6,718,801     6,345,956 
  Distribution, related party .....      558,885        697,250        815,566        332,585       180,907 
  Distribution, other..............      828,892        563,362        622,820        676,106       777,332 
  Depreciation and amortization ...      272,296        228,324        223,434        171,243       167,576 
                                    ------------- -------------  -------------- -------------  ------------- 
    Total cost of revenues.........   18,005,367     19,796,249     21,617,016     15,281,976    16,857,403 
                                    ------------- -------------  -------------- -------------  ------------- 
    Gross margin...................   11,401,476     16,672,845     22,707,081     18,181,189    18,766,486 
GENERAL AND ADMINISTRATIVE 
 EXPENSES 
  Salaries and payroll taxes ......    4,672,222      5,953,869      6,320,326      4,656,001     5,565,196 
  Provision for bad debts..........    2,907,720      3,249,165      4,650,918      3,764,746     3,590,097 
  Other............................    3,204,938      3,457,492      4,015,824      3,185,682     3,491,993 
                                    ------------- -------------  -------------- -------------  ------------- 
    Total general and 
     administrative expenses.......   10,784,880     12,660,526     14,987,068     11,606,429    12,647,286 
                                    ------------- -------------  -------------- -------------  ------------- 
    Total operating income.........      616,596      4,012,319      7,720,013      6,574,760     6,119,200 
                                    ------------- -------------  -------------- -------------  ------------- 
OTHER INCOME (EXPENSE) 
  Interest expense.................     (216,228)      (602,100)      (503,768)      (449,106)      (49,751) 
  Settlement of litigation, net of 
   expenses of $318,496............       --             --          6,281,504      6,281,504        -- 
  Other, net.......................       80,520         66,857         93,587         68,089        57,977 
                                    ------------- -------------  -------------- -------------  ------------- 
    Total other income (expense) ..     (135,708)      (535,243)     5,871,323      5,900,487         8,226 
                                    ------------- -------------  -------------- -------------  ------------- 
    Income before income taxes ....      480,888      3,477,076     13,591,336     12,475,247     6,127,426 
PROVISION FOR INCOME TAXES.........      245,497      1,307,290      5,294,596      4,828,254     2,048,117 
                                    ------------- -------------  -------------- -------------  ------------- 
NET INCOME.........................  $   235,391    $ 2,169,786    $ 8,296,740      7,646,993     4,079,309 
                                    ============= =============  ============== =============  ============= 
NET INCOME PER SHARE...............  $    188.31    $  1,735.83    $  6,637.39    $  6,117.59   $  3,263.45 
                                    ============= =============  ============== =============  ============= 
</TABLE>

               See accompanying notes to financial statements. 

                                      F-26
<PAGE>
                        GREAT WESTERN DIRECTORIES, INC.
                       STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                 ADDITIONAL 
                                                       COMMON     PAID-IN       RETAINED      TREASURY 
                                                        STOCK     CAPITAL       EARNINGS        STOCK        TOTAL 
                                                      -------- ------------  -------------- -----------  ------------- 
<S>                                                   <C>      <C>           <C>            <C>          <C>
Balances, January 31, 1994...........................  $1,250        $5       $  2,287,585    $   --      $ 2,228,840 
Cash dividends ($37 per share).......................    --          --            (46,250)       --          (46,250) 
Net income...........................................    --          --            235,391        --          235,391 
                                                      -------- ------------  -------------- -----------  ------------- 
Balances, January 31, 1995...........................   1,250         5          2,476,726        --        2,477,981 
Cash dividends ($37 per share).......................    --          --            (46,250)       --          (46,250) 
Net income...........................................    --          --          2,169,786        --        2,169,786 
                                                      -------- ------------  -------------- -----------  ------------- 
Balances, January 31, 1996...........................   1,250         5          4,600,262        --        4,601,517 
Cash dividends ($37 per share).......................    --          --            (46,250)       --          (46,250) 
Net income (eleven months)...........................    --          --          8,018,533        --        8,018,533 
                                                      -------- ------------  -------------- -----------  ------------- 
Balances, December 31, 1996..........................   1,250         5         12,572,545                 12,573,800 
Purchase of treasury stock (31.25 shares, 
 unaudited)..........................................    --          --                 --     (225,000)     (225,000) 
Issuance of treasury stock (31.25 shares, 
 unaudited)..........................................    --          --                 --      225,000       225,000 
Cash dividends ($480 per share, unaudited) ..........    --          --           (600,000)       --         (600,000) 
Cash dividends ($1,440 per share, unaudited) ........    --          --        (1,800,0000)       --       (1,800,000) 
Net income (unaudited)...............................    --          --          4,079,309        --        4,079,309 
                                                      -------- ------------  -------------- -----------  ------------- 
Balances, September 30, 1997 (unaudited) ............  $1,250        $5       $ 14,251,854        --      $14,253,109 
                                                      ======== ============  ============== ===========  ============= 
</TABLE>

               See accompanying notes to financial statements. 

                                      F-27
<PAGE>
                        GREAT WESTERN DIRECTORIES, INC.
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                      YEARS ENDED            YEAR ENDED            NINE MONTHS 
                                                      JANUARY 31,           DECEMBER 31,       ENDED SEPTEMBER 30, 
                                              ---------------------------- -------------- ---------------------------- 
                                                   1995          1996           1996           1996           1997 
                                              ------------- -------------  -------------- -------------  ------------- 
                                                                                                   (UNAUDITED) 
<S>                                           <C>            <C>           <C>             <C>           <C> 
CASH FLOWS FROM OPERATING ACTIVITIES: 
  Net income.................................  $   235,391    $ 2,169,786    $ 8,296,740    $ 7,646,993   $ 4,079,309 
  Adjustments to reconcile net income to 
   net cash provided (used) by operating 
   activities: 
    Depreciation and amortization............      272,296        228,324        223,434        171,243       167,576 
    Loss on disposal of assets...............       --             72,000         --             --            -- 
    Provision for bad debts..................    2,907,720      3,249,165      4,650,918      3,764,746     3,590,097 
    Deferred income taxes....................     (288,362)       (68,045)      (542,074)      (605,855)    1,627,821 
    Changes in: 
     Accounts receivable.....................   (5,630,561)    (7,505,966)    (6,707,225)    (5,444,897)   (5,126,649) 
     Deferred directory costs................     (402,971)    (1,159,636)      (696,008)      (444,023)      592,326 
     Income taxes receivable.................      464,836       (755,005)       688,233      1,098,919        -- 
     Accounts payable........................      (84,661)      (708,179)      (569,983)    (1,389,581)      (77,216) 
     Accrued liabilities.....................     (471,403)        85,664        886,520      1,075,841       629,589 
     Prepayments on directory 
      advertising............................     (198,306)       825,617       (352,931)      (668,431)     (718,117) 
     Federal income taxes payable............       --             --             --          3,177,789        -- 
    Other, net...............................     (622,044)       611,754         72,136         30,630       355,841 
                                              ------------- -------------  -------------- -------------  ------------- 
       Net cash provided (used) by 
        operating activities.................   (3,818,065)    (2,954,521)     5,949,760      8,413,374     5,120,577 
                                              ------------- -------------  -------------- -------------  ------------- 
CASH FLOWS FROM INVESTING ACTIVITIES: 
  Purchases of property and equipment .......     (279,140)      (116,288)      (300,125)       (69,555)     (272,659) 
                                              ------------- -------------  -------------- -------------  ------------- 
       Net cash used by investing 
        activities...........................     (279,140)      (116,288)      (300,125)       (69,555)     (272,659) 
                                              ------------- -------------  -------------- -------------  ------------- 
CASH FLOWS FROM FINANCING ACTIVITIES: 
Change in bank overdraft.....................       --             33,114       (169,011)      (169,011)       -- 
Net borrowings (payments) under note 
   payable to bank...........................     (500,000)     1,800,000         --           (750,000)       -- 
Advances under long-term debt................    4,500,000      3,000,000         --          2,100,000        -- 
Principal payments under long-term debt .....      (33,275)    (2,037,364)    (4,708,019)    (1,750,682)   (1,849,309) 
Purchase of treasury stock...................       --             --             --             --          (225,000) 
Issuance of treasury stock...................       --             --             --             --           225,000 
Cash dividends paid..........................      (46,250)       (46,250)       (92,500)       (46,250)   (2,400,000) 
                                              ------------- -------------  -------------- -------------  ------------- 
       Net cash provided (used) by 
        financing activities.................    3,920,475      2,749,500     (4,969,530)      (615,943)   (4,249,309) 
                                              ------------- -------------  -------------- -------------  ------------- 
       Net increase (decrease) in 
        cash.................................     (176,730)      (321,309)       680,105      7,727,876       598,609 
CASH AT BEGINNING OF PERIOD..................      529,732        353,002         39,163         39,163       719,268 
                                              ------------- -------------  -------------- -------------  ------------- 
CASH AT END OF PERIOD........................  $   353,002    $    31,693    $   719,268    $ 7,767,039   $ 1,317,877 
                                              ============= =============  ============== =============  ============= 
Supplemental disclosure of cash flow 
 information: 
Cash paid during the period for interest ....  $   216,228    $   602,100    $   503,768    $   449,106   $    49,751 
                                              ============= =============  ============== =============  ============= 
Cash paid during the period for income 
 taxes.......................................  $    --        $ 2,017,092    $ 4,350,000    $   500,000   $    -- 
                                              ============= =============  ============== =============  ============= 

</TABLE>

               See accompanying notes to financial statements. 

                                     F-28
<PAGE>
                        GREAT WESTERN DIRECTORIES, INC.
                         NOTES TO FINANCIAL STATEMENTS
                  January 31, 1995 and 1996, December 31, 1996
                  and September 30, 1996 and 1997 (Unaudited)

(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 

Nature Of Operations And General 

   Great Western Directories, Inc. (the Company) is an independent telephone 
directory publisher that publishes telephone directories in Texas, Oklahoma 
and California. Revenues are primarily derived from the sale of advertising 
space in the telephone directories. During 1996, the Company changed its 
fiscal year from January 31 to December 31. However, the year ended rather 
than the eleven months ended December 31, 1996 is presented in the statement 
of operations and the statement of cash flows for comparative purposes. As 
discussed in note 3, the Company changed from a Subchapter C Corporation for 
income tax purposes to a Subchapter S Corporation effective January 1, 1997. 

Interim Financial Information 

   The interim financial statements for the nine months ended September 30, 
1996 and 1997, are unaudited. These interim financial statements have been 
prepared on the same basis as the annual financial statements included 
herewith. In the opinion of management, all adjustments, consisting only of 
normal recurring adjustments, necessary to fairly present the balance sheets, 
results of operations and cash flows with respect to the interim financial 
statements, have been included. The results of operations for the interim 
period are not necessarily indicative of the results for the entire fiscal 
year. 

Allowance For Doubtful Accounts 

   The Company maintains an allowance for doubtful accounts based on 
management's estimate of the collectibility of all accounts receivable. The 
allowance for doubtful accounts is established through a provision for 
doubtful accounts charged to expense. Accounts receivable are charged against 
the allowance when management believes that the collectibility of the 
receivable is unlikely. Recoveries of amounts previously charged off are 
credited to the allowance. The Company's accounts receivable are unsecured. 
The allowance is subjective in nature and may be adjusted due to changes in 
economic conditions. 

Property And Equipment 

   Property and equipment are stated at cost, less accumulated depreciation. 
Depreciation is computed on accelerated methods over the estimated useful 
lives of the assets, which range from 3 to 31 years. 

Income Taxes 

   Deferred tax assets and liabilities are recognized for the future tax 
consequences attributable to differences between the financial statement 
carrying amounts of existing assets and liabilities and their respective tax 
bases. Deferred tax assets and liabilities are measured using enacted tax 
rates expected to apply to taxable income in the years in which those 
temporary differences are expected to be recovered or settled. The effect on 
deferred tax assets and liabilities of a change in tax rates is recognized in 
income in the period that includes the enactment date. 

   As discussed in note 3, the Company changed to a Subchapter S Corporation 
effective January 1, 1997. The income or loss of a Subchapter S Corporation 
is includable in the federal income tax returns of the individual 
shareholders. 

Fair Value Of Financial Instruments 

   Fair value estimates are made at discrete points in time based on relevant 
market information. These estimates may be subjective in nature and involve 
uncertainties and matters of significant judgment, and therefore cannot be 
deteremined with precision. 

                                      F-29
<PAGE>
                        GREAT WESTERN DIRECTORIES, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

    The Company believes that the carrying amounts of its current assets and 
current liabilities approximate the fair value of such items due to their 
short-term nature. 

Revenue And Cost Recognition 

   Advertising revenues are derived from the sale of advertising space in 
telephone directories and are recognized on the date that the directory is 
published and delivered. If the estimate of total directory costs exceeds 
advertising revenues for a specific telephone directory, a provision is made 
for the entire amount of such estimated loss. No provision for estimated 
losses was included in the financial statements for the years ended January 
31, 1995 and 1996 or December 31, 1996. 

   Directory costs are deferred until the date that the directory is 
published and delivered. Directory costs include all direct costs related to 
the publishing of a telephone directory, such as publishing and distribution 
expenses and commissions on sales, other sales expenses and depreciation and 
amortization. General and administrative costs are charged to expense as 
incurred. 

   Costs incurred with the expansion into new markets include all direct 
costs related to the publishing of a first-year telephone directory 
(prototype directory). Advertising space in prototype directories is 
generally provided to advertisers at no cost; therefore, no advertising 
revenues are derived from prototype directories. As the future economical 
benefit of the direct costs related to prototype directories cannot be 
determined, such direct costs are charged to expense as incurred. The Company 
had three prototype directories for the year ended January 31, 1995. Direct 
costs related to the prototype directories charged to expense totaled 
$4,316,000 for the year ended January 31, 1995. The Company had no prototype 
directories for the years ended January 31, 1996 or December 31, 1996. 

Nonmonetary Transactions 

   The Company trades advertising space for goods and services used primarily 
for promotional, sales and other business activities. Barter revenue is 
recorded when directories are published and barter expense is recorded when 
goods and services are received or used. Barter transactions are recorded at 
their estimated fair value and are included in the accompanying statements of 
operations. Barter revenue aggregated approximately $1,507,000, $1,598,000, 
$2,155,000, $1,531,000 (unaudited) and $1,555,000 (unaudited) and barter 
expense aggregated approximately $1,042,000, $1,459,000, $1,547,000, 
$1,902,000 (unaudited) and $1,224,000 (unaudited) for the years ended January 
31, 1995 and 1996, December 31, 1996 and the nine months ended September 30, 
1996 and 1997, respectively. 

Net Income Per Share 

   Net income per share is computed using the weighted average number of 
shares outstanding during the period of computation. The weighted average 
shares outstanding were 1,250 for the years ended January 31, 1995 and 1996 
and December 31, 1996 and the nine months ended September 30, 1996 and 1997 
(unaudited). 

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. Actual results could differ from those estimates. 

(2) DEBT OBLIGATIONS 

Note Payable To Bank 

   The note payable to bank was a $2,500,000 line of credit with outstanding 
advances of $2,100,000 at January 31, 1996. At December 31, 1996, the Company 
had a $2,000,000 line of credit with a bank with 

                                      F-30
<PAGE>
                        GREAT WESTERN DIRECTORIES, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

no outstanding advances. The line of credit bears interest at prime, which 
was 8.50% at January 31, 1996 and 8.25% at December 31, 1996. The line is 
collateralized by accounts receivable and may be used for general corporate 
working capital and other purposes as approved by the bank. 

Long-Term Debt 

   Long-term debt at January 31, 1996 and December 31, 1996 consisted of the 
following: 

<TABLE>
<CAPTION>
                                                                     JANUARY 31,    DECEMBER 31, 
                                                                         1996           1996 
                                                                    ------------- -------------- 
<S>                                                                 <C>           <C> 
Term note payable to bank, due in monthly installments of $204,000 
 including interest at prime (8.5% and 8.25% at January 31, 1996 
 and December 31, 1996, respectively) through July 1997, secured 
 by accounts receivable............................................  $ 5,495,930    $ 1,849,309 
Term note payable to bank, due in monthly installments of $4,133 
 including interest at 1% over prime (9.5% at January 31, 1996), 
 secured by certain property.......................................      144,861         -- 
                                                                    ------------- -------------- 
Total long-term debt...............................................    5,640,791      1,849,309 
Less current maturities............................................   (2,109,740)    (1,849,309) 
                                                                    ------------- -------------- 
Long-term debt, less current maturities............................  $ 3,531,051    $    -- 
                                                                    ============= ============== 

</TABLE>

   The Company has a letter agreement with a bank relating to a line of 
credit and the term note payable. The agreement includes provisions which, 
among other things, require the maintenance of specified financial ratios and 
other debt covenants. Further, the agreement imposes certain restrictions 
with respect to new market expansion, dividend distributions and contributions 
to the profit sharing plan. At December 31, 1996, the Company was not in 
compliance with certain debt covenants requirements and obtained a waiver of 
these covenants through July 31, 1997. The Company paid all debt obligations 
on June 15, 1997. 

(3) INCOME TAXES 

   The sources of deferred tax assets and the tax effect of each as of 
January 31, 1996 and December 31, 1996 are as follows: 

<TABLE>
<CAPTION>
                                    JANUARY 31,    DECEMBER 31, 
                                        1996           1996 
                                   ------------- -------------- 
<S>                                <C>           <C>
Deferred tax assets-- 
  Allowance for doubtful 
 accounts.........................   $1,085,748     $1,627,821 
                                   ------------- -------------- 
    Total deferred tax assets ....    1,085,748      1,627,821 
                                   ============= ============== 
</TABLE>

                                      F-31
<PAGE>
                        GREAT WESTERN DIRECTORIES, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

    The provision for income taxes for the years ended January 31, 1995 and 
1996 and December 31, 1996 consists of the following components: 

<TABLE>
<CAPTION>
                                    JANUARY 31,    JANUARY 31,   DECEMBER 31, 
                                        1995          1996           1996 
                                   ------------- -------------  -------------- 
<S>                                <C>           <C>            <C>
Federal: 
  Current.........................   $ 480,662     $1,262,087     $5,057,155 
  Deferred........................    (298,468)       (68,045)      (542,074) 
State.............................      63,303        113,248        779,515 
                                   ------------- -------------  -------------- 
Total provision for income taxes     $ 245,497     $1,307,290     $5,294,596 
                                   ============= =============  ============== 
</TABLE>

   A reconciliation of the provision for income taxes for the years ended 
January 31, 1995 and 1996 and December 31, 1996 at the statutory federal tax 
rate to the Company's actual provision for income taxes is as follows: 

<TABLE>
<CAPTION>
                                              JANUARY 31,    JANUARY 31,   DECEMBER 31, 
                                                  1995          1996           1996 
                                             ------------- -------------  -------------- 
<S>                                          <C>           <C>            <C>
Computed "expected" tax expense.............    $168,311     $1,216,977     $4,756,968 
Nondeductible expenses......................      36,039         16,702         30,943 
State income taxes, net of federal 
 benefits...................................      41,147         73,611        506,685 
                                             ------------- -------------  -------------- 
Total provision for income taxes............    $245,497     $1,307,290     $5,294,596 
                                             ============= =============  ============== 
</TABLE>

   Prior to January 1, 1997, the Company had been a Subchapter C Corporation 
for income tax purposes, and therefore paid U.S. Federal income taxes. On 
March 15, 1997, the Company filed an election to become a nontaxable 
Subchapter S Corporation effective January 1, 1997. The effect of the change 
in tax status on the net deferred tax asset and corresponding charge to 
income tax expense of approximately $1,600,000 was recognized in the 
September 30, 1997 financial statements. 

(4) LEASES 

   The Company leases certain property and equipment under leases classified 
as operating leases that expire over the next five years. Rental expense for 
all operating leases totaled approximately $400,000, $462,000, $472,000, 
$365,000 (unaudited) and $434,000 (unaudited) for the years ended January 31, 
1995 and 1996, December 31, 1996 and the nine months ended September 31, 1997 
and 1996, respectively. For the five fiscal years subsequent to December 31, 
1996, future minimum lease payments under noncancelable operating leases 
total $1,029,000 and are approximately $318,000, $282,000, $225,000, $143,000 
(unaudited) and $61,000, (unaudited) respectively. 

(5) RELATED PARTY TRANSACTIONS 

   Transactions with related parties include certain publishing and 
distribution services with shareholders and entities in which they have an 
interest. Purchases of services from these related parties for the years 
ended January 31, 1995 and 1996, December 31, 1996 and the nine months ended 
September 30, 1996 and 1997 were approximately, $653,000, $1,275,000, 
$1,893,000, $968,000 and $1,024,000, respectively. Amounts payable to related 
parties at January 31, 1996, December 31, 1996 and September 30, 1997 were 
approximately $270,000, $483,000 and $172,000, respectively. 

   Notes receivable from shareholders at January 31, 1996 and December 31, 
1996 included notes totaling approximately $405,000 and $360,000, 
respectively, which are included in other current assets and represent 
advances to related parties. The notes bear interest at 8% and are secured by 
personal property. 

                                      F-32
<PAGE>
                        GREAT WESTERN DIRECTORIES, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Interest income recognized on related-party notes receivable was not 
significant for the years ended January 31, 1995 and 1996 and December 31, 
1996. The notes were repaid on June 15, 1997. 

(6) PROFIT SHARING PLAN 

   The Company formed a self-employed profit sharing plan in the year ended 
January 31, 1996 that provides certain retirement, disability, death and 
termination benefits for eligible employees. The Plan contains a 401(k) 
arrangement whereby each participant may elect to contribute a portion of 
their salary to the Plan. Each Plan year, the Company may contribute an 
amount of matching contributions determined at the Company's discretion. Such 
matching contributions are allocated to participants based on the Plan's 
provisions. Discretionary Company contributions may also be made. Participant 
after-tax contributions are not allowed. The provision for the Company's 
matching contributions for the years ended January 31, 1996, December 31, 
1996 and the nine months ended September 30, 1997 was approximately $40,000, 
$53,000 and $103,000, respectively. No discretionary profit sharing 
contributions were made to the Plan for the years ended January 31, 1996 or 
December 31, 1996. 

(7) LITIGATION 

   During 1996, the Company settled its lawsuit against a utility 
telephone-directory publisher related to, among other things, certain 
antitrust violations. Under the terms of the settlement, the Company received 
approximately $6,282,000 in cash, net of related expenses, and such amount is 
reflected in other income for the year ended December 31, 1996. 

   At December 31, 1996, the Company was the defendant in a class action 
lawsuit filed in Sonoma County, California, alleging, among other things, 
breach of contract. Subsequent to December 31, 1996, the lawsuit was settled. 
Pending expected court approval, the Company will make approximately $479,000 
in refunds and credits to various advertisers, and such amount has been 
recognized in the accompanying December 31, 1996 financial statements. 

   The Company has been involved in various other claims and legal actions 
arising in the ordinary course of business. In the opinion of management, the 
ultimate disposition of these matters will not have a material adverse effect 
on the company's financial condition, liquidity or results of operations. 

(8) SUBSEQUENT EVENT 

   The Company's shareholders have entered into a stock purchase agreement to 
sell all of the issued and outstanding common stock of the Company for a 
total consideration consisting of $55,000,000 in cash, a $15,000,000 
promissory note, shares of common stock of the purchaser, and nontransferable 
common stock warrants of the purchaser. The purchase of the Company's stock 
is generally contingent upon the successful completion of an initial public 
offering by the purchaser. 

                                      F-33
<PAGE>
                          INDEPENDENT AUDITOR'S REPORT

To the Stockholders 
Valu-Line of Longview, Inc. 
Longview, Texas 

   We have audited the accompanying combined balance sheets of Valu-Line of 
Longview, Inc. and Related Companies as of December 31, 1995 and 1996, and 
the related combined statements of income, stockholders' equity and cash 
flows for each of the three years in the period ended December 31, 1996. 
These combined financial statements are the responsibility of the Company's 
management. Our responsibility is to express an opinion on these combined 
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 audits 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 combined financial statements referred to above 
present fairly, in all material respects, the combined financial position of 
Valu-Line of Longview, Inc. and Related Companies as of December 31, 1995 and 
1996, and the results of their operations and their cash flows for each of 
the three years in the period ended December 31, 1996, in conformity with 
generally accepted accounting principles. 

HEIN + ASSOCIATES LLP 

Houston, Texas 
May 23, 1997 

                                      F-34
<PAGE>
               VALU-LINE OF LONGVIEW, INC. AND RELATED COMPANIES
                            COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,          
                                                           -------------------------   SEPTEMBER 30, 
                                                               1995          1996          1997
                                                           ------------ ------------  --------------- 
                                                                                        (UNAUDITED) 
<S>                                                        <C>          <C>           <C>
                          ASSETS 
CURRENT ASSETS: 
  Cash....................................................  $  281,703    $  289,612     $  312,890 
  Receivables, net........................................     986,344     1,021,102      1,389,947 
  Prepaid expenses........................................       4,508         8,624          4,113 
                                                           ------------ ------------  --------------- 
    Total current assets..................................   1,272,555     1,319,338      1,706,950 
PROPERTY AND EQUIPMENT, net...............................   2,341,596     1,650,497      1,226,289 
OTHER NONCURRENT ASSETS...................................       7,561         6,615          6,552 
                                                           ------------ ------------  --------------- 
    Total assets..........................................  $3,621,712    $2,976,450     $2,939,791 
                                                           ============ ============  =============== 
LIABILITIES AND STOCKHOLDERS' EQUITY 
CURRENT LIABILITIES: 
  Notes payable, including current portion of long-term 
   debt...................................................  $  413,741    $  384,543     $  423,910 
  Current portion of capital lease obligation.............     170,297        --                 -- 
  Accounts payable and accrued line costs.................     709,259       743,572        748,567 
  Accrued payroll and related taxes.......................      53,330        65,053         55,964 
  Sales, property excise and franchise taxes payable .....     124,378       149,262        158,682 
  Customer deposits.......................................      12,312        11,162          9,562 
                                                           ------------ ------------  --------------- 
    Total current liabilities.............................   1,483,317     1,353,592      1,396,685 
NOTES PAYABLE, net of current portion.....................   1,698,486     1,357,011      1,082,392 
                                                           ------------ ------------  --------------- 
    Total liabilities.....................................   3,181,803     2,710,603      2,479,077 
COMMITMENTS AND CONTINGENCIES (Note 5) 
STOCKHOLDERS' EQUITY: 
  Common stock, no par value; 102,000 shares authorized; 
   3,000 shares issued and outstanding....................       3,000         3,000          3,000 
  Retained earnings.......................................     436,909       262,847        457,714 
                                                           ------------ ------------  --------------- 
    Total stockholders' equity............................     439,909       265,847        460,714 
                                                           ------------ ------------  --------------- 
    Total liabilities and stockholders' equity ...........  $3,621,712    $2,976,450     $2,939,791 
                                                           ============ ============  =============== 
</TABLE>

        See accompanying notes to these combined financial statements. 

                                      F-35
<PAGE>
               VALU-LINE OF LONGVIEW, INC. AND RELATED COMPANIES
                         COMBINED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                                NINE MONTHS ENDED 
                                          YEAR ENDED DECEMBER 31,                 SEPTEMBER 30, 
                                ------------------------------------------ -------------------------- 
                                     1994          1995           1996          1996         1997 
                                ------------- -------------  ------------- ------------  ------------ 
                                                                                   (UNAUDITED) 
<S>                             <C>           <C>            <C>           <C>           <C>
REVENUES.......................  $13,416,673    $13,330,346   $11,181,125    $8,623,340   $9,058,467 
OPERATING EXPENSES: 
  Line and other direct costs .    6,774,963      7,491,433     6,036,439     4,592,903    5,070,031 
  Selling, general and 
   administrative..............    3,724,582      3,898,106     3,571,468     2,658,506    2,875,098 
  Depreciation and 
   amortization................      399,050        717,631       819,315       615,519      398,548 
                                ------------- -------------  ------------- ------------  ------------ 
    Total operating expenses ..   10,898,595     12,107,170    10,427,222     7,866,928    8,343,677 
                                ------------- -------------  ------------- ------------  ------------ 
    Income from operations ....    2,518,078      1,223,176       753,903       756,412      714,790 
OTHER INCOME (EXPENSE): 
  Interest expense.............      (67,906)       (81,579)     (185,777)     (148,001)    (103,491) 
  Interest income and other, 
   net.........................       29,943         93,287        72,812        58,659       63,568 
                                ------------- -------------  ------------- ------------  ------------ 
    Net income.................  $ 2,480,115    $ 1,234,884   $   640,938    $  667,070   $  674,867 
                                ============= =============  ============= ============  ============ 
</TABLE>

          See accompanying notes to these combined financial statements. 

                                      F-36
<PAGE>
                VALU-LINE OF LONGVIEW INC. AND RELATED COMPANIES
                  COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
               Period from January 1, 1994 to September 30, 1997

<TABLE>
<CAPTION>
                                               COMMON STOCK        
                                            ------------------    RETAINED 
                                             SHARES    AMOUNT     EARNINGS        TOTAL 
                                            -------- --------  ------------- -------------
<S>                                         <C>      <C>       <C>           <C>
BALANCES, January 1, 1994..................   3,000    $3,000   $   402,910    $   405,910 
  Net income...............................     --       --       2,480,115      2,480,115 
  Distributions to stockholders............     --       --      (2,356,000)    (2,356,000) 
                                            -------- --------  ------------- ------------- 
BALANCES, December 31, 1994................   3,000     3,000       527,025        530,025 
  Net income...............................     --       --       1,234,884      1,234,884 
  Distributions to stockholders............     --       --      (1,325,000)    (1,325,000) 
                                            -------- --------  ------------- ------------- 
BALANCES, December 31, 1995................   3,000     3,000       436,909        439,909 
  Net income...............................     --       --         640,938        640,938 
  Distributions to stockholders............     --       --        (815,000)      (815,000) 
                                            -------- --------  ------------- ------------- 
BALANCES, December 31, 1996................   3,000     3,000       262,847        265,847 
  Net income (unaudited) ..................      --        --       674,867        674,867 
  Distributions to stockholders 
   (unaudited) ............................      --        --      (480,000)      (480,000) 
                                            -------- --------  ------------- ------------- 
BALANCES, September 30, 1997 (unaudited)  .   3,000    $3,000   $   457,714    $   460,714 
                                            ======== ========  ============= ============= 
</TABLE>

        See accompanying notes to these combined financial statements. 

                                      F-37
<PAGE>
               VALU-LINE OF LONGVIEW, INC. AND RELATED COMPANIES
                       COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                 NINE MONTHS ENDED 
                                           YEAR ENDED DECEMBER 31,                 SEPTEMBER 30, 
                                 ------------------------------------------ -------------------------- 
                                      1994          1995           1996          1996          1997 
                                 ------------- -------------  ------------- -------------  ----------- 
                                                                                    (UNAUDITED) 
<S>                              <C>          <C>             <C>          <C>             <C>  
CASH FLOWS FROM OPERATING 
 ACTIVITIES: 
 Net income.....................  $ 2,480,115    $ 1,234,884   $   640,938    $   667,070   $ 674,867 
 Adjustments to reconcile net 
  income to net cash provided 
  by operating activities: 
  Depreciation and 
   amortization.................      399,050        717,631       819,315        615,519     398,548 
  (Increase) decrease in: 
   Receivables..................     (139,187)       281,235       (34,758)      (128,138)   (368,845) 
   Prepaid expenses and other 
    assets......................        8,569         19,806        (3,170)         5,408       4,574 
  Increase (decrease) in: 
   Accounts payable and accrued 
    line costs..................       60,708         53,696        34,313         27,826       4,995 
   Other current liabilities ...       51,647        (71,602)       35,457         61,303      (1,269) 
                                 ------------- -------------  ------------- -------------  ----------- 
   Net cash provided by 
    operations..................    2,860,902      2,235,650     1,492,095      1,248,988     712,870 
CASH FLOWS FROM INVESTING 
 ACTIVITIES: 
 Capital expenditures...........      (95,124)    (2,375,964)     (134,651)      (133,042)    (55,913) 
 Other, net.....................        3,016         15,523         6,435            234      81,573 
                                 ------------- -------------  ------------- -------------  ----------- 
   Net cash provided by (used 
    in) investing activities ...      (92,108)    (2,360,441)     (128,216)      (132,808)     25,660 
CASH FLOWS FROM FINANCING 
 ACTIVITIES: 
 Principal payments on 
  long-term debt, capital 
  leases and other notes 
  payable.......................     (494,734)      (519,209)     (581,123)      (477,231)   (354,231) 
 Proceeds from long-term debt 
  and other notes payable.......      124,890      2,112,950        40,153         40,154     118,979 
 Distributions to stockholders .   (2,356,000)    (1,325,000)     (815,000)      (700,000)   (480,000) 
                                 ------------- -------------  ------------- -------------  ----------- 
   Net cash provided by (used 
    in) financing activities ...   (2,725,844)       268,741    (1,355,970)    (1,137,077)   (715,252) 
                                 ------------- -------------  ------------- -------------  ----------- 
NET INCREASE (DECREASE) IN 
 CASH...........................       42,950        143,950         7,909        (20,897)     23,278 
CASH, beginning of period ......       94,803        137,753       281,703        281,703     289,612 
                                 ------------- -------------  ------------- -------------  ----------- 
CASH, end of period.............  $   137,753    $   281,703   $   289,612    $   260,806   $ 312,890 
                                 ============= =============  ============= =============  =========== 
SUPPLEMENTAL DISCLOSURES: 
 Interest paid..................  $    67,906    $    81,579   $   185,777    $   148,001   $ 103,491 
 Equipment acquired under 
  capital leases................  $    --        $   238,683   $    --        $    --       $   -- 
                                 ============= =============  ============= =============  =========== 

</TABLE>

        See accompanying notes to these combined financial statements. 

                                      F-38
<PAGE>
               VALU-LINE OF LONGVIEW, INC. AND RELATED COMPANIES
                     NOTES TO COMBINED FINANCIAL STATEMENTS

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES: 

   Organization -- Valu-Line of Longview, Inc. and Related Companies provide 
long distance or "interexchange" services primarily to commercial and 
residential customers located in Texas and Arkansas. 

   Principles of Combination -- The accompanying financial statements include 
the combined accounts of Valu-Line of Longview, Inc., Valu-Line of Louisiana, 
Inc. and Shared Tenant Services, Inc., which are each owned proportionately 
by the same stockholders. All significant intercompany transactions have been 
eliminated. Collectively, the entities are referred to as "the Company". 

   Receivables -- Revenue is recognized as service is rendered. Receivables 
include billed and unbilled amounts that are due from customers according to 
contractual terms. 

   Property and Equipment -- Property and equipment is stated at cost, net of 
accumulated depreciation and amortization. Maintenance and repairs are 
expensed as incurred. Depreciation is calculated using various accelerated 
methods over the estimated useful lives of the related assets which range 
from 5 to 7 years. Leasehold improvements are amortized over the life of the 
lease. Equipment under capital leases is recorded at the present value of 
minimum lease payments at the inception of the lease and amortized over the 
shorter of the lease term or estimated useful life of the asset. Amortization 
of equipment held under capital leases is included in depreciation and 
amortization expense. Expenditures to acquire dialers are expensed as 
incurred. 

   Income Taxes -- The Company has elected to be taxed under the provisions 
of Subchapter S of the Internal Revenue Code. Under such provisions the 
Company does not pay federal corporate income taxes on its taxable income. 
The stockholders, therefore, are liable for individual income taxes on the 
Company's taxable income. 

   Concentrations of Credit Risk -- The Company's financial instruments that 
are exposed to concentrations of credit risk consist primarily of cash 
investments and trade accounts receivable. The Company places its cash and 
temporary cash investments with high credit quality banking institutions. At 
times such investments may be in excess of the FDIC insurance limit. 
Management does not anticipate any losses will arise from this exposure. 

   Use of Estimates -- The preparation of the Company's financial statements 
in conformity with generally accepted accounting principles requires the 
Company's management to make estimates and assumptions that affect the 
amounts reported in these financial statements and the accompanying results. 
Actual results could differ from these estimates. 

   Fair Value of Financial Instruments -- The Company's only financial 
instruments are cash, short-term trade receivables and payables, notes 
payable and capital lease obligations. Management believes the carrying 
amounts of the financial instruments classified as current assets and 
liabilities approximate their fair values because of their short-term nature. 
Management believes the interest rates on its notes payable and capital lease 
obligations represent fair market rates, and therefore their carrying value 
approximates fair value. 

   Cash Equivalents -- For purposes of reporting cash flows, cash equivalents 
include highly-liquid investments purchased with a maturity of three months 
or less. 

   Recent Accounting Pronouncements -- The Financial Accounting Standards 
Board (FASB) issued SFAS No. 121, Accounting for the Impairment of Long-Lived 
Assets And For Long-Lived Assets To Be Disposed of, which is effective for 
fiscal years beginning after December 15, 1995. SFAS No. 121 specifies 
certain events and circumstances which indicate the cost of an asset or 
assets may be impaired, the method by which the evaluation should be 
performed, and the method by which writedowns, if any, of the asset or assets 
are to be determined and recognized. The adoption of this pronouncement in 
1996 did not have a material impact on the Company's financial condition or 
operating results. 

                                      F-39
<PAGE>
               VALU-LINE OF LONGVIEW, INC. AND RELATED COMPANIES
             NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

    The FASB issued SFAS No. 123, Accounting for Stock Based Compensation, 
effective for fiscal years beginning after December 31, 1995. This statement 
allows companies to choose to adopt the statement's new rules for accounting 
for employee stock-based compensation plans. For those companies who choose 
not to adopt the new rules, the statement requires disclosures as to what 
earnings per share would have been if the new rules had been adopted. The 
Company did not grant stock options or any other form of stock-based 
compensation during any of the periods included in the accompanying financial 
statements. 

   The FASB issued Statement of Financial Accounting Standards No. 128, 
Earnings Per Share, during February 1997. The new statement which is 
effective for financial statements issued after December 31, 1997, including 
interim periods, establishes standards for computing and presenting earnings 
per share. The new statement requires retroactive restatement of all 
prior-period earnings per share data presented. 

   The FASB issued SFAS No. 130, Reporting Comprehensive Income and SFAS No. 
131, Disclosures About Segments of an Enterprise and Related Information. 
SFAS No. 130 establishes standards for reporting and display of comprehensive 
income, its components and accumulated balances. Comprehensive income is 
defined to include all changes in equity except those resulting from 
investments by owners and distributions to owners. Among other disclosures, 
SFAS No. 130 requires that all items that are required to be recognized under 
current accounting standards as components of comprehensive income be 
reported in a financial statement that displays with the same prominence as 
other financial statements. SFAS No. 131 supersedes SFAS No. 14, Financial 
Reporting for Segments of a Business Enterprise. SFAS No. 131 establishes 
standards on the way that public companies report financial information about 
operating segments in annual financial statements and requires reporting of 
selected information about operating segments in interim financial statements 
issued to the public. It also establishes standards for disclosures regarding 
products and services, geographic areas and major customers. SFAS No. 131 
defines operating segments as components of a company about which separate 
financial information is available that is evaluated regularly by the chief 
operating decision maker in deciding how to allocate resources and in 
assessing performance. 

   SFAS Nos. 130 and 131 are effective for financial statements for periods 
beginning after December 15, 1997 and require comparative information for 
earlier years to be restated. Because of the recent issuance of these 
standards, management has been unable to fully evaluate the impact, if any, 
the standards may have on the future financial statement disclosures. Results 
of operations and financial position, however, will be unaffected by 
implementation of these standards. 

   Unaudited Interim Information -- The accompanying financial information as 
of September 30, 1997 and for the nine-month periods ended September 30, 1996 
and 1997 has been prepared by the Company without audit, pursuant to the 
rules and regulations of the Securities and Exchange Commission. The 
financial statements reflect all adjustments, consisting of normal recurring 
accruals which are, in the opinion of management, necessary to fairly present 
such information in accordance with generally accepted accounting principles. 

                                      F-40
<PAGE>
               VALU-LINE OF LONGVIEW, INC. AND RELATED COMPANIES
             NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

 2. RECEIVABLES: 

   Receivables consisted of the following: 

<TABLE>
<CAPTION>
                                       DECEMBER 31,          
                                 -------------------------  SEPTEMBER 30, 
                                     1995         1996          1997
                                 ----------- ------------  ---------------
                                                             (UNAUDITED) 
<S>                              <C>         <C>           <C>
Trade receivables: 
  Billed........................  $  805,569   $  785,457     $1,078,094 
  Unbilled......................     205,775      260,645        336,853 
                                 ----------- ------------  --------------- 
                                   1,011,344    1,046,102      1,414,947 
Allowance for doubtful 
 accounts.......................     (25,000)     (25,000)       (25,000) 
                                 ----------- ------------  --------------- 
                                  $  986,344   $1,021,102     $1,389,947 
                                 =========== ============  =============== 
</TABLE>

3. PROPERTY AND EQUIPMENT: 

   Property and equipment consisted of the following: 

<TABLE>
<CAPTION>
                                           DECEMBER 31,          
                                   ----------------------------  SEPTEMBER 30, 
                                        1995          1996           1997
                                   ------------- -------------  ---------------
                                                                  (UNAUDITED) 
<S>                                <C>           <C>            <C>
Land..............................  $    50,622    $    50,622    $    38,422 
Building..........................      350,605        350,605        350,605 
Switch and network equipment .....    3,396,746      3,349,534      3,343,083 
Vehicles..........................      229,773        201,121        186,649 
Computer equipment................      208,694        229,759        174,660 
Furniture and fixtures............       45,603         46,365         46,365 
Leasehold improvements............       26,607         26,607         26,607 
                                   ------------- -------------  --------------- 
                                      4,308,650      4,254,613      4,166,391 
Less accumulated depreciation and 
 amortization.....................   (1,967,054)    (2,604,116)    (2,940,102) 
                                   ------------- -------------  --------------- 

                                    $ 2,341,596    $ 1,650,497    $ 1,226,289 
                                   ============= =============  =============== 
</TABLE>

                                      F-41
<PAGE>
               VALU-LINE OF LONGVIEW, INC. AND RELATED COMPANIES
             NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

 4. NOTES PAYABLE: 

   Notes payable consisted of the following: 

<TABLE>
<CAPTION>
                                                       DECEMBER 31,          
                                                --------------------------  SEPTEMBER 30, 
                                                    1995          1996          1997
                                                ------------ -------------  --------------
                                                                             (UNAUDITED) 
<S>                                             <C>          <C>           <C>
Notes payable to a bank due in monthly 
 installments ranging from $324 to $926, 
 including interest ranging from 8.25% to 9.0% 
 and maturing at various times through 1999. 
 The notes are collateralized by a switch and 
 network equipment, computer equipment and 
 vehicles......................................  $   98,694    $   49,128     $   82,694 
Notes payable to a bank due in monthly 
 installments of $3,456 and $3,970, including 
 interest at 8.25% and prime, not to exceed 
 12% (8.75% at September 30, 1997) and 
 maturing August 2005 and October 1998, 
 respectively. The notes are collateralized by 
 land and buildings............................     388,533       330,826        284,270 
Note payable to a bank due in monthly 
 installments of $33,536, including interest 
 at prime, not to exceed 12% (8.5% at 
 September 30, 1997) with a balloon payment on 
 December 28, 1998. The note is collateralized 
 by certain switch and network equipment ......   1,625,000     1,361,600      1,139,338 
                                                ------------ ------------  --------------- 
                                                  2,112,227     1,741,554      1,506,302 
Less current portion...........................    (413,741)     (384,543)      (423,910) 
                                                ------------ ------------  --------------- 
                                                 $1,698,486    $1,357,011     $1,082,392 
                                                ============ ============  =============== 
</TABLE>

   Future maturities of notes payable as of December 31, 1996 are as follows: 

<TABLE>
<CAPTION>
 YEARS ENDING 
 DECEMBER 31,              AMOUNT 
- --------------          ----------- 
<S>                   <C>
  1997 ...............  $  384,543 
  1998 ...............   1,154,268 
  1999 ...............      25,400 
  2000 ...............      27,600 
  2001 ...............      30,000 
  Thereafter .........     119,743 
                        ----------- 
                        $1,741,554 
                        =========== 
</TABLE>

                                      F-42
<PAGE>
               VALU-LINE OF LONGVIEW, INC. AND RELATED COMPANIES
             NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

 5. COMMITMENTS AND CONTINGENCIES: 

   Commitments -- The Company was obligated under capital leases for switch 
equipment which expired at various dates through 1996. The carrying value of 
the leased equipment and related accumulated amortization included in 
property and equipment is as follows: 

<TABLE>
<CAPTION>
                                       DECEMBER 31,           
                               ----------------------------  SEPTEMBER 30, 
                                    1995          1996           1997
                               ------------- -------------  ---------------
                                                              (UNAUDITED) 
<S>                            <C>           <C>            <C>
Switch equipment..............  $ 1,244,803    $ 1,244,803    $ 1,244,803 
Less accumulated 
 amortization.................   (1,029,983)    (1,125,460)    (1,170,213) 
                               ------------- -------------  --------------- 
                                $   214,820    $   119,343    $    74,590 
                               ============= =============  =============== 
</TABLE>

   The Company leases office space and certain equipment under operating 
leases which expire on various dates through the year 2000. Several of the 
office leases require the Company to pay its portion of taxes, maintenance 
and insurance. Rent expense was $163,732, $175,273 and $102,010 for the years 
ended December 31, 1994, 1995 and 1996, respectively, and $60,387 and $70,213 
for the nine-month periods ended September 30, 1996 and 1997, respectively. 

   Future minimum lease payments under noncancelable operating leases with 
original terms in excess of one year are as follows: 

<TABLE>
<CAPTION>
 YEARS ENDING 
 DECEMBER 31,               AMOUNT 
- --------------            --------- 
<S>                       <C>
  1997 ..................  $ 63,584 
  1998 ..................    37,757 
  1999 ..................    29,757 
  2000 ..................    21,037 
                          --------- 
                           $152,135 
                          ========= 
</TABLE>

   Contingencies -- In early February 1998, the Company's was served with a 
petition by four plaintiffs (including the lawyer filing the suit) which 
alleged, among other things, that the Company's billed the plaintiffs for 
services never provided and intentionally "bumped up" the actual time of 
services used by plaintiffs in order to increase the Company's charges to 
them. The plaintiffs purported to bring the suit as a class action and 
alleged violations of the Texas Deceptive Trade Practices Act, fraud, breach 
of contract, negligence and gross negligence. They sought damages in an 
unspecified amount, further damages under the Deceptive Trade Practices Act 
(which could be as much as triple the actual damages), interest, attorney's 
fees and such other relief to which they may have been entitled. The petition 
contained no details with respect to the Company's alleged conduct. While the 
Company's management believe the Company's billing practices have and do 
conform generally to industry standards and FCC rate filings and that the 
plaintiffs' allegations are without merit, the Company, in order to avoid 
protracted litigation, entered into a settlement, a nominal portion of which 
will be paid by the Company, and an agreed confidential dismissal with 
prejudice, with the four named plaintiffs prior to the certification of the 
suit as a class action. The stockholders of the Company have agreed, 
severally, to indemnify the Company for a period of six months after the 
closing of the Offering against liabilities, costs and expenses, including 
legal fees, relating to similar claims which others may bring in the future. 
In order to fund this indemnity obligation, the former stockholders have 
deposited in escrow an aggregate of 71,428 shares of Common Stock, and their 
obligation is limited to the value of those shares. 

   The Company is involved in various other claims and legal actions arising 
in the ordinary course of business. In the opinion of management, the 
ultimate disposition of these matters will not have a material adverse effect 
on the Company's combined financial condition, liquidity or results of 
operations. 

                                      F-43
<PAGE>
               VALU-LINE OF LONGVIEW, INC. AND RELATED COMPANIES
             NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

    The Company has been providing intrastate long distance services to 
customers in Arkansas since 1992 without the requisite permit from the state 
utility commission. The Company has initiated steps to secure the requisite 
permit for such activities and no penalties have been assessed to date. While 
the Arkansas regulatory authorities have the power to require the forfeiture 
of the approximately $300,000 in revenues generated through September 30, 
1997 by the Company's unlicensed intrastate activities in Arkansas, the 
Company is endeavoring to negotiate a reduced penalty. 

6. STOCK PURCHASE AGREEMENT: 

   The Company entered into an agreement under which it will be sold to a 
Delaware corporation. The sale is subject to various terms and conditions as 
outlined in the agreement, including the requirement that the purchaser 
obtain additional equity capital. 

                                      F-44
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders 
Feist Long Distance Service, Inc.: 

   We have audited the accompanying balance sheet of Feist Long Distance 
Service, Inc. as of December 31, 1996, and the related statements of 
operations, stockholders' equity, and cash flows for the year then ended. 
These financial statements are the responsibility of the Company's 
management. Our responsibility is to express an opinion on these financial 
statements based on our audit. 

   We conducted our audit in accordance with 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 audit provides a 
reasonable basis for our opinion. 

   In our opinion, the financial statements referred to above present fairly, 
in all material respects, the financial position of Feist Long Distance 
Service, Inc. as of December 31, 1996, and the results of its operations and 
its cash flows for the year then ended in conformity with generally accepted 
accounting principles. 

KPMG PEAT MARWICK LLP 
Houston, Texas 
August 5, 1997 

                                      F-45
<PAGE>
                       FEIST LONG DISTANCE SERVICE, INC.
                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                      DECEMBER 31,    SEPTEMBER 30, 
                                                                          1996            1997 
                                                                     -------------- --------------- 
                                                                                       (UNAUDITED) 
<S>                                                                  <C>            <C>
                               ASSETS 
CURRENT ASSETS: 
  Cash and cash equivalents.........................................   $   21,565      $  149,151 
  Accounts receivable, net allowance for doubtful accounts of 
   $106,280 and $143,208, respectively..............................    1,190,307       1,625,436 
  Other current assets..............................................        7,545          22,903 
                                                                     -------------- --------------- 
    Total current assets............................................    1,219,417       1,797,490 
PROPERTY AND EQUIPMENT, net.........................................      370,043         370,420 
                                                                     -------------- --------------- 
    Total assets....................................................   $1,589,460      $2,167,910 
                                                                     ============== =============== 
                LIABILITIES AND STOCKHOLDERS' EQUITY 
CURRENT LIABILITIES: 
  Notes payable.....................................................   $   20,323      $   17,402 
  Accounts payable..................................................      647,555         940,429 
  Accrued expenses..................................................       72,045         167,035 
  Notes payable to shareholders.....................................      809,450         659,450 
                                                                     -------------- --------------- 
    Total current liabilities.......................................    1,549,373       1,784,316 
COMMITMENTS AND CONTINGENCIES 
STOCKHOLDERS' EQUITY: 
  Common stock, no par value; 10,000 shares authorized, issued and 
   outstanding......................................................      100,000         100,000 
  Additional paid-in capital........................................      938,500         938,500 
  Accumulated deficit...............................................     (998,413)       (654,906) 
                                                                     -------------- --------------- 
    Total stockholders' equity......................................       40,087         383,594 
                                                                     -------------- --------------- 
    Total liabilities and stockholders' equity......................   $1,589,460      $2,167,910 
                                                                     ============== =============== 
</TABLE>

               See accompanying notes to financial statements. 

                                      F-46
<PAGE>
                       FEIST LONG DISTANCE SERVICE, INC.
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                       NINE MONTHS ENDED
                                       YEAR ENDED         SEPTEMBER 30, 
                                      DECEMBER 31,  -------------------------- 
                                          1996          1996          1997                         
                                     -------------- ------------  ------------
                                                            (UNAUDITED) 
<S>                                  <C>            <C>           <C>
REVENUES............................   $10,027,743    $7,415,712   $8,964,581 
COST OF SERVICES....................     6,854,333     5,057,038    6,043,871 
DEPRECIATION........................       237,240       170,392      141,745 
                                     -------------- ------------  ------------ 
    Gross profit....................     2,936,170     2,188,282    2,778,965 
SELLING, GENERAL AND ADMINISTRATIVE 
 EXPENSES...........................     2,469,137     1,706,266    2,404,056 
                                     -------------- ------------  ------------ 
    Income from operations..........       467,033       482,016      374,909 
OTHER INCOME (EXPENSE): 
  Interest expense..................       (60,211)      (46,303)     (32,873) 
  Other.............................        (1,737)        1,251        1,471 
                                     -------------- ------------  ------------ 
NET INCOME..........................   $   405,085    $  436,964   $  343,507 
                                     ============== ============  ============ 
NET INCOME PER SHARE................   $     40.51    $    43.70   $    34.35 
                                     ============== ============  ============ 
</TABLE>

               See accompanying notes to financial statements. 

                                      F-47
<PAGE>
                       FEIST LONG DISTANCE SERVICE, INC.
                       STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                
                                  COMMON STOCK      ADDITIONAL                       TOTAL 
                              -------------------    PAID-IN      ACCUMULATED     STOCKHOLDERS' 
                               SHARES     AMOUNT     CAPITAL        DEFICIT          EQUITY
                              -------- ----------  ------------ --------------  --------------- 
<S>                           <C>      <C>         <C>          <C>             <C>
BALANCES, December 31, 1995 .  10,000    $100,000    $938,500     $(1,403,498)     $(364,998) 
  Net income.................    --         --          --            405,085        405,085 
                              -------- ----------  ------------ --------------  --------------- 
BALANCES, December 31, 1996 .  10,000    $100,000    $938,500        (998,413)        40,087 
  Net income (unaudited) ....    --         --          --            343,507        343,507 
                              -------- ----------  ------------ --------------  --------------- 
BALANCES, September 30, 1997 
 (unaudited).................  10,000    $100,000    $938,500     $  (654,906)     $ 383,594 
                              ======== ==========  ============ ==============  =============== 
</TABLE>

               See accompanying notes to financial statements. 

                                      F-48
<PAGE>
                       FEIST LONG DISTANCE SERVICE, INC.
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                      NINE MONTHS 
                                                                         ENDED
                                                 YEAR ENDED           SEPTEMBER 30, 
                                                  DECEMBER 31,  ------------------------ 
                                                      1996          1996        1997                
                                                 -------------- -----------  -----------
                                                                       (UNAUDITED) 
<S>                                              <C>            <C>          <C>   
CASH FLOWS FROM OPERATING ACTIVITIES: 
  Net income....................................    $ 405,085     $ 436,964   $ 343,507 
  Adjustments to reconcile net income to net 
   cash provided by operating activities: 
    Depreciation................................      237,240       170,392     141,745 
    Changes in assets and liabilities: 
      Accounts receivable, net..................     (169,468)     (273,745)   (435,129) 
      Other current assets......................       11,916         8,516     (15,358) 
      Accounts payable..........................     (199,626)     (222,788)    292,874 
      Accrued expenses..........................       (9,695)       63,175      94,990 
                                                 -------------- -----------  ----------- 
       Net cash provided by operating 
     activities.................................      275,452       182,514     422,629 
                                                 -------------- -----------  ----------- 
CASH FLOWS FROM INVESTING ACTIVITIES: 
  Purchases of property and equipment...........     (114,576)      (66,729)   (142,122) 
                                                 -------------- -----------  ----------- 
CASH FLOWS FROM FINANCING ACTIVITIES: 
  Repayments of notes payable...................     (180,906)     (123,299)   (152,921) 
  Proceeds from notes payable...................        --            --          -- 
                                                 -------------- -----------  ----------- 
       Net cash used in financing activities ...     (180,906)     (123,299)   (152,921) 
                                                 -------------- -----------  ----------- 
NET INCREASE (DECREASE) IN CASH AND CASH 
 EQUIVALENTS....................................      (20,030)       (7,514)    127,586 
CASH AND CASH EQUIVALENTS, beginning of period .       41,595        41,595      21,565 
                                                 -------------- -----------  ----------- 

CASH AND CASH EQUIVALENTS, end of period .......    $  21,565     $  34,081   $ 149,151 
                                                 ============== ===========  =========== 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW 
 INFORMATION: 
  Cash paid during the period for interest .....    $  60,313     $     --       $-- 
                                                 ============== ===========  =========== 
</TABLE>

               See accompanying notes to financial statements. 

                                      F-49
<PAGE>
                       FEIST LONG DISTANCE SERVICE, INC.
                         NOTES TO FINANCIAL STATEMENTS
              December 31, 1996 and September 30, 1997 (Unaudited)

(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 

 Description of Business 

   Feist Long Distance Service, Inc. (the Company) is headquartered in 
Wichita, Kansas and was founded in 1992 to provide long distance and 800 
services to business and residential customers in Kansas, Nebraska, Missouri, 
Texas and Oklahoma. 

 Interim Financial Information 

   The interim financial statements for the nine months ended September 30, 
1996 and 1997 are unaudited, and certain information and footnote 
disclosures, normally included in financial statements prepared in accordance 
with generally accepted accounting principles, have been omitted. In the 
opinion of management, all adjustments, consisting only of normal recurring 
adjustments, necessary to fairly present the financial position, results of 
operations and cash flows with respect to the interim financial statements, 
have been included. The results of operations for the interim periods are not 
necessarily indicative of the results for the entire fiscal year. 

 Cash Equivalents 

   Cash equivalents consist of short-term investments with an original 
maturity of three months or less. 

 Property and Equipment 

   Property and equipment are stated at cost. Depreciation is calculated 
using the double declining method over the estimated useful lives of the 
assets which range from 3 to 7 years. 

 Income Taxes 

   The Company has elected to be taxed under the provisions of Subchapter S 
of the Internal Revenue Code. Accordingly, no provision for federal income 
taxes has been provided for by the Company, as the shareholders of the 
Company have included the income on their personal income tax returns. 

 Fair Value of Financial Instruments 

   Fair value estimates are made at discrete points in time based on relevant 
market information. These estimates may be subjective in nature and involve 
uncertainties and matters of significant judgment, and therefore cannot be 
determined with precision. 

   The Company believes that the carrying amounts of its current assets and 
current liabilities approximate the fair value of such items due to their 
short-term nature. 

 Revenue Recognition 

   Revenues are recognized as long-distance services are provided. 

 Net Income Per Share 

   Net income per share is based on the weighted average number of shares of 
common stock outstanding during the respective periods. The weighted average 
shares outstanding were 10,000 for the year ended December 31, 1996 and for 
the nine months ended September 30, 1996 and 1997 (unaudited). 

 Use of Estimates 

   The preparation of the financial statements in conformity with generally 
accepted accounting principles requires management to make estimates and 
assumptions that affect reported amounts of assets and liabilities at the 
date of the financial statements and the reported amounts of revenue and 
expenses during the reporting period. Actual results could differ from those 
estimates. 

                                      F-50
<PAGE>
                       FEIST LONG DISTANCE SERVICE, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(2) PROPERTY AND EQUIPMENT 

   Property and equipment consists of the following: 

<TABLE>
<CAPTION>
                                DECEMBER 31,    SEPTEMBER 30,     ESTIMATED 
                                    1996            1997         USEFUL LIFE 
                               -------------- ---------------  --------------- 
<S>                            <C>            <C>              <C>
Machinery and equipment.......   $1,394,466      $1,510,818       3 to 5 years 
Office equipment..............       55,368          62,446            7 years 
Vehicles......................       31,900          50,592            5 years 
                               -------------- ---------------                  
                                  1,481,734       1,623,856 
Less accumulated 
 depreciation.................    1,111,691       1,253,436 
                               -------------- --------------- 
                                 $  370,043      $  370,420 
                               ============== =============== 
</TABLE>

(3) NOTES PAYABLE 

   At December 31, 1996 and September 30, 1997, the Company had notes payable 
totaling $809,450 and $659,450, respectively, outstanding to the Company's 
eight shareholders. The notes are payable on demand and accrue interest at 
5.75%. The Company paid $46,543 in interest expense on these notes payable 
for the year ended December 31, 1996. 

   At December 31, 1996, the Company also had a $16,996 note payable to an 
affiliate, Feist Publications, Inc. The note was payable on demand and 
accrued interest at 8.83%. The Company paid $3,141 in interest expense on 
this note payable for the year ended December 31, 1996. 

(4) RELATED PARTY TRANSACTION 

   The Company leases its office space through a sublease agreement with an 
affiliate, Feist Publications, Inc. Rental expense for the year ended 
December 31, 1996 and the nine months ended September 30, 1997 amounted to 
approximately $45,000 and $62,000, respectively, related to this lease. 

(5) DEPENDENCE ON LOCAL EXCHANGE CARRIER 

   The Company is dependent on local exchange carriers to provide access 
service for the origination and termination of its long distance traffic. 
Historically, these access charges have made up a significant percentage of 
the overall cost of providing long distance service. To the extent that the 
access services of the local exchange carriers are used, the Company and its 
customers are subject to the quality of service, equipment failures and 
service interruptions of the local exchange carriers. 

                                      F-51
<PAGE>
                       FEIST LONG DISTANCE SERVICE, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(6) COMMITMENTS AND CONTINGENCIES 

   The Company leases office space under long-term lease agreements. Future 
minimum rental payments under noncancelable long-term leases are as follows: 

<TABLE>
<CAPTION>
 FISCAL 
  YEAR               AMOUNT 
- --------           --------- 
<S>               <C>
1997 .............  $56,568 
1998..............   22,692 
1999..............    2,850 
                   --------- 
                    $82,110 
                   ========= 
</TABLE>

   Total rent expense under all operating leases for the year ended December 
31, 1996 and the nine months ended September 30, 1997 was $73,733 and 
$72,524, respectively. 

   The Company has been providing intrastate long distance services to 
customers in Missouri for the past 18 months without the requisite permit 
from the appropriate regulatory agency. The Company has initiated steps to 
secure the requisite permit for such activities and no penalties have been 
assessed to date, although the Missouri regulatory authorities have the power 
to require the forfeiture of the approximately $250,000 in revenues generated 
by the Company's unlicensed intrastate activities in that state. 

(7) SUBSEQUENT EVENT (UNAUDITED) 

   The Company's shareholders have entered into a stock purchase agreement to 
sell all of the issued and outstanding common stock of the Company for a 
total consideration consisting of $5,000,000 in cash and shares of common 
stock of the purchaser. The purchase of the Company's stock is generally 
contingent upon the successful completion of an intitial public offering by 
the purchaser. 

                                      F-52
<PAGE>
                        INDEPENDENT ACCOUNTANT'S REPORT

The Stockholders and Board of Directors 
FirsTel, Inc. 
Sioux Falls, South Dakota 

   We have audited the accompanying balance sheets of FirsTel, Inc. as of 
December 31, 1996 and 1995, and the related statements of operations, 
stockholders' deficit and cash flows for the years then ended. These 
financial statements are the responsibility of the Company's management. Our 
responsibility is to express an opinion on these financial statements based 
on our audits. 

   We conducted our audits in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audits to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement. An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements. 
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation. We believe that our audits provide a 
reasonable basis for our opinion. 

   In our opinion, the financial statements referred to above present fairly, 
in all material respects, the financial position of FirsTel, Inc. as of 
December 31, 1996 and 1995, and the results of its operations and its cash 
flows for the years then ended, in conformity with generally accepted 
accounting principles. 

KPMG PEAT MARWICK LLP 
Houston, Texas 
September 26, 1997 

                                      F-53
<PAGE>
                                 FIRSTEL, INC.
                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,          
                                                            --------------------------   SEPTEMBER 30, 
                                                                1995          1996           1997
                                                            ------------ -------------  -------------- 
                                                                                         (UNAUDITED) 
<S>                                                         <C>          <C>           <C> 
                           ASSETS 
CURRENT ASSETS 
  Cash.....................................................  $   43,761    $   54,128     $   61,616 
  Collateral account ......................................      74,515        --             -- 
  Receivables 
    Trade, net of allowance of $0, $0, and $29,053, 
     respectively..........................................     569,122       640,259      1,056,109 
    Due from independent contractors.......................      13,420         2,207         -- 
    Other..................................................      10,361         3,047        196,857 
  Unbilled services........................................     399,610       499,679        601,406 
  Inventory................................................      --             2,187         96,323 
  Prepaid expenses.........................................      19,759        23,413        103,714 
                                                            ------------ ------------  --------------- 
    Total current assets...................................   1,130,548     1,224,920      2,116,025 
                                                            ------------ ------------  --------------- 
OTHER ASSETS 
  Deposit..................................................       1,150        38,951         80,775 
  Intangible assets, net of accumulated 
   amortization............................................       6,723         5,482          2,780 
                                                            ------------ ------------  --------------- 
                                                                  7,873        44,433         83,555 
                                                            ------------ ------------  --------------- 
PROPERTY AND EQUIPMENT 
  Leasehold improvements...................................      30,632        34,182         34,182 
  Office furniture and equipment...........................     186,421       263,611        326,892 
  Network equipment........................................     576,518       656,069        707,942 
  Dialers..................................................     493,288       535,113        585,258 
                                                            ------------ ------------  --------------- 
                                                              1,286,859     1,488,975      1,654,274 
  Less accumulated depreciation and amortization ..........    (341,629)     (585,373)      (785,082) 
                                                            ------------ ------------  --------------- 
                                                                945,230       903,602        869,192 
                                                            ------------ ------------  --------------- 
                                                             $2,083,651    $2,172,955     $3,068,772 
                                                            ============ ============  =============== 
      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 
CURRENT LIABILITIES 
  Checks issued but not presented for payment..............  $   36,466    $   --         $  332,588 
  Current maturities of long-term debt.....................     452,110     1,397,834      1,187,068 
  Accounts payable.........................................     722,090       895,186      1,358,137 
  Accrued expenses 
    Taxes, other than income taxes.........................      69,283        58,617         94,713 
    Interest...............................................       8,769        --             -- 
    Wages..................................................      --            --             73,848 
    Other..................................................      12,104         9,611          3,671 
                                                            ------------ ------------  --------------- 
  Total current liabilities................................   1,300,822     2,361,248      3,050,025 
                                                            ------------ ------------  --------------- 
OTHER LIABILITIES 
  Deferred compensation payable ...........................      36,845        26,686          7,177 
LONG-TERM DEBT, less current maturities ...................   1,395,821        18,073         -- 
                                                            ------------ ------------  --------------- 
    Total liabilities......................................   2,733,488     2,406,007      3,057,202 
COMMITMENTS AND CONTINGENCIES ............................. 
STOCKHOLDERS' EQUITY (DEFICIT) 
  Common stock, par value $1 per share; Authorized, 
   1,000,000 shares; Issued, 1,000 shares..................       1,000         1,000          1,000 
  Retained earnings (accumulated deficit)..................    (650,837)     (234,052)        10,570 
                                                            ------------ ------------  --------------- 
                                                               (649,837)     (233,052)        11,570 
                                                            ------------ ------------  --------------- 
                                                             $2,083,651    $2,172,955     $3,068,772 
                                                            ============ ============  =============== 
</TABLE>

               See accompanying notes to financial statements. 

                                      F-54
<PAGE>
                                 FIRSTEL, INC.
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                               NINE MONTHS ENDED 
                                 YEAR ENDED DECEMBER 31,         SEPTEMBER 30, 
                               --------------------------- -------------------------- 
                                   1995          1996          1996          1997 
                               ------------ -------------  ------------ ------------ 
                                                                  (UNAUDITED) 
<S>                            <C>          <C>            <C>          <C>      
REVENUES......................  $7,838,345    $10,355,229   $7,658,888    $9,487,892 
                               ------------ -------------  ------------ ------------ 
COST OF REVENUES: 
  Line costs..................   5,001,807      6,620,483    4,834,738     6,083,178 
  Direct labor................     288,459        393,983      288,204       283,148 
  Cellular costs..............      --             --           --           336,122 
  Dialer costs................     161,807        191,854      156,053       161,408 
  Switch costs................      81,663        101,673       66,926        82,025 
  Local costs.................      --             --           --            72,049 
  Other.......................       6,108          5,943        5,513        47,863 
                               ------------ -------------  ------------ ------------ 
                                 5,539,844      7,313,936    5,351,434     7,065,793 
                               ------------ -------------  ------------ ------------ 
GROSS PROFIT..................   2,298,501      3,041,293    2,307,454     2,422,099 
                               ------------ -------------  ------------ ------------ 
OPERATING EXPENSES: 
  Selling.....................     926,115      1,107,800      814,192       881,002 
  General and administrative .     615,923        810,637      583,461       671,484 
  Sales support...............     183,649        218,525      160,201       326,055 
  Cellular....................      --             10,049       --            90,430 
                               ------------ -------------  ------------ ------------ 
                                 1,725,687      2,147,011    1,557,854     1,968,971 
                               ------------ -------------  ------------ ------------ 
INCOME FROM OPERATIONS........     572,814        894,282      749,600       453,128 
OTHER INCOME (EXPENSE): 
  Finance charges and 
   penalties..................      36,792         34,718       27,001        32,437 
  Other income................       5,561            300          300         1,680 
  Interest expense............    (220,932)      (191,076)    (145,445)     (116,121) 
  Loss on sale of equipment ..      (1,139)          (158)      --            -- 
                               ------------ -------------  ------------ ------------ 
NET INCOME ...................  $  393,096    $   738,066   $  631,456    $  371,124 
                               ============ =============  ============ ============ 
INCOME PER SHARE..............  $   393.10    $    738.07   $   631.46    $   371.12 
                               ============ =============  ============ ============ 
</TABLE>

               See accompanying notes to financial statements. 

                                      F-55
<PAGE>
                                 FIRSTEL, INC.
                  STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                                      RETAINED                     TOTAL
                                                   COMMON STOCK       EARNINGS                 STOCKHOLDERS'
                                                -----------------  (ACCUMULATED    TREASURY        EQUITY   
                                                 SHARES    AMOUNT     DEFICIT)      STOCK        (DEFICIT)
                                                -------- --------  ------------- -----------  --------------- 
<S>                                             <C>      <C>       <C>           <C>          <C>
BALANCES, DECEMBER 31, 1994 ...................   1,000     1,000    $(878,933)   $   --         $(877,933) 
  Distributions ($165.00 per share)............     --       --       (165,000)       --          (165,000) 
  Net income...................................     --       --        393,096        --           393,096 
                                                -------- --------  ------------- -----------  --------------- 
BALANCES, DECEMBER 31, 1995....................   1,000     1,000     (650,837)       --          (649,837) 
  Distributions ($221.28 per share)............     --       --       (221,281)       --          (221,281) 
  Net income...................................     --       --        738,066        --           738,066 
  Purchase of 100 shares of treasury stock ....     --       --          --        (700,000)      (700,000) 
  Sale of 100 shares of treasury stock ........     --       --       (100,000)     700,000        600,000 
                                                -------- --------  ------------- -----------  --------------- 
BALANCES, DECEMBER 31, 1996....................   1,000     1,000     (234,052)       --          (233,052) 
  Distributions ($126.50 per share, 
 unaudited)....................................     --       --       (126,502)       --          (126,502) 
  Net income (unaudited).......................     --       --        371,124        --           371,124 
                                                -------- --------  ------------- -----------  --------------- 
BALANCES, September 30, 1997 (unaudited) ......   1,000    $1,000    $  10,570    $   --         $  11,570 
                                                ======== ========  ============= ===========  =============== 
</TABLE>

               See accompanying notes to financial statements. 

                                      F-56
<PAGE>
                                 FIRSTEL, INC.
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                              NINE MONTHS ENDED 
                                                  YEAR ENDED DECEMBER 31,       SEPTEMBER 30, 
                                                 ------------------------- ------------------------ 
                                                     1995         1996         1996        1997 
                                                 ------------ -----------  ----------- ----------- 
                                                                                 (UNAUDITED) 
<S>                                              <C>          <C>         <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES: 
  Net income....................................  $  393,096    $ 738,066   $ 631,456    $ 371,124 
  Adjustments to reconcile net income to net 
   cash provided by operating activities: 
    Depreciation and amortization...............     205,890      247,618     182,866      202,412 
    Provision for bad debts.....................      --            --         27,000       32,000 
    Write-off of shareholder's receivable ......      --            --          --           -- 
    Loss on sale of equipment...................       1,139          158       --           -- 
  Changes in assets and liabilities: 
    Receivables.................................    (221,079)     (52,610)    (82,816)    (636,506) 
    Unbilled services...........................    (109,796)    (100,069)   (106,820)    (101,727) 
    Inventory...................................      --           (2,187)      --         (94,136) 
    Prepaid expenses............................      (1,638)      (3,654)    (37,600)     (80,301) 
    Deposits....................................        (150)     (37,801)    (25,425)     (19,200) 
    Checks issued but not presented for 
     payment....................................    (139,268)     (36,466)    (36,466)     332,588 
    Accounts payable............................     213,134      173,096     196,521      462,951 
    Accrued expenses............................      19,989      (21,928)     77,906       78,432 
    Deferred compensation payable...............      36,845      (10,159)     (5,179)     (19,509) 
                                                 ------------ -----------  ----------- ----------- 
NET CASH PROVIDED BY OPERATING  ACTIVITIES .....     398,162      894,064     821,443      528,128 
                                                 ------------ -----------  ----------- ----------- 
CASH FLOWS FROM INVESTING ACTIVITIES: 
  Proceeds from sale of equipment...............         923          255       --           -- 
  Property and equipment purchases..............    (379,424)    (203,162)   (166,272)    (165,299) 
  Payments to/from collateral account...........     (74,515)      74,515       --           -- 
  Payments for loan origination fees............      (1,443)      (2,000)      --           -- 
                                                 ------------ -----------  ----------- ----------- 
NET CASH USED BY INVESTING 
 ACTIVITIES.....................................    (454,459)    (130,392)   (166,272)    (165,299) 
                                                 ------------ -----------  ----------- ----------- 
CASH FLOWS FROM FINANCING ACTIVITIES: 
  Net payments on notes payable.................     (99,300)       --          --           -- 
  Principal payments on long-term debt, 
   including capitalized leases.................    (134,643)    (459,407)   (365,547)    (333,839) 
  Proceeds from debt borrowings.................     494,964       27,383       --         105,000 
  Distribution payments.........................    (165,000)    (221,281)   (218,121)    (126,502) 
  Purchase of treasury stock....................      --         (700,000)   (700,000)       -- 
  Sale of treasury stock........................      --          600,000     600,000        -- 
                                                 ------------ -----------  ----------- ----------- 
NET CASH PROVIDED (USED) BY FINANCING 
 ACTIVITIES ....................................      96,021     (753,305)   (683,668)    (355,341) 
                                                 ------------ -----------  ----------- ----------- 
NET INCREASE (DECREASE) IN CASH.................      39,724       10,367     (28,497)       7,488 
CASH AT BEGINNING OF PERIOD.....................       4,037       43,761      43,761       54,128 
                                                 ------------ -----------  ----------- ----------- 
CASH AT END OF PERIOD...........................  $   43,761    $  54,128   $  15,264    $  61,616 
                                                 ============ ===========  =========== =========== 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW 
INFORMATION 
  Cash paid during the period--Interest ........  $  212,936    $ 199,845   $ 145,445    $ 116,122 
                                                 ============ ===========  =========== =========== 
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING 
ACTIVITIES 
  Short-term debt refinanced....................  $1,400,000     $  --      $   --       $   -- 
                                                 ============ ===========  =========== =========== 

</TABLE>

               See accompanying notes to financial statements. 

                                      F-57
<PAGE>
                                 FIRSTEL, INC.
                         NOTES TO FINANCIAL STATEMENTS
           December 31, 1995 and 1996 and September 30, 1996 and 1997

(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 

 Description of Business 

   FirsTel, Inc. (the Company), located in Sioux Falls, South Dakota, is a 
carrier of long distance, local and cellular telecommunications services. The 
Company's service area includes South Dakota, North Dakota, Minnesota, Iowa, 
Nebraska, Wyoming, Colorado, and Montana. 

 Interim Financial Information 

   The interim financial statements for the nine months ended September 30, 
1996 and 1997 are unaudited, and certain information and footnote 
disclosures, normally included in financial statements prepared in accordance 
with generally accepted accounting principles, have been omitted. In the 
opinion of management, all adjustments, consisting only of normal recurring 
adjustments, necessary to fairly present the financial position, results of 
operations and cash flows with respect to the interim financial statements, 
have been included. The results of operations for the interim periods are not 
necessarily indicative of the results for the entire fiscal year. 

 Inventories 

   Inventories are valued at the lower of cost (first-in, first-out method) 
or market, and consist primarily of cellular phone and other telephone system 
equipment. 

 Unbilled Services 

   The Company bills in four cycles per month. At the end of each month any 
new charges which have not been included in the billing cycles are shown as 
unbilled services. 

 Property and Equipment 

   Property and equipment are stated at cost. Depreciation is calculated 
using the double declining method over the estimated useful lives of the 
assets which range from 5 to 7 years. 

 Intangible Assets 

   Organizational costs, stated at cost less accumulated amortization, are 
amortized straight-line over 5 years. Loan origination fees, stated at cost 
less accumulated amortization, are amortized straight-line over the term of 
the loan. 

 Income Taxes 

   The Company has elected to be taxed under the provisions of Subchapter S 
of the Internal Revenue Code. Accordingly, no provision for federal income 
taxes has been provided for by the Company, as the shareholders of the 
Company have included the income on their personal income tax returns. 

 Fair Value of Financial Instruments 

   Fair value estimates are made at discrete points in time based on relevant 
market information. These estimates may be subjective in nature and involve 
uncertainties and matters of significant judgment, and therefore cannot be 
determined with precision. 

   The Company believes that the carrying amounts of its current assets and 
current liabilities approximate the fair value of such items due to their 
short-term nature. 

 Revenue Recognition 

   Revenues are recognized as long-distance, local and cellular services are 
provided. 

                                      F-58
<PAGE>
                                 FIRSTEL, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

  Net Income Per Share 

   Net income per share is based on the weighted average number of shares of 
common stock outstanding during the respective periods. The weighted average 
shares outstanding were 1,000 for the years ended December 31, 1996 and 1995 
and the nine months ended September 30, 1996 and 1997 (unaudited). 

 Use of Estimates 

   The preparation of the financial statements in conformity with generally 
accepted accounting principles requires management to make estimates and 
assumptions that affect reported amounts of assets and liabilities at the 
date of the financial statements and the reported amounts of revenue and 
expenses during the reporting period. Actual results could differ from those 
estimates. 

(2) COLLATERAL ACCOUNT 

   Pursuant to a line of credit agreement with a bank, signed January 4, 
1995, the Company directed all receipts to a lockbox established by the bank. 
The funds were subsequently deposited into a collateral account and held for 
two days. At that time, they became available for use and were transferred to 
the regular business account. In 1996, the Company entered into a lockbox 
agreement with a different bank. All receipts are directed to a lockbox 
established by the bank and are directly deposited to the Company's checking 
account daily. 

(3) ACQUISITIONS 

   In September 1997, the Company purchased two telecommunications companies 
located in Sioux Falls, South Dakota. The combined purchase price of the two 
companies was approximately $1,083,000 payable with notes from the Company 
maturing January 31, 1998. Payment of the notes will be with stock issued by 
the potential purchaser of the Company, upon the successful completion of an 
initial public offering. If the potential purchase of the Company does not 
take place by January 31, 1998, the notes will be paid with cash. 

(4) INTANGIBLE ASSETS 

<TABLE>
<CAPTION>
                                      DECEMBER 31,        
                                 ----------------------  SEPTEMBER 30,
                                    1995        1996         1997
                                 ---------- ----------  ---------------
                                                          (UNAUDITED) 
<S>                              <C>        <C>         <C>
Organizational costs............  $ 10,206    $ 10,206      $ 10,206 
Loan origination fees...........     7,443       9,443         9,443 
                                 ---------- ----------  --------------- 
                                    17,649      19,649        19,649 
  Less accumulated 
 amortization...................   (10,926)    (14,167)      (16,869) 
                                 ---------- ----------  --------------- 
                                  $  6,723    $  5,482      $  2,780 
                                 ========== ==========  =============== 
</TABLE>

   Amortization expense charged to operations was $8,885 and $3,241, 
respectively for the years ended December 31, 1995 and 1996 and $2,702 and 
$2,281 for the nine months ended September 30, 1996 and 1997 (unaudited). 

(5) CAPITALIZATION 

   Upon initial capitalization, the Company issued 1,000 shares of its common 
stock to the original five stockholders. The stock was recorded at par value 
at the date of issuance. In February of 1996, the Company purchased 100 
treasury shares for $700,000 and subsequently reissued those shares to a new 
shareholder for $600,000. As described in Note 13, the stockholders will 
surrender all outstanding shares of the Company stock, concurrent with the 
effective date of the merger, and such shares will be canceled. 

                                      F-59
<PAGE>
                                 FIRSTEL, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(6) LEASES 

   The Company leases office space, equipment and telephone lines under 
long-term lease agreements. The leases for office space, telephone lines and 
equipment are operating leases which expire in various years through 1998. 
Generally, the Company is required to pay executory costs such as maintenance 
and insurance. Rental payments include minimum rentals plus contingent 
rentals based on usage. 

   Rental expense for operating leases for the years ended December 31, 1995 
and 1996, and for the nine month periods ended September 30, 1996 and 1997 
(unaudited) was $5,051,893, $6,797,857, $4,982,568 and $6,143,566, 
respectively. 

   Capitalized leased assets consist of: 

<TABLE>
<CAPTION>
                                       DECEMBER 31,        
                                 -----------------------  SEPTEMBER 30,  
                                    1995        1996          1997
                                 ---------- -----------  ---------------
                                                           (UNAUDITED) 
<S>                              <C>        <C>          <C>
Office furniture and equipment .  $ 38,791    $  85,693     $  46,902 
Harris switches.................   296,536      296,536       296,536 
                                 ---------- -----------  --------------- 
                                   335,327      382,229       343,438 
  Less accumulated 
 amortization...................   (74,857)    (129,796)     (139,668) 
                                 ---------- -----------  --------------- 
                                  $260,470    $ 252,433     $ 203,770 
                                 ========== ===========  =============== 
</TABLE>

   Minimum lease payments for capital and operating leases in future years 
are as follows: 

<TABLE>
<CAPTION>
                                                             CAPITAL   OPERATING 
                                                             LEASES      LEASES 
                                                           ---------- ----------- 
<S>                                                        <C>        <C>
Year ending December 31, 1997.............................  $121,447    $450,063 
Year ending December 31, 1998.............................    15,666     433,235 
Remaining years...........................................     --          -- 
                                                           ---------- ----------- 
Total minimum lease payments..............................   137,113    $883,298 
                                                                      =========== 
Less interest.............................................   (11,206) 
                                                           ---------- 
Present value of minimum lease payments as of December 
 31, 1996.................................................  $125,907 
                                                           ========== 
</TABLE>

(7) LONG-TERM DEBT 

<TABLE>
<CAPTION>
                                                               DECEMBER 31,           
                                                        --------------------------   SEPTEMBER 30, 
                                                            1995          1996           1997
                                                        ------------ -------------  ---------------  
                                                                                      (UNAUDITED) 
<S>                                                     <C>          <C>            <C>
Capitalized lease obligations, at varying rates of 
 imputed interest from 10.42% to 18.60%, due in 
 monthly installments of $10,225, including interest, 
 through June 1998, secured by leased assets--Note 6 ..  $  177,142    $   115,907    $    42,068 

$800,000 revolving line of credit payable to bank, due 
 July 1, 1998, variable rate, 9.5% at December 31, 
 1996 and 12.05% at December 31, 1995, secured by 
 substantially all assets of the Company, personal 
 guarantees of four Company officers, and Company 
 owned life insurance on an officer of the Company ....     370,789         --            105,000 

Unsecured notes payable to shareholders, at 12%, due 
 December 31, 1997, subordinated to revolving line ....   1,300,000      1,300,000      1,040,000 
                                                        ------------ -------------  --------------- 
                                                          1,847,931      1,415,907      1,187,068 
Less current maturities................................     (81,321)    (1,397,834)    (1,187,068) 
                                                        ------------ -------------  ---------------  
                                                         $1,766,610    $    18,073    $    -- 
                                                        ============ =============  =============== 
</TABLE>

                                      F-60
<PAGE>
                                 FIRSTEL, INC.
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

    The terms of the revolving line of credit include various debt covenants. 
At December 31, 1996, the Company was not in compliance with one of these 
covenants. As a result, the Company was charged an additional 2% interest 
until such time as compliance with all debt covenants was achieved. At 
September 30, 1997, the Company is in compliance with all applicable debt 
covenants. 

   Long-term debt maturities are as follows at December 31, 1996: 

<TABLE>
<CAPTION>
                                                          AMOUNT 
                                                       ------------ 
<S>                                                   <C>
Year ending December 31, 1997.........................  $1,397,834 
Year ending December 31, 1998.........................      18,073 
Thereafter.............................................      -- 
                                                       ------------ 
                                                        $1,415,907 
                                                       ============ 
</TABLE>

(8) RELATED PARTY TRANSACTIONS 

   One of the Company's major shareholders, Fred L. Thurman, is also a 
partner in an accounting firm. For the years ending December 31, 1995 and 
1996 and for nine months ending September 30, 1996 and 1997, accounting fees 
paid to the related company were $27,579, $41,774, $29,676 and $32,727, 
respectively. 

(9) DEFERRED COMPENSATION PLAN 

   In 1995, the Company established deferred compensation plans for the 
benefit of the shareholders who are also key employees of the Company. The 
benefit payable was accrued based on various criteria for each person. The 
amount expensed for the years ended December 31, 1995 and 1996 and for the 
nine months ended September 30, 1996 and 1997 (unaudited), for such future 
obligation were $36,845, $125,541, $86,087 and $49,522, respectively. 

(10) RETIREMENT PLAN 

   In 1996, the Company adopted a qualified 401(k) employee savings and 
profit sharing plan which covers all employees who meet eligibility 
requirements. Eligible employees may contribute directly to the plan. The 
Company matches twenty-five percent (25%) of the employee contribution, not 
to exceed one percent of the employee's eligible wages. The Company has the 
option to make discretionary contributions to the plan. The Company's 
contribution expenses for the year ended December 31, 1996 and the nine 
months ended September 30, 1997 (unaudited) were $7,157 and $8,378, 
respectively. 

(11) DEPENDENCE ON LOCAL EXCHANGE CARRIER 

   The Company is dependent on local exchange carriers to provide access 
service for the origination and termination of its long distance traffic. 
Historically, these access charges have made up a significant percentage of 
the overall cost of providing long distance service. To the extent that the 
access services of the local exchange carriers are used, the Company and its 
customers are subject to the quality of service, equipment failures and 
service interruptions of the local exchange carriers. 

(12) COMMITMENTS AND CONTINGENCIES 

   In 1996, FirsTel, Inc. signed a long term carrier agreement with MCI Corp. 
Included in the agreement is a commitment that FirsTel's monthly usage shall 
equal or exceed $225,000. If usage is less FirsTel will pay the actual usage 
plus an underutilization charge of 15% of the difference between actual usage 
and $225,000. 

(13) SUBSEQUENT EVENTS 

   The Company's stockholders have entered into a stock purchase agreement to 
sell all of the issued and outstanding capital stock of the Company for 
consideration of $5,000,000 in cash, $2,000,000 in 10% convertible 
subordinated notes, common stock of the purchaser and warrants to purchase 
common stock of the purchaser. The notes payable to stockholders will be 
acquired by the purchaser in the acquisition. The transaction is generally 
contingent upon the successful completion of an initial public offering of 
the purchaser. 

                                      F-61
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and 
Stockholder of KIN Network, Inc.: 

   We have audited the balance sheets of KIN Network, Inc. as of December 31, 
1994 and 1995, and the related statements of operations, stockholder's equity 
(deficit), and cash flows for the years then ended. These financial 
statements are the responsibility of the Company's management. Our 
responsibility is to express an opinion on these financial statements based 
on our audits. The accompanying financial statements of KIN Network, Inc. as 
of and for the year ended December 31, 1996 and as of and for the nine month 
periods ended September 30, 1996 and 1997 were not audited by us and, 
accordingly, we have not expressed an opinion on those statements. 

   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 1994 and 1995 financial statements referred to above 
present fairly, in all material respects, the financial position of KIN 
Network, Inc. as of December 31, 1994 and 1995, and the results of its 
operations and its cash flows for the years then ended in conformity with 
generally accepted accounting principles. 

KENNEDY AND COE, LLC 
Salina, Kansas 
February 23, 1996 

                                      F-62
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders 
KIN Network, Inc. 
Salina, Kansas 

   We have audited the balance sheet of KIN Network, Inc. as of December 31, 
1996, and the related statements of operations, stockholder's equity, and 
cash flows for the year then ended. These financial statements are the 
responsibility of the Company's management. Our responsibility is to express 
an opinion on these financial statements based on our audit. The financial 
statements of KIN Network, Inc. as of December 31, 1995, and 1994, were 
audited by other auditors whose reports dated February 23, 1996, and March 1, 
1995, respectively, expressed unqualified opinions on those statements. 

   We conducted our audit in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement. An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements. 
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation. We believe that our audit provides a 
reasonable basis for our opinion. 

   In our opinion, the 1996 financial statements referred to above present 
fairly, in all material respects, the financial position of KIN Network, Inc. 
as of December 31, 1996, and the results of its operations and its cash flows 
for the year then ended in conformity with generally accepted accounting 
principles. 

   Out audit was conducted for the purpose of forming an opinion on the 1996 
basic financial statements taken as a whole. The financial information for 
September 30, 1997 and 1996 and for the periods then ended (marked 
"unaudited" and accompanying the basic financial statements) is presented for 
purposes of additional analysis and is not a required part of the basic 
financial statements. Such information has not been subjected to the auditing 
procedures applied in the audit of the 1996 basic financial statements, and 
accordingly, we express no opinion on it. 

                                               SARTAIN FISCHBEIN & CO. 
Tulsa, Oklahoma 
February 25, 1997 

                                      F-63
<PAGE>
                                KIN NETWORK, INC.
                                 SALINA, KANSAS
                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,           SEPTEMBER 30, 
                                                            ----------------------------- --------------- 
                                                                 1995           1996            1997 
                                                            ------------- --------------  --------------- 
                                                                                            (UNAUDITED) 
<S>                                                         <C>           <C>             <C>
                           ASSETS 
Current Assets 
  Cash and cash equivalents................................  $ 2,286,360    $  2,688,775    $  3,134,624 
  Receivables: 
    Trade accounts.........................................      432,780         324,771         661,597 
    Accrued revenue........................................      283,648         533,145         394,863 
    Patronage credits......................................      351,138         227,259         190,326 
    Affiliated company.....................................       --             --              -- 
    Liberty Cellular, Inc..................................       --           1,185,538         562,469 
  Prepaid expenses.........................................       47,914         144,874         169,643 
  RTFC capital certificates................................      452,373         251,609         202,498 
                                                            ------------- --------------  --------------- 
Total Current Assets.......................................    3,854,213       5,355,971       5,316,020 
                                                            ------------- --------------  --------------- 
Property, Plant and Equipment, net.........................   21,408,898      21,821,077      26,063,471 
                                                            ------------- --------------  --------------- 
Other Assets 
  RTFC capital certificates................................    3,265,963       3,014,351       2,811,853 
  Deferred income taxes....................................    6,206,648       3,108,267          25,530 
  Debt issue costs, net....................................       68,790          62,290          57,415 
  Patronage credits receivable.............................      398,266         604,921         607,654 
  Prepayments on fiber leases..............................      227,445         197,778         175,528 
  Organization and other intangible costs, net of 
   accumulated amortization of $826,801 in 1995, $836,278 
   in 1996, and $841,407 in 1997...........................       22,265          10,444           2,751 
  Other assets.............................................        1,300           1,300         -- 
                                                            ------------- --------------  --------------- 
Total Other Assets.........................................   10,190,677       6,999,351       3,680,731 
                                                            ------------- --------------  --------------- 
Totals.....................................................  $35,453,788    $ 34,176,399    $ 35,060,222 
                                                            ============= ==============  =============== 
            LIABILITIES AND STOCKHOLDER'S EQUITY 
Current Liabilities 
  Current maturities of long-term debt.....................  $ 2,518,559    $  2,892,009    $  2,892,341 
  Accounts payable: 
    Trade..................................................      198,246         632,519       3,763,209 
    Liberty Cellular, Inc..................................        2,649         --                4,062 
    Affiliate..............................................       15,184          66,408          45,009 
  Accrued expenses.........................................      536,553         515,932         773,003 
                                                            ------------- --------------  --------------- 
Total Current Liabilities..................................    3,271,191       4,106,868       7,477,624 
Long-Term Debt, less current maturities....................   31,655,696      28,763,687      26,574,085 
                                                            ------------- --------------  --------------- 

Total Liabilities..........................................   34,926,887      32,870,555      34,051,709 
                                                            ------------- --------------  --------------- 
Stockholder's Equity 
  Common stock, no par value; authorized 10,000,000 
   shares; issued and outstanding 300,000 shares ..........    3,000,000       3,000,000       3,000,000 
  Additional paid in capital...............................    7,500,000       9,071,316       9,071,316 
  Retained earnings........................................   (9,973,099)    (10,765,472)    (11,062,803) 
                                                            ------------- --------------  --------------- 
Total Stockholder's Equity.................................      526,901       1,305,844       1,008,513 
                                                            ------------- --------------  --------------- 
Totals.....................................................  $35,453,788    $ 34,176,399    $ 35,060,222 
                                                            ============= ==============  =============== 
</TABLE>

  The accompanying notes are an integral part of these financial statements. 

                                      F-64
<PAGE>
                                KIN NETWORK, INC.
                                 SALINA, KANSAS
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                 
                                               YEAR ENDED DECEMBER 31,           NINE MONTHS ENDED SEPTEMBER 30, 
                                    -------------------------------------------- ------------------------------- 
                                         1994            1995           1996          1996             1997 
                                    -------------- --------------  ------------- -------------     ------------- 
                                                                                          (UNAUDITED) 
<S>                                 <C>            <C>             <C>           <C>               <C>
Revenues...........................   $ 3,550,242    $ 6,496,741    $ 8,552,564    $ 6,030,536      $ 8,796,000 
Cost of Services...................     2,450,281      3,094,454      2,863,857      2,054,764        2,995,543 
                                    -------------- --------------  ------------- -------------     ------------- 
Gross Profit.......................     1,099,961      3,402,287      5,688,707      3,975,772        5,800,457 
                                    -------------- --------------  ------------- -------------     ------------- 
Expenses 
  Operating and administrative ....     2,533,095      2,929,555      3,416,589      2,478,742        3,465,761 
  Depreciation and amortization ...     1,700,096      1,825,297      1,906,094      1,320,656        1,596,567 
                                    -------------- --------------  ------------- -------------     ------------- 
Total Expenses.....................     4,233,191      4,754,852      5,322,683      3,799,398        5,062,328 
                                    -------------- --------------  ------------- -------------     ------------- 
Income (Loss) from Operations .....    (3,133,230)    (1,352,565)       366,024        176,374          738,129 
Other Income (Expense) 
  Interest and other income........        26,532         41,683         80,678         68,933           73,705 
  Interest, net of patronage 
   credits.........................    (1,616,071)    (2,047,215)    (1,826,148)    (1,383,517)      (1,296,265) 
                                    -------------- --------------  ------------- -------------     ------------- 
Net Loss Before Income Taxes ......    (4,722,769)    (3,358,097)    (1,379,446)    (1,138,210)        (484,431) 
Deferred Income Tax Benefit........     1,839,803      1,303,549        587,073        426,225          187,100 
                                    -------------- --------------  ------------- -------------     ------------- 
Net Loss...........................   $(2,882,966)   $(2,054,548)   $  (792,373)   $  (711,985)     $  (297,331) 
                                    ============== ==============  ============= =============     ============= 
</TABLE>

  The accompanying notes are an integral part of these financial statements. 

                                      F-65
<PAGE>
                                KIN NETWORK, INC.
                                 SALINA, KANSAS
                       STATEMENTS OF STOCKHOLDER'S EQUITY

<TABLE>
<CAPTION>
                                                ADDITIONAL                        TOTAL 
                                    COMMON       PAID-IN        RETAINED      STOCKHOLDER'S 
                                     STOCK       CAPITAL        EARNINGS         EQUITY 
                                 ------------ ------------  --------------- --------------- 
<S>                              <C>          <C>           <C>              <C>
Balance, January 1, 1994........  $3,000,000    $             --$ (5,035,585)  $(2,035,585) 
  Capital Contributions.........      --         1,500,000         --            1,500,000 
  Net Loss--1994................      --            --          (2,882,966)     (2,882,966) 
                                 ------------ ------------  --------------- --------------- 
Balance, December 31, 1994 .....   3,000,000     1,500,000      (7,918,551)     (3,418,551) 
  Capital Contributions.........      --         6,000,000         --            6,000,000 
  Net Loss--1995................      --            --          (2,054,548)     (2,054,548) 
                                 ------------ ------------  --------------- --------------- 
Balance, December 31, 1995 .....   3,000,000     7,500,000      (9,973,099)        526,901 
  Capital Contributions.........      --         1,571,316         --            1,571,316 
  Net Loss--1996................      --            --            (792,373)       (792,373) 
                                 ------------ ------------  --------------- --------------- 
Balance, December 31, 1996 .....   3,000,000     9,071,316     (10,765,472)      1,305,844 
  Net Income--September 30, 
   1997 (Unaudited).............      --            --            (297,331)       (297,331) 
                                 ------------ ------------  --------------- --------------- 
Balance, September 30, 1997 
 (Unaudited)....................  $3,000,000    $9,071,316    $(11,062,803)    $ 1,008,513 
                                 ============ ============  =============== =============== 
</TABLE>

  The accompanying notes are an integral part of these financial statements. 

                                      F-66
<PAGE>
                                KIN NETWORK, INC.
                                 SALINA, KANSAS
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                        
                                                     YEAR ENDED DECEMBER 31,           NINE MONTHS ENDED SEPTEMBER 30,
                                          -------------------------------------------- ------------------------------- 
                                               1994            1995           1996          1996             1997 
                                          -------------- --------------  ------------- -------------     ------------- 
                                                                                                 (UNAUDITED) 
<S>                                       <C>            <C>             <C>           <C>              <C>
Cash Flows from Operating Activities 
 Net loss................................   $(2,882,966)   $(2,054,548)   $  (792,373)   $  (711,985)     $  (297,331) 
  Adjustments to reconcile net loss to 
   net cash provided by (used in) 
   operating activities 
  Deferred income taxes..................    (1,839,803)    (1,303,549)      (587,073)      (426,225)        (187,100) 
  Depreciation and amortization..........     1,700,096      1,825,297      1,906,094      1,320,656        1,596,567 
  Gain on sale of assets.................        --             (2,984)       (13,883)       (14,604)          (9,081) 
  (Increase) decrease in: 
    Receivables..........................      (348,783)      (140,406)      (224,348)      (222,564)        (336,342) 
    Prepaid expenses.....................        28,202          1,344        (96,960)       (52,235)         (24,769) 
    Other assets.........................       198,041         29,666         29,667        149,056          223,315 
  Increase (decrease) in: 
    Accounts payable.....................      (636,864)        87,384        273,173        (67,258)       3,049,688 
    Accrued expenses.....................      (300,041)      (302,349)       (20,621)       604,851          257,071 
                                          -------------- --------------  ------------- -------------     ------------- 
Net Cash Provided By (Used In) Operating 
 Activities..............................    (4,082,118)    (1,860,145)       473,676        579,692        4,272,018 
                                          -------------- --------------  ------------- -------------     ------------- 
Cash Flows from Investing Activities 
  Repayment of advance...................     1,000,000         --             --             --               -- 
  Additions--property, plant & equip ....    (1,203,916)      (749,668)    (1,545,534)    (1,075,816)      (5,923,656) 
  Proceeds from sale of plant............        --             24,592         40,456         44,463          106,344 
                                          -------------- --------------  ------------- -------------     ------------- 
Net Cash Provided By (Used In) 
  Investing Activities...................      (203,916)      (725,076)    (1,505,078)    (1,031,353)      (5,817,312) 
                                          -------------- --------------  ------------- -------------     ------------- 
Cash Flows from Financing Activities   
  Proceeds from borrowings...............     5,634,998         --             --             --               -- 
  Return of RTFC capital certificates ...        --             --            452,376        452,376          251,609 
  Principal payments on debt.............    (1,821,913)    (2,329,374)    (2,516,089)    (1,866,282)      (2,024,981) 
  Payments on capital leases.............      (217,642)        (2,470)        (2,470)        (2,470)        (100,625) 
  Payment by Liberty Cellular, Inc: 
    Income tax benefit...................        --             --          2,500,000         --            3,865,140 
    Capital contributions................     1,500,000      6,000,000      1,000,000      1,000,000           -- 
                                          -------------- --------------  ------------- -------------     ------------- 
Net Cash Provided By (Used In)  
  Financing Activities...................     5,095,443      3,668,156      1,433,817       (416,376)       1,991,143 
                                          -------------- --------------  ------------- -------------     ------------- 
Net Increase (Decrease) in Cash and Cash 
 Equivalents.............................       809,409      1,082,935        402,415       (868,037)         445,849 
Cash and Cash Equivalents: 
  Beginning of Period....................       394,016      1,203,425      2,286,360      2,286,360        2,688,775 
                                          -------------- --------------  ------------- -------------     ------------- 
  End of Period..........................   $ 1,203,425    $ 2,286,360    $ 2,688,775    $ 1,418,323      $ 3,134,624 
                                          ============== ==============  ============= =============     ============= 
</TABLE>

  The accompanying notes are an integral part of these financial statements. 

                                      F-67
<PAGE>
                                KIN NETWORK, INC.
                                 SALINA, KANSAS
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                      NINE MONTHS ENDED 
                                                 YEAR ENDED DECEMBER 31,                SEPTEMBER 30, 
                                         --------------------------------------- -------------------------- 
                                             1994          1995         1996          1996         1997 
                                         ------------ ------------  ------------ ------------  ------------ 
                                                                                         (UNAUDITED) 
<S>                                      <C>          <C>           <C>           <C>          <C>
SUPPLEMENTAL SCHEDULE OF NONCASH 
 INVESTING & FINANCING ACTIVITIES 
Property contributed as capital by 
 Liberty Cellular, Inc..................  $    --       $    --      $  571,316    $    --      $   -- 
Property acquired through increases 
 in accounts payable--trade.............  $  148,393    $   25,577   $  209,675    $   76,001   $3,308,202 
RTFC capital certificates received in 
 lieu of cash with borrowings...........  $  626,114    $    --      $   --        $    --      $   -- 
OTHER DISCLOSURES 
Interest paid, net of patronage 
 refunds................................  $1,791,252    $2,290,421   $1,923,165    $1,540,831   $1,445,070 
</TABLE>

  The accompanying notes are an integral part of these financial statements. 

                                      F-68
<PAGE>
                               KIN NETWORK, INC. 
                                SALINA, KANSAS 
                        NOTES TO FINANCIAL STATEMENTS 
                  YEARS ENDED DECEMBER 31, 1994, 1995, 1996 
              AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 

   NATURE OF BUSINESS: KIN Network, Inc. ("the Company") is a wholly-owned 
subsidiary of Liberty Cellular, Inc. ("Liberty"). 

   The Company is constructing and operating a statewide fiber optic network 
in Kansas to provide private circuit transport, network toll terminations, 
equal access transport and switching, and other services to businesses and 
independent telephone companies in Kansas. 

   ALLOWANCE FOR BAD DEBTS: The Company recognizes bad debts under the 
allowance method. As of December 31, 1995, 1996, and September 30, 1996 and 
1997, the Company believes that the dollar amount of receivables subject to 
the risk of uncollectibility is minimal and has set its allowance for 
doubtful accounts at zero. 

   PROPERTY, PLANT AND EQUIPMENT: Depreciation is provided using the 
straight-line method over the estimated useful lives of the related assets. 
Repairs and maintenance are expensed as incurred, whereas major improvements 
are capitalized. 

   Depreciation expense on property, plant and equipment charged to 
operations was $1,524,492 in 1994, $1,648,377 in 1995, $1,887,774 in 1996, 
and $1,583,999 for the nine months ended September 30, 1997. 

   DEBT ISSUE COSTS: Debt issue costs, which were incurred in 1991, are being 
amortized using the straight-line method over the term of the related debt, 
which approximates fifteen years. Annual amortization expense charged to 
operations was $6,500 in 1994, 1995, and 1996. Expense charged for the nine 
months ended September 30, 1997 was $4,875. 

   INCOME TAXES: The Company and Liberty file consolidated tax returns. 
Income taxes are provided for the tax effects of transactions reported in the 
financial statements and consist of taxes currently due plus deferred taxes. 
Deferred tax liabilities are recognized for differences between the basis of 
assets and liabilities for financial statement and income tax purposes. The 
differences relate primarily to depreciable and amortizable assets (use of 
different depreciation and amortization methods and lives for financial 
statement and income tax purposes). In addition, deferred tax assets result 
from the anticipated benefits attributable to the utilization of the 
Company's net operating losses as an offset to Liberty's taxable income on a 
consolidated basis. The net deferred tax benefits represent the tax impact of 
the future resolution of the above described differences. 

   ORGANIZATION COSTS AND OTHER INTANGIBLES: The costs of organizing the 
Company have been capitalized and are being amortized over a five-year 
period. Annual amortization expense charged to operations was $169,105 in 
1994, $170,420 in 1995, $11,821 in 1996, and $12,569 for the nine months 
ended September 30, 1997. 

   USE OF ESTIMATES: The preparation of financial statements in conformity 
with generally accepted accounting principles requires management to make 
estimates and assumptions that could affect the reported amounts of assets 
and liabilities, the disclosure of contingent assets and liabilities, and the 
reported amounts of revenues and expenses. Actual results could differ from 
those estimates. 

   CASH EQUIVALENTS: For purposes of the balance sheets and statements of 
cash flows, cash equivalents include all highly liquid debt instruments with 
original maturities of three months or less. 

                                      F-69
<PAGE>
                               KIN NETWORK, INC. 
                                SALINA, KANSAS 
                 NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 

2. LONG-TERM DEBT 

   Long-term debt consists of the following: 

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,           
                                                            ---------------------------   SEPTEMBER 30, 
                                                                 1995          1996           1997
                                                            ------------- -------------  --------------
<S>                                                         <C>           <C>            <C>
Borrowings under a $37,183,333 note with Rural Telephone 
 Finance Cooperative ("RTFC"). The note bears a variable 
 rate of interest (6.65% as of June 30, 1997) and 
 borrowings under the note are due in equal quarterly 
 installments of principal and interest of approximately
 $1,130,000 beginning November 1993, with the final 
 payment due August 2006. The note is collateralized by 
 network telephone plant and revenues......................  $32,659,604    $30,143,515    $28,118,534 

Capital lease obligations (described in Note 3) with 
 certain stockholders (or their affiliates) of Liberty. 
 The obligations are due in variable annual principal 
 installments, plus interest, with the final installments
 due in the year 2006. The obligations are collateralized 
 by portions of the fiber optic network....................  $ 1,514,651    $ 1,512,181      1,347,891 
                                                            ------------- -------------  --------------- 
                                                              34,174,255     31,655,696     29,466,425 
Less current maturities....................................    2,518,559      2,892,009      2,892,340 
                                                            ------------- -------------  --------------- 
                                                             $31,655,696    $28,763,687     26,574,085 
                                                            ============= =============  =============== 
</TABLE>

   The note payable to the RTFC contains various covenants pertaining to the 
maintenance of net worth, payment of dividends, and debt service coverage. At 
December 31, 1996, the Company was in compliance with such covenants. 

   Estimated maturities on the borrowings with RTFC over the next 5 1/2 years 
beginning July 1, 1997 are as follows: 

<TABLE>
<CAPTION>
<S>                                 <C>
1997...............................  $1,393,177 
1998...............................   2,949,248 
1999...............................   3,188,013 
2000...............................   3,446,034 
2001...............................   3,724,932 
2002...............................   4,026,402 
</TABLE>

                                      F-70
<PAGE>
                                KIN NETWORK, INC.
                                 SALINA, KANSAS
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

    Future minimum payments for property under capital leases at September 
30, 1997, are as follows: 

<TABLE>
<CAPTION>
                   YEAR ENDING DECEMBER 31, 
                   ------------------------ 
<S>                                                            <C>
  1997 .......................................................  $     0.00 
  1998 .......................................................     345,872 
  1999 .......................................................     328,990 
  2000 .......................................................     312,110 
  2001 .......................................................     295,228 
  2002 .......................................................     263,748 
  After 2002 .................................................     867,387 
                                                               ------------ 
  Total minimum lease payments ...............................   2,413,335 
  Less amount representing interest,administration, and 
  overhead ...................................................   1,065,444 
                                                               ------------ 
  Present value of minimum lease payments, excluding 
  interest,  administration and overhead .....................  $1,347,891 
  Less current maturities ....................................     147,393 
                                                               ------------ 
                                                                $1,200,498 
                                                               ============ 
</TABLE>

   RTFC distributes patronage credits to the Company on an annual basis based 
upon annually determined percentages of interest paid by the Company to RTFC. 
The amount of patronage credits was $254,879 in 1994, $325,515 in 1995, 
$305,346 in 1996, and $107,653 in 1997. 

   As a condition to the loan agreement, the Company must purchase 
non-interest bearing subordinated capital certificates from RTFC in an amount 
equal to 10% of each advance under the note. Through December 31, 1995, the 
Company had purchased $3,718,336 of RTFC subordinated capital certificates. 
Beginning in 1996, as principal payments are made on the underlying debt, 
returns of certificate principal amounts are made proportionately in order to 
maintain a certificate principal balance equal to 10% of the outstanding loan 
balances. RTFC has returned certificates to the Company totaling $452,376 and 
$251,609 in 1996 and through September 30, 1997, respectively, leaving 
certificate balances totaling $3,014,351 at September 30, 1997. 

3. INTEREST EXPENSE 

   The Company follows the policy of capitalizing interest as a component of 
property and equipment constructed for its own use. Total interest incurred 
(net of patronage credits) was $1,616,071 in 1994, $2,047,215 in 1995, 
$1,826,148 in 1996, and $1,296,265 at September 30, 1997. No significant 
interest was capitalized in 1994, 1995, or 1996. 

4. LEASING ARRANGEMENTS 

   CAPITAL LEASES: The Company leases fiber optic cable from certain Liberty 
stockholders (or their affiliates) under capital leases expiring in the year 
2006. The assets and obligations under capital leases are recorded at the 
lower of the present value of the minimum lease payments or the fair value of 
the asset. The assets are depreciated over their estimated productive lives. 
Depreciation of assets under capital leases is included in depreciation 
expense and amounted to $100,598 in 1994, 1995, and 1996, and $75,449 for the 
period ended September 30, 1997. Interest expense associated with the 
obligations under these leases amounted to $207,706 in 1994, $132,924 in 
1995, $132,666 in 1996. Fiber optic cable under capital leases was 
$2,091,378, $1,990,780, $1,890,182 and $1,839,883 at December 31, 1994, 1995, 
1996 and September 30, 1997, respectively, net of accumulated depreciation of 
$322,965 at December 31, 1994, $423,563 at December 31, 1995, $524,161 at 
December 31, 1996, and $599,610 for the period ended September 30, 1997. 

                                      F-71
<PAGE>
                                KIN NETWORK, INC.
                                 SALINA, KANSAS
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

    Effective December 31, 1994, the Company re-negotiated the terms of the 
capital lease obligations for nine of the ten obligations. The re-negotiated 
leases call for the deferral of the principal portion of the lease for a two 
year period ending December 31, 1996. At that time the remaining principal 
balances on the re-negotiated leases will be repaid evenly over a nine or 
ten-year period. The interest rate, which was previously set at 12%, was 
re-negotiated for 1995 and 1996 to 8.5% for a majority of the leases and 10% 
on the balance of the leases. In 1997, the interest rates on those leases 
were re-negotiated at rates ranging from 8.5% to 12% for the remainder of the 
lease term. 

5. OPERATING LEASES 

   The Company leases various facilities, circuits and equipment under 
operating leases expiring in various years through the year 2004. Minimum 
future rental commitments under these operating leases as of September 30, 
1997, for each of the next 5 1/2 years and in the aggregate are: 

<TABLE>
<CAPTION>
   YEAR ENDED 
  DECEMBER 31,                     AMOUNT 
  ------------                   --------- 
<S>                             <C>
  1997 .........................  $ 40,808 
  1998 .........................    26,763 
  1999 .........................    22,482 
  2000 .........................    20,510 
  2001 .........................    17,510 
  2002 .........................    24,514 
  After 2002 ...................    95,886 
                                 --------- 
                                  $248,473 
                                 ========= 
</TABLE>

   The Company also leases circuits on a month-to-month basis from various 
interconnect companies. 

   Total rental expense under operating leases, including leased circuits was 
$1,257,260 in 1994, $1,146,694 in 1995, $1,653,971 in 1996, and $1,062,378 at 
September 30, 1997. 

   The Company leases space from Liberty under a year-to-year operating 
lease. Total rent expense paid to Liberty was $43,000 in 1996 and $32,250 for 
the period ended September 30, 1997. 

6. RELATED PARTY TRANSACTIONS 

   The Company is operated under a management agreement by KINI L.C., which 
is related to Liberty through common ownership. Operating and administrative 
expenses incurred by the Company through KINI L.C. amounted to $1,682,730, 
including $127,401 which was capitalized in 1994, $1,924,084, including 
$47,684 which was capitalized, in 1995, and $2,377,223, including $15,329 
which was capitalized, in 1996. Beginning January 1, 1997, the management fee 
paid to KINI L.C. was increased from 12.5% to 15% under a new operating 
agreement. Expenses incurred in 1997 amount to $2,481,315, including $60,352 
which was capitalized. 

   Network revenue includes revenue resulting from services performed for 
Liberty which amounted to approximately $482,000 (14% of total network 
revenue) in 1994, approximately $1,625,000 (25% of total network revenue) in 
1995, approximately $2,810,000 (33% of total network revenue) in 1996, and 
approximately $1,926,000 (28% of total network revenue) in 1997. At September 
30, 1997, trade accounts receivable and accrued revenue includes 
approximately $151,000 due from Liberty. 

   As part of the capital leases for fiber optic cable with certain 
stockholders (or their affiliates), the Company is required to pay fees for 
maintenance. Additional fiber optic maintenance costs were also paid to 
certain stockholders (or their affiliates). Maintenance costs under these 
arrangements were approximately $45,000 in 1994, 1995, 1996 and approximately 
$33,750 at September 30, 1997. 

                                      F-72
<PAGE>
                                KIN NETWORK, INC.
                                 SALINA, KANSAS
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

7. CONTINGENCIES 

   During the course of constructing the statewide fiber-optic network, it 
has been necessary for the Company to obtain rights-of-way from property 
owners. Outside counsel has advised the Company that the form of a number of 
these rights-of-way are defective from a marketable title point of view. 
Outside counsel have advised management that at this point they cannot offer 
an opinion as to any asset impairment or other outcome resulting from this 
situation. In 1992, the Company obtained an indemnification commitment from 
the consultants hired by the Company to obtain the rights-of-way, in the 
amount of $250,000, which expires over 15 years. 

8. INCOME TAXES 

   Deferred income taxes arise principally due to net operating losses net of 
temporary differences in the depreciation of property, plant and equipment. 

   The Company has net operating losses totaling approximately $15,900,000 
expiring in various years through the year 2011, which management believes 
will be utilized in the consolidated tax return to offset future taxable 
income from the operations of the Company and Liberty. 

   A reconciliation of the deferred income tax benefit at the federal 
statutory rate to the deferred income tax benefit at the effective tax rate 
is as follows: 

<TABLE>
<CAPTION>
                                                                                  
                                                                                 NINE MONTHS 
                                                YEAR ENDED DECEMBER 31,             ENDED 
                                         -------------------------------------  SEPTEMBER 30, 
                                             1994          1995        1996         1997
                                         ------------ ------------  ---------- ---------------
<S>                                      <C>          <C>           <C>        <C>
Deferred income tax benefit computed at 
 federal statutory rate of 34%..........  $1,605,741    $1,141,753   $469,012      $164,707 
State taxes, net of federal benefit ....     228,582       162,532     66,765        19,377 
Other...................................       5,480          (736)    51,296         3,016 
                                         ------------ ------------  ---------- --------------- 
                                          $1,839,803    $1,303,549   $587,073      $187,100 
                                         ============ ============  ========== =============== 
</TABLE>

<TABLE>
<CAPTION>
                                                                                                 
                                                            AT DECEMBER 31,                     AT
                                               -----------------------------------------   SEPTEMBER 30, 
                                                    1994          1995          1996           1997
                                               ------------- ------------  ------------- --------------- 
<S>                                            <C>           <C>           <C>           <C>
Total deferred tax assets--net operating 
 losses.......................................  $ 7,119,644    $8,957,575   $ 6,190,810     $ 4,947,538 
Less valuation allowance......................       --            --            --              -- 
                                               ------------- ------------  ------------- --------------- 
                                                  7,119,644     8,957,575     6,190,810       4,947,538 
Total deferred tax liabilities--depreciation .   (2,216,545)    2,750,927    (3,082,543)     (4,922,008) 
                                               ------------- ------------  ------------- --------------- 
Net deferred tax assets.......................  $ 4,903,099    $6,206,648   $ 3,108,267     $    25,530 
                                               ============= ============  ============= =============== 
</TABLE>

   In 1996, Liberty utilized approximately $9,500,000 of the Company's net 
operating loss carryforward to offset Liberty's 1996 taxable income. As a 
result, Liberty agreed to pay the Company approximately $3,700,000 for the 
use of the Company's net operating loss, of which $2,500,000 was paid in 
1996. Accounts receivable from Liberty as of December 31, 1996 consists of 
the remaining amounts due to the Company for the use of net operating losses. 

                                      F-73
<PAGE>
                                KIN NETWORK, INC.
                                 SALINA, KANSAS
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

9. CREDIT RISK 

   The Company grants credit to customers, primarily local telephone 
companies and local businesses. 

   The Company has a demand deposit and a repurchase agreement account with a 
financial institution. The balance at the financial institution exceeded the 
federal insurance limitation of $100,000 at December 31, 1994, 1995, 1996 and 
September 30, 1997. However, the financial institution has pledged assets to 
secure the repurchase agreement in excess of the federal insurance 
limitation. 

10. DEFERRED COMPENSATION PLAN 

   The Company, along with Liberty Cellular, Inc. and KINI, L.C., established 
in 1994, a deferred compensation plan for their employees. The plan provides 
that the employees will receive additional compensation based upon certain 
key operating results of the companies. The total expense under the plan was 
$479,198, $1,063,895, and $1,190,761 for the years ended December 31, 1994, 
1995, and 1996, respectively. Of the total liability under the plan of 
$2,164,646, $387,141 was paid in 1997 and the remaining balance of $1,777,505 
deferred to future years. Liberty Cellular, Inc. has assumed all of the 
liability and expense under the plan, with the Company contingently liable as 
co-signer. 

                                      F-74
<PAGE>
INSIDE BACK COVER GRAPHIC: 

[Graphic depicting ACG CLEC configuration strategy along with explanation of 
strategy as detailed below. Strategy consists of five phases, described as 
"Build Smart".] 

<TABLE>
<CAPTION>
<S>                      <C>                      <C>                     <C>                    <C>
- -----------------------------------------------------------------------------------------------------------------------
Phase 1                  Phase 2                  Phase 3                 Phase 4                Phase 5 
- -----------------------  ------------------------ ----------------------  ---------------------- ---------------------- 
Resell LEC local         Use Intercity networks   Add local service       Collocate in           Construct local and 
service bundled with     to aggregate traffic at  circuit and packet      appropriate LEC        mid-haul fiber 
L/D, cellular, yellow    key switching points     switches to key switch  central offices to     facilities where 
pages, Internet access                            points; use ATM         acquire access to      economics warrant 
and other premium                                 backbone to reduce      unbundled local loops 
services                                          switching costs 
- -----------------------  ------------------------ ----------------------  ---------------------- ---------------------- 
</TABLE>

<PAGE>
ACG FIVE PHASE "BUILD SMART" STRATEGY

PHASE 1
Resell LEC local service with bundled ACG product offering

PHASE II
Use intercity networks to aggregate traffic at key switching points

PHASE III
Augment intercity network with remote switches and ATM backbone

PHASE IV
Collocate in LEC central offices to acquire access to unbundled local loops

PHASE V
Construct local and mid-haul fiber facilities where economics warrant

ACG Customer/End-user -- Leased Fiber = Leased or Owned Fiber -- ACG-Owned Fiber

CO Central Office   LEC Local Exchange Carrier

<PAGE>

################################################################################

   NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY 
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED 
IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND 
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE 
COMPANY OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY 
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION 
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE 
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME 
SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL 
OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED 
SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER 
TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY 
CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. 

                            -----------------------

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                             PAGE 
                                           -------- 
<S>                                        <C>
Prospectus Summary........................      3 
Risk Factors..............................     11 
The Company...............................     25 
Dividend Policy...........................     30 
Use of Proceeds...........................     30 
Capitalization............................     31 
Dilution..................................     32 
Selected Financial Data...................     33 
Management's Discussion and Analysis 
 of Financial Condition and Results of 
 Operations of Certain Acquired Companies      35 
Industry Background and Overview..........     52 
Business..................................     54 
Management................................     70 
Certain Transactions......................     78 
Principal Stockholders....................     82 
Description of Capital Stock..............     84 
Shares Eligible for Future Sale...........     87 
Underwriting..............................     88 
Validity of Common Stock..................     90 
Experts...................................     90 
Available Information.....................     90 
Glossary..................................    G-1 
Index to Financial Statements.............    F-1 
</TABLE>

                            ------------------------

   UNTIL MARCH 9, 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED 
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE 
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF 
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT 
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. 

################################################################################

################################################################################

                                8,000,000 SHARES


                                GRAPHIC OMITTED
                                  IGT: "ACG1"


                                  COMMON STOCK


                               -----------------
                 
                                   PROSPECTUS

                               -----------------

                           PAINEWEBBER INCORPORATED 

                               CIBC OPPENHEIMER 


                               -----------------

                               FEBRUARY 12, 1998



                               



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